The years 2017 and 2018 represent one of the most dramatic periods in cryptocurrency history. It was a time of unprecedented growth, innovation, and speculation, followed by a severe market correction that reshaped the entire industry. This era defined the volatile nature of the crypto market and laid the groundwork for its future evolution.
The Meteoric Rise of 2017
The cryptocurrency market experienced explosive growth throughout 2017. The total market capitalization skyrocketed from $18 billion to a peak of $644 billion, representing a staggering 35-fold increase. This period was characterized by massive public interest, the emergence of new projects, and significant technological developments.
Key Developments of Early 2017
The year began with increasing global adoption of Bitcoin. Hundreds of online merchants began accepting Bitcoin as a payment method, with Japan leading this movement. The growing adoption and renewed interest from trading platforms drove mining fees to record highs.
Privacy-focused cryptocurrencies also gained significant traction. Monero made substantial progress by implementing algorithm improvements that enabled hidden transaction amounts, making it one of the preferred choices for anonymous asset transfers.
Institutional Interest and Major Partnerships
March 2017 marked a significant milestone with the formation of the Enterprise Ethereum Alliance (EEA). This non-profit organization brought together large corporations, accounting firms, banks, research institutions, and tech companies with blockchain startups. By May 2017, the EEA had grown to include 116 enterprise members.
Government attitudes toward cryptocurrency also evolved during this period. Japan passed legislation officially recognizing Bitcoin as a payment method, while Russia announced plans to establish a legal framework for digital currency transactions.
The banking sector began embracing blockchain technology as well. Major financial institutions like Spain's BBVA bank joined the Ripple network to address issues of speed, scalability, and cost in global transactions. This institutional interest triggered massive buying of Ripple tokens, whose price increased tenfold in less than a month, briefly making it the second-largest cryptocurrency by market capitalization.
The ICO Boom and Regulatory Responses
The Initial Coin Offering (ICO) phenomenon became a defining feature of 2017. The Stellar Network launched its commercial arm, Lightyear.io, in May, and the price of Stellar Lumens increased twentyfold in less than a month.
The ICO market exploded in November, with more than 50 companies launching token sales each month, most reaching their funding targets. By the end of 2017, ICO fundraising was nearly 40 times greater than in 2016, though it still represented less than 2% of traditional IPO fundraising.
However, regulatory concerns began emerging. The U.S. Securities and Exchange Commission (SEC) issued a report in July stating that DAO tokens sold on the Ethereum blockchain constituted securities, potentially violating U.S. securities laws.
China took more decisive action on September 4, 2017, when the People's Bank of China and seven other ministries jointly issued a公告 prohibiting token fundraising activities. This event, known as "94" in the Chinese crypto community, significantly impacted trading activities and marked a turning point in regulatory approaches to cryptocurrencies.
Technological Developments and Challenges
The Bitcoin community's long-standing debate about scaling solutions reached a dramatic conclusion in July 2017. Dissatisfied with the proposed SegWit improvement, a group of Bitcoin activists, investors, entrepreneurs, developers, and miners primarily based in China initiated a hard fork that increased the block size limit to 8MB, creating Bitcoin Cash (BCH).
Ethereum also implemented significant upgrades with the Byzantium hard fork in October, which reduced Ethereum Virtual Machine (EVM) complexity, made smart contract development easier, and added support for ZCash zk-snarks.
Security challenges emerged as cryptocurrency values increased. The WannaCry ransomware attack gained notoriety when perpetrators converted their funds to Monero, highlighting the appeal of privacy-focused cryptocurrencies for illicit activities.
A more subtle threat emerged toward the end of 2017 with Coinhive, a mining script that allowed websites to monetize through users' CPU power instead of advertisements. While initially presented as an alternative revenue model, hackers began deploying Coinhive without user consent, leading to its widespread blocking by service providers and antivirus companies.
As cryptocurrency prices soared, exchanges became increasingly attractive targets for hackers. In December 2017, NiceHash suffered a theft of 4,700 Bitcoin (approximately $80 million at the time), while South Korean exchange Youbit filed for bankruptcy after being hacked.
The Great Correction of 2018
The cryptocurrency market opened 2018 by reaching unprecedented heights, with total market capitalization peaking at $835 billion on January 7. However, this peak was short-lived, as the market lost nearly 50% of its value within just 10 days. By February 7, the market capitalization had shrunk by 70% to $276 billion, marking the bursting of the crypto asset bubble.
The ICO Market Evolution
Surprisingly, the declining prices and shifting market sentiment didn't immediately impact the ICO market. The average size of ICOs continued growing from $16 million in late 2017 to $39 million in the second quarter of 2018, driven largely by massive fundraising efforts from Telegram ($1.7 billion) and EOS ($4.2 billion).
A positive development in 2018 was the emergence of new legal structures that allowed accredited investors to purchase combinations of stocks and tokens, bringing ICOs into a more regulated space. The use of Simple Agreements for Future Tokens (SAFTs) combined traditional legal structures with some features of crypto ICOs, increasing compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements.
Bitcoin's Price Decline and Regulatory Pressures
As the leader of the crypto asset bubble, Bitcoin reached its all-time high in December 2017 before experiencing a significant correction. By the end of 2018, the Bitcoin price index had bottomed at around $3,200.
