Last year, cryptocurrency investors could seemingly do no wrong. If you threw a dart at any random smattering of the 50-largest cryptocurrencies by market cap, and you happened to hang onto those digital tokens for the full year, you would almost certainly have netted an incredible return. As a whole, the virtual currency market cap grew by more than 3,300% in 2017, ending the year at $613 billion.
Though that strength continued through the first week of 2018, the wheels have since fallen off the wagon. Since hitting an intraday market cap high of $835 billion, the combined value of the roughly 1,600 investable cryptocurrencies has plunged to as low as $232 billion. That's a decline of 72%, which is nearing the 78% peak-to-trough decline the Nasdaq Composite endured in the early 2000s.
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The two cryptocurrencies that've bucked this year's massive downtrend
Given the magnitude of this weakness, it should come as no surprise that practically all cryptocurrencies have taken it on the chin in 2018. The big three in market cap -- bitcoin, Ethereum, and Ripple -- are down a respective 55%, 40%, and 80%, through June 30, and many of the largest cryptocurrencies (those with a market cap of $1 billion or higher) have followed. Without a well-defined purpose, cryptocurrencies of all sizes have struggled to differentiate themselves from the pack.
However, two virtual tokens have managed to buck what's been a mammoth downtrend. Among the 18 digital coins with a market cap in excess of $1 billion as of June 30, 2018, two have increased in value from where they closed on Dec. 31, 2017, according to CoinMarketCap.com.
Binance Coin: up 70%
Ask anyone even remotely knowledgeable about cryptocurrencies to name what they believe the top-performing coin of the year is, and Binance Coin, the official token of the Binance cryptocurrency exchange, isn't likely to be selected. Despite flying under the radar, Binance Coin has gained 70% since the year began.
What gives? My suspicion is that there are two primary catalysts behind Binance Coin's stellar performance.
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First, it's one of the very few coins with a purpose -- even if that purpose is narrowly confined to the Binance exchange. Binance coerces its members to use the Binance Coin, also known as BNB, to pay their transaction fees, instead of bitcoin. Users who utilize the BNB coin receive discounts on their transaction fees over their first four years as follows:
- 1st year: 50% discount
- 2nd year: 25% discount
- 3rd year: 12.5% discount
- 4th year: 6.75% discount
- 5th and subsequent years: no discount
As you can see, by dangling a carrot (in this instance, a discount), the Binance exchange has created demand for its BNB coin, which has likely resulted in a good portion of its year-to-date strength. Understandably, price weakness in the cryptocurrency market could still hit the Binance exchange, and BNB, if trading volume begins to dry up. However, that doesn't appear to have happened thus far.
The second catalyst looks to be Binance Coin's aggressive coin burn campaign. Coin burn refers to the process by which cryptocurrency miners or developers send tokens to a specified address that has private keys that are unobtainable. In plainer English, it's a means of sending tokens off to an address that can't be accessed, thusly removing them from circulation. It's similar to a publicly traded company repurchasing shares of their common stock in order to reduce their outstanding share count and increase the perceived value of their stock's share price.
Overall, Binance Coin is looking to burn 100 million of its peak circulating supply of 200 million tokens over time. The thinking by investors is that each remaining token will therefore be scarcer, and thusly worth more.
While it's unclear if Binance Coin can keep up its incredible run, it's hands-down the highlight of 2018 in an otherwise dismal year for cryptocurrencies.
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VeChain: up 15%
The only other large virtual token to have advanced in 2018 is little-known VeChain, which is up by 15% year to date.
Unlike Binance Coin, where we're somewhat left to guess why it's been advancing, VeChain's catalysts are considerably more apparent.
To begin with, it's been riding high since announcing a partnership with global assurance service DNV GL. It's DNV GL's job to provide certification and advisory services to the shipping and energy industries. In partnering with VeChain, DNV GL may be able to utilize blockchain to discover supply chain inefficiencies, as well as quickly examine quality control specifications for certification purposes using embedded Internet of Things technology in cooperation with VeChain's blockchain.
VeChain also received quite the boost after it and BMW (BMWYY +0.00%) announced something of a working agreement, which was initially perceived as a partnership. According to a BMW USA tweet from March 20:
Sorry for any confusion. VeChain is participating in the BMW Startup Garage programme. As a Venture Client, the BMW Group becomes a customer of the start-up at a time when the product, technology or service is not yet ready for the market.
— BMW USA (@BMWUSA) March 20, 2018
In other words, it's not pedal to the metal as of yet, but VeChain has an opportunity to, down the road, build a relationship with BMW that could include utilizing its blockchain technology. Such inclusion may encompass supply chain and quality-control monitoring, as well as user ID authentication for gaining access to an automobile.
Interestingly, VeChain was also the very first digital currency to pass the Cryptocurrency Disaster Recovery Plan (CDRP). Think of the CDRP as a stress test for virtual currencies, with potential threats, based on their severity and likelihood, being analyzed. By passing the CDRP earlier this year, VeChain demonstrated that it has adequate protocols in place to protect the assets of its token holders.
And finally, VeChain announced that it launched its live blockchain software on June 30. The blockchain actually utilizes a twin token system in which, as described by CoinDesk, "its VET asset functions as a store of value, and the VeThor token represents the underlying cost of using the blockchain." By setting itself up this way, VeChain's developers believe it could overcome the higher-cost obstacle often associated with more complex blockchain features like smart contracts, but also set itself up as an easy-to-use platform for enterprise customers.
Though only time will tell if VeChain is welcomed by the corporate world with open arms, its partnerships and participating projects certainly have the attention of cryptocurrency investors.
