text: For crypto markets, the second quarter of this year has been the best three-month sequence since the bear turn of early 2018 put a brutal end to the dreams that the explosive growth of coin prices was to go on forever. Market capitalization ballooned from $144 billion on the last day of March to $339 billion on the last day of June, while bitcoin (BTC) caught both cryptocurrency aficionados and skeptics off guard by pulling off a spectacular rally from just over $3,000 to $11,000.
  
  Although prices are the most visible and convincing indicator of the markets’ health, they do not necessarily correspond with the deeper currents that define the state of the industry at large. This time, however, there are multiple signs that the recent upward trend is not just a product of hype, speculation or whale activity. Disparate metrics, ranging from network activity to the rates of institutional adoption, suggest that the blockchain sector is steadily on its way to recovery. But how did Q2 stack up against preceding periods in terms of these and other dynamics, and what are the crucial macro trends?
  
  Markets
  
  According to a report produced by PwC and the Swiss Crypto Valley Association, the aggregate value of digital assetsd reached its 21-month low in February 2019, before starting a low-angle — yet steady — upward movement in March. As the first quarter of the year concluded, the movement grew steeper, inspired by bitcoin’s rapid advance. The original digital asset continued to lead the charge throughout the whole of Q2, raising bitcoin’s dominance and recording a 30% growth in June alone. The authors of the report attribute these dynamics to the clarification of crypto-related regulation and institutional investors’ revitalized interest in digital assets. Other experts largely concur with this explanation — noting, however, that not all digital assets enjoyed the same regulatory benefits. Ryan Alfred, president of Digital Assets Data, told Cointelegraph:
  
  “The only asset with sufficient liquidity for institutions today is bitcoin. The Digital Assets Data platform shows us that bitcoin’s dominance climbed from 50% at the beginning of the Q2 to more than 60% at the end of the quarter. This asset is pulling the market higher on the strength of its brand and growing worldwide acceptance as an alternative to gold and fiat currencies. Part of this relative outperformance was caused by the lack of regulatory clarity for altcoins in the US, with several of the largest exchanges delisting assets or turning off trading in the US.”
  
  According to Aditya Das, the in-house market analyst for blockchain and crypto asset market data company Brave New Coin, the shifts in the structure of crypto trading could also be responsible for both the general upward trend and bitcoin’s robust performance:
  
  "The crypto trading ecosystem enjoyed an excellent Q2 2019 led by market benchmark, bitcoin. BTC prices have more than doubled since the beginning of April, and over the quarter bitcoin’s dominance of the overall crypto asset market cap has grown from ~45% to ~62% — an 18-month high. One factor behind BTC’s growing dominance is the emerging popularity of leveraged bitcoin trading as an alternative to altcoin investment. BTC Margin trading can generate similar high yields but with better liquidity and more robust fundamental/price data allowing for more straightforward decision making and fund management when trading.”
  
  Dave Hodgson, the director and co-founder of Nem Ventures, the venture capital and investments arm of the Nem blockchain ecosystem, added that part of the reason for the growth of crypto markets lies in the weakness of the traditional financial markets:
  
  “This is all happening against the backdrop of traditional equity, bond, and commodity markets which are generally becoming unattractive, and a financial system in which we are seeing negative interest rates. When you consider there is further talk of quantitative easing and multiple political decisions by national governments that appear to be against their national interests and for the benefit of small sections of society. I believe that within this context, these trends are likely to increase and propel us further toward global, cross-border systems that work for the general population, rather than solely for national interests, such as blockchain/DLT and cryptocurrency.”
  
  It would be an overstatement to suggest that bitcoin was the only major winner in the Q2 wave of market expansion. For one, Das from Brave New Coin pointed to the success of several middleware protocols:
  
  “Beyond Bitcoin, Chainlink, a blockchain platform that aims to connect smart contracts to external data sources, has become the first middleware protocol to achieve a billion-dollar valuation. Other visible middleware protocols generating buzz in the space include Kyber Network and Aragon."
  