Exchange hacks continued to plague the industry and affect prices. Major thefts included Coincheck (January 2018), Bithumb and Coinrail (June 2018), and Bancor (July 2018), with stolen assets totaling approximately $760 million. While many of these thefts targeted altcoins, Bitcoin's price still suffered as retail investors grew fearful of using exchanges, and hackers cashed out their stolen crypto assets.
Regulatory pressures intensified significantly throughout 2018. China completely banned RMB participation in cryptocurrency trading in February, reducing the Chinese yuan's share of Bitcoin trading from approximately 90% to just 1%.
Major technology companies also restricted crypto-related activities. Facebook announced in February that it would ban all cryptocurrency-related advertisements to reduce scam proliferation, a move that affected hundreds of legitimate blockchain businesses. Other tech giants including Google, Bing, and LinkedIn followed suit, as did major U.S. banks like JPMorgan, Citigroup, Bank of America, and Capital One, which stopped allowing customers to purchase cryptocurrencies.
Technological Advances Amid Market Decline
Despite the negative price action, blockchain technology continued to develop throughout 2018. The Lightning Network, inspired by a 2016 white paper by Joseph Poon and Thaddeus Dryja, launched in January 2018. This second-layer solution enables off-chain transactions through payment channels between users, significantly improving network speed and scalability by not requiring every transaction to be validated and stored by every node on the Bitcoin network.
After initial vulnerabilities were addressed (including a DDoS attack in March that temporarily reduced nodes from 1,050 to 870), the Lightning Network's capacity grew steadily throughout 2018, with payment channels experiencing explosive growth in November.
Exchange正规化 and Compliance
The ongoing hacker attacks and increasing government scrutiny triggered a race among cryptocurrency exchanges to become compliant. Two prominent participants in this race were Coinbase and Binance.
Coinbase, established several years earlier with strong Silicon Valley backing, began directly participating in blockchain development projects in 2018. The exchange took significant steps to ensure regulatory compliance, including providing customer details to the IRS upon request.
Binance, founded in July 2017 by Changpeng Zhao ("CZ"), initially established itself in China before moving to Japan after China's regulatory crackdown. When Japan announced stricter crypto regulations, Binance relocated its headquarters to crypto-friendly Malta, where it received a welcome from the country's prime minister.
The Tether Controversy
Tether (USDT) played an increasingly prominent role throughout 2018. While it accounted for approximately 10% of Bitcoin trading volume at the beginning of the year, by summer it represented about 80% of Bitcoin trading volume.
In August 2018, Tether set a new issuance record, creating over $515 million USDT that was transferred to Bitfinex before distribution to other major exchanges. On October 15, Tether's price depegged from its 1:1 dollar peg, dropping to $0.88 amid credit risk concerns after Bitfinex traders exchanged USDT for Bitcoin, pushing Bitcoin's price higher.
Throughout these events, Tether Limited, the company behind USDT, maintained that each token was backed by one dollar in reserves, though it never provided conclusive proof. This lack of transparency led many in the cryptocurrency community to view Tether as a potential time bomb that could eventually explode and affect the entire crypto market.
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Frequently Asked Questions
What caused the cryptocurrency boom in 2017?
The 2017 crypto boom was driven by several factors including increased public awareness, the emergence of ICOs as a new fundraising mechanism, growing institutional interest, and technological developments that suggested blockchain could revolutionize various industries. The dramatic price increases also attracted speculative investors looking for quick profits.
Why did the market crash in 2018?
The 2018 crash resulted from a combination of factors including regulatory crackdowns (particularly in China), increased scrutiny of ICOs, ongoing security issues with exchanges, profit-taking by early investors, and the natural correction after an unsustainable price bubble. The market also faced challenges from major tech companies restricting crypto-related advertising.
What was the significance of Bitcoin Cash?
Bitcoin Cash was created through a hard fork from Bitcoin in August 2017, primarily to address scaling concerns by increasing block size. It represented a philosophical divide within the Bitcoin community about whether cryptocurrency should function primarily as digital gold (store of value) or as digital cash (medium of exchange).
How did regulations affect the cryptocurrency market?
Regulatory developments significantly impacted the market throughout both years. China's bans on ICOs and RMB trading removed a major source of demand, while SEC guidance on ICOs as securities changed how projects approached fundraising. These regulations created short-term negative pressure but ultimately helped legitimize the industry by establishing clearer frameworks.
What was the Lightning Network and why was it important?
The Lightning Network is a second-layer solution for Bitcoin that enables faster and cheaper transactions by processing them off-chain while periodically settling on the main blockchain. It addressed Bitcoin's scalability limitations without requiring changes to the core protocol, potentially enabling Bitcoin to function better as a medium of exchange.
Are there lessons from 2017-2018 for current crypto investors?
The period offers several important lessons: markets can remain irrational longer than expected but eventually correct, regulatory developments can significantly impact prices, security should be a paramount concern, and technological fundamentals ultimately matter more than short-term hype. These lessons remain relevant for navigating today's cryptocurrency markets.
Conclusion
The 2017-2018 period represents a formative chapter in cryptocurrency history that demonstrated both the incredible potential and substantial risks of this emerging asset class. The dramatic price movements, technological innovations, regulatory responses, and market dynamics during these years established patterns that continue to influence the crypto space today.
While the extreme volatility challenged investors and projects alike, it also forced the industry to mature, addressing issues of security, compliance, and scalability. The lessons learned during this tumultuous period continue to inform how participants navigate the complex world of digital assets, reminding us that technological progress often comes with significant growing pains.