In recent years, there has been significant optimism that blockchains and digital assets will gain mainstream adoption. However, this hope has been littered by major bouts of speculation and concern.
Analytics and monitoring could be the missing piece in the puzzle that is finding mass adoption for blockchain and digital assets.
The rise and near-fall of digital assets
The year 2017 was a defining one for blockchain technology and digital assets. It ended with multiple digital assets reaching their highest values since the blockchain technology was conceived.
One of the leading digital assets at the time– still a leading one today, got a lot of attention when its valuation skyrocketed to well over US$19,000 towards the end of the year. Other digital assets increased in value as well during this period, but most of this was attributed to significant demand and the mass buying that subsequently took place.
Such speculation prompted investors and even regular users rushing to invest in digital assets. It also pushed developers into building their own digital assets and blockchain networks in the hopes of cashing in on the hype.
There was a great deal of hype, indeed, but not as much education on the fundamentals of digital assets and blockchain.
Not long after this blockchain boom, values fell significantly. The leading digital asset dropped by at least 60 per cent in only a span of three months. Its price further dropping to around 20 per cent of its peak valuea year after its highest recorded price.
Also Read: Fluctuating fortunes: The changing fate of digital assets
Scores of investors lost money, and distrust intensified again. Regulators and mainstream businesses are now still reluctant to fully embrace digital assets because of their volatility.
Massive market manipulation revealed
According to data from a forensic study, it appears that massive manipulation took place during these trades.
The study revealed that a leading stablecoin — a digital asset whose price is pegged to underlying fiat money or physical asset — was being traded for a particular digital asset, and it happened at the same time of the increase in the value of multiple digital assets.
It was then revealed that one of these digital currency exchanges was home to an account that was hoarding a large amount of the same leading digital asset that peaked in December 2017.
The account owner still remains anonymous, and that entity appears to have created the impression of high demand for this digital asset, thus causing prices to surge and encouraging investors to buy in a rush.
One of the reasons this surge went uncontested at the time was because of a lack of knowledge on the investors’ part. Many people who went to buy digital assets did so based on the US$19,000 plus price, but barely anyone did enough due diligence to evaluate trends. This was a rush buy, and many people felt the burn when the bear season soon followed.
This anonymous account and other involved parties took advantage of the limited regulatory frameworks and knowledge on trading, and they manipulated the trends to work in their favour.
As a result of this move, along with additional speculations on the digital asset industry, mainstream players are still reluctant to make significant investments.
“One of the SEC’s top worries is that (digital assets) are subject to manipulation. This study appears to lend credibility to that argument,” Cowen analyst Jaret Seiberg said in an interview with CNBC.
Speculation on blockchain and digital assets is at a high at the moment, with global leaders such as the G7 feeling that the latest blockchain-based development — stablecoins — could pose a global risk due to the lack of a stable regulatory framework.
“What we need to see is that this phenomenon is alleviating. The number of digital asset addresses is increasing, and the number of people holding and recognizing digital assets is also increasing.
Also Read: The crypto continent: how Asia is leading the way in digital asset innovation
This is a gradually mature process. We must acknowledge that it is not good enough, but we should also be aware that the industry is growing and maturing,” says Wayne Zhao, a partner at TokenInsight.
While these concerns are valid, it must be stressed that the actions of the bad eggs in the blockchain industry are not the defining factor of the majority. The results of the forensic study, as well as media publications, on the state of digital assets, should be taken with a pinch of salt, as well.
“The largest per cent of the information available is usually faulty and misleading,” says Anatoly Ressin, Co-Founder and Chief Blockchain Architect at PARSIQ, a blockchain analytics platform with an ultimate goal to push forward the mass adoption of blockchain technology by helping digital asset businesses keep up with regulatory compliance.
“One has to either rely on the fundamental data or internal/inside data. Blockchain is transparent, but the data amount is massive, it is not structured and even some of it is hidden. Internal data is slightly more complicated to acquire, but definitely traceable,” he adds.
Maksim Balashevich, Founder at Santiment, weighed in on the manipulation saga with a few sobering remarks:
“These latest claims put forward by [the study] are still far from a provable fact at this point. The study’s results and its methodology have been met with, shall we say, healthy scepticism by [industry] pundits,” he says. “But regardless of the study’s merits, it’s no secret that the industry is still rife with manipulation, like any nascent market. If we really want to attract institutional money to the industry, we have to be proactive about the market’s lack of transparency and informational asymmetry.”
Analytics and AI can transform
“The core role of analysis and research institutions in the market is to provide more effective information to help solve market information asymmetry. By analyzing and researching the work of an organization, it can help the market identify risks, discover value, and spread value,” says TokenInsight’s Zhao.
“This is especially important for market participants, which can significantly reduce the cost of obtaining valid and real information, helping market participants build trust and increase industry transparency.”
Parsiq’s Ressin is optimistic and confident that auditing, real-time notifications, and other key updates provided by analytical companies can serve as a means of building trust and transparency:
“Any blockchain network is filled with fundamental data that can be of a large use for algorithmic or discretionary trading. When there are so much data and activities in any huge blockchain network happening all the time — it is not only a matter of structuring and reinterpretation of the data but also provides it as soon as possible on a constant basis without interruptions,” he concludes.
Blockchain and digital assets are still a relatively new development in mainstream spaces, hence the lack of sufficient knowledge as well as the potential for heightened panic and speculation. But it must be remembered that there are parties within the blockchain industry that are working tirelessly to ensure that transparency, trust, and security are a reality for companies, investors, and traders alike.
While the blockchain and digital asset industry has been hit by murky dealings and scandals, these obstacles have not stopped innovation and development from taking place. Companies such as Santiment, PARSIQ, and others that engage in analytics, forensics, and intelligence, are working tirelessly to change the present narrative on digital assets.
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