  Institutional adoption
  
  Unsurprisingly, Libra, a prospective cryptocurrency that social media giant Facebook announced toward the end of the quarter, has been the talk of the crypto town ever since, especially in discussions of both mass and institutional adoption. The majority of analysts tend to view the development in the context of increasing global awareness of blockchain technology, which should benefit public and private blockchain systems alike. In an interview with Cointelegraph, Michael Ou, the CEO of blockchain security company CoolBitX, observed:
  
  “Q2 has seen truly remarkable developments in the blockchain space, indicating a clearer path to wider global impact. International market movements continue to show the strength of the digital assets space, as the harsh ‘Crypto Winter’ which characterised Q1, thaws and the market makes a significant comeback. The recent announcement of Facebook’s Libra launch rivals JP Morgan’s announcement of JPM Coin from earlier this year in terms of industry impact — belying a renewed enthusiasm for blockchain adoption globally and consumer and corporate interest in the benefits that emerging technologies can accrue.”
  
  Lilin Sun, co-founder of PlatON — a computing architecture for open data sharing — echoed Ou in bringing up Libra’s relationship with JPM Coin and its general impact on adoption and regulation:
  
  “Q2 witnessed the launch of Facebook’s Libra heralding a new era for the blockchain and cryptocurrency space. It will surely collaborate well with JPM Coin and other stable coins with its consensus, nodes, business model, and focus on regulatory compliance. Entering into Q3, we can expect Libra to keep itself hot and alive as a topic of interest in global governmental, financial, and blockchain circles. [...] If successful in overcoming privacy concerns, Libra may be best-positioned to lead the revolutionary change of global financial infrastructure and blockchain development.”
  
  Over on the financial markets, some of the second-quarter developments appear to mark impressive advances. According to 2Q19 CME Bitcoin Futures Analysis, the combined value of CME and CBOE-traded regulated bitcoin futures increased more than 270% compared with Q1 of the year. This could be considered a sign of growing institutional interest in bitcoin-based financial instruments. However, the overall pool of traders is shrinking and remains quite concentrated. Thus, the dynamics on the BTC futures front cannot provide conclusive evidence of the general uptick.
  
  The venture capital-related metrics also look respectable but fail to surpass the rates of the record-breaking year of 2018. As stated in the recent report by Outlier Ventures, the first half of 2019 saw blockchain-related startups raise $822 million in 279 deals. Analysts in the space also observe a dramatic rise of a new funding model in the first half of 2019: initial exchange offerings (IEOs). An enhanced version of an initial coin offering (ICO), an IEO entails conducting a token sale on a reputable platform (e.g., Binance), which puts its reputation on the line. As a result, exchanges have to carefully vet every project before making its token available to investors.
  
  Mass adoption
  
  One of the basic indicators of popular interest in digital assets is the Google Trends interest index associated with relevant search terms. In the case of bitcoin, the global values predictably follow market prices, going from a score of 27 in the last week of Q1 to 100 (peak interest) in the last week of Q2. When it comes to searching for the term “blockchain,” however, the increase wasn’t nearly as dramatic: from 6 to 7 index points between the two quarters.
  
  At the end of June, the leading United States digital currency exchange, Coinbase, published a report that recognized a considerable growth in cryptocurrency adoption and awareness. One of its key findings is that 58% of Americans reported having heard of Bitcoin, while 37% could proactively name it when asked to name any cryptocurrency. The growing awareness of digital assets and blockchain seems to be triggered not just by speculation and hype around surging prices: A huge part of it has to do with implementation of real-life solutions, Corentin Denoeud, CEO and co-founder of Blockchain Studio, a platform for the creation of decentralized applications, said:
  
  “Following the monumental crash of 2018, we have witnessed a significant shift in the conversations surrounding blockchain and cryptocurrencies. As we enter the latter half of 2019, the move from a more theoretical, research-based ecosystem to one where projects are actually being built is tangible. Already this year in Europe we have witnessed an abundance of projects go live including French startup Equisafe, who launched the first ever European Blockchain Real Estate Sale, luxury brand Vacherin Constantin launched its first decentralised application to certify watches, and the largest French utility company EDF and Engie, originally competitors, launched a consortium (Archipel) with French Post and a French state institution (Caisse des depots) to certify documents to improve KYC for banks. This represents significant positive progression in our move towards mainstream adoption of blockchain.”
  
  Blockchain network indicators
  
  Throughout the second quarter of 2019, analysts have registered significant improvements on several dimensions of blockchain networks’ operation and usage, such as the amount of computational power applied to mining, number of transactions and active wallets. For one, between the last week of Q1 and last week of Q2, the hash rate of the Bitcoin network expanded from about 44 to 62 terahashes per second (TH/s). Digital Assets Data President Ryan Alfred also mentioned that another indicator of network activity is on a sharp rise, saying, “Active addresses also continue to climb from lows in the 600k range in January, to cresting 1 million several times in Q2, near previous cycle highs." Additionally, against the backdrop of rising crypto prices, some mining companies reported surging profits. Chjango Unchained, the director of community at Cosmos, said:
  
  “The continued, steady growth of Bitcoin’s hashrate is a good indication of the condition of the network. [...] Across the board, numbers of transactions are up for all the major cryptocurrencies. ETH, XRP, and USDT increased in usage, with all having higher numbers of transactions in Q2, when compared to Q1. ETH and XRP are particularly noteworthy examples as those platforms actually handled a higher overall number of transactions than even Bitcoin (as per CoinMetrics).”
  
  Regulation and government adoption
  
  In terms of regulation, as it happens, Q2 has been full of a tug-of-war situation between the industry and policymakers globally. The developments in this domain were not all roses, but roses have been sporadically present as well. For example, many members of the U.S. Congress got spooked by the grandeur of Facebook’s crypto project and requested that the company halt Libra’s further development. At the same time, Bank of England Governor Mark Carney sounded more supportive of the prospective system.
  
  While the U.S. Congress has yet to release the data on lobbying activity in Q2, the steady expansion of both the number of blockchain lobbyists and the amount of money spent on their efforts in the previous periods justifies the expectation that this trend is continuing. CoolBitX’s Ou observed that realignment of regulatory frameworks is a necessary component of the blockchain sector’s maturation:
  
  “Additionally, regulations are likely to play an increasingly fundamental and necessary role in promoting blockchain’s continued maturation, both as an industry and technology. The Financial Action Task Force’s (FATF) recent recommendations on tackling issues of KYC/AML within the cryptocurrency space is, of course, a major step forward. The first truly international attempt at providing regulatory clarity to the industry, it provides substantial evidence that global governments are recognising digital assets as well as the potential of this rapidly growing industry.”
  
  Beyond just regulating blockchain technology, governments increasingly implement the solutions that it powers. Pradeep Goel, CEO of global health care platform Solve.Care, commented:
  
  “One of the most significant trends we’re experiencing is the rise in the institutional and government adoption of blockchain in all spheres. In the US, the Federal Drug Administration joined forces with some of the biggest names in blockchain and in the retail sphere to participate in a drug tracing initiative, with the goal of creating an electronic and interoperable system. This indicates that governments are starting to see the possibilities of blockchain technology and that private companies can offer expertise in implementing solutions. Big strides are also being made in the healthcare industry, where the patient is being placed at the center of the healthcare ecosystem.”
  
  The need for data security
  
  One more trend directly related to the blockchain industry that the experts surveyed by Cointelegraph mentioned repeatedly is the growing demand for data security. Yuval Hertzog, co-founder of blockchain privacy firm Tide Foundation, stated:
  
  “The value of personal data continues to skyrocket, as does its theft. Q1 saw a record 1900 reported data breaches with settlements and fines from previous years exceeding hundreds of millions of dollars. Q2 is already on track to exceed Q1 in both respects and we predict 2019 will be another record year for privacy breaches. [...] Q3 will see changes in how the general industry view blockchain as a legitimate solution, with Libra pushing mainstream acceptance. This will drive blockchain technologies to offer privacy protection solutions where no other tech can.”
  
  PlatON’s Lilin Sun highlighted blockchain’s relevance to the emerging field of privacy computing:
  
  “Privacy Computing has been one of the hottest topics of 2019 and a common concern for developers worldwide. Thus, we have seen high-end homomorphic encryption technologies and sophisticated privacy solutions launched by leading companies, such as Google’s Private Join and Compute. These advancements greatly promote the development of Privacy Computing and will no doubt have ramifications for the emerging technologies space, including blockchain and Privacy AI.”
  
  In sum, the second quarter of 2019 in the blockchain space was marked by a number of auspicious developments. As prices — the key ingredient of cryptocurrency’s mass appeal — pulled off a long-awaited rally, the fundamental indicators of market health were in place as well. The less visible but consequential work in the way of institutional and governmental adoption — which never ceased, even amid the market’s bleak performance — saw an additional boost. These advancements laid the groundwork for the industry’s continued growth and maturation as new challenges await in the second half of the year.