2022, for numerous reasons, was one of the most decorated years in cryptocurrency's brief history. In spectacular fashion, we saw the industry's beloved hero Sam Bankman-Fried's fall from grace at a speed that rivaled Bitcoin's crash from $69,000 to $20,000.
Contrary to a majorly negative year in the space, we've also witnessed record levels of development on top of the industry's most popular blockchains. Cardano founder Charles Hoskinson stated that more than 1,300 applications are being built on top of the Cardano network. In comparison, Hedera's Hashgraph network expects more than 80 applications to go live in Q1 2023, according to Shayne Higdon, CEO and Co-Founder of The HBAR Foundation.
At the very least, this ongoing rate of development seems promising and should continue well into 2023, unstirred by other industry variables. Let's look at other trends we can expect for blockchain and crypto in 2023.
Distilling it down to the perspective of ECON 101, when the Fed hikes rates, we usually see a pullback in prices for risk assets — Bitcoin is no exception. Higher rates also impact the average person's ability to pay for various day-to-day items, particularly the most expensive ones like lodging or transportation. I say this because it's often the case that internet discourse, as well as the 'Discord Bros' that offer investment advice, like to think bear markets have expiration dates. Unfortunately, this is not the case.
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1. More volatility
You've probably heard from numerous sources that 'the bottom is in,' signaling that we should be entering a one-way vortex to new all-time highs. While we all pray for short bear markets and long bull runs, there are a few reasons why the future road to record highs might be bumpy.
For starters, monetary policy may remain strict because inflation is far from the Federal Reserve's target of 2%. It need not be the case that inflation must hit 2% before a Federal Reserve pivot. Still, indicators must appear well on their way to the aforementioned target before any meaningful easing occurs. The Fed has openly stated a target of 5% for its Federal Funds Rate — we are currently 50-75 bps away from this figure. Because the Fed has been relatively forthcoming with what to expect, the only remaining variable is how we get to where they say we're going, not if.
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2. A declaration that Bitcoin is dead
During times of duress, extreme viewpoints become far more commonplace. If you haven't already, you'll likely hear that extensive dialogue on how Bitcoin is suddenly extinct, a scam, or pointless technology. This usually is a symptom of too much screen time; people who've dealt with the agony of seeing their net worth slash itself almost instantaneously typically forget why they initially began their investment journey. For what it's worth, Bitcoin has been declared dead well over 400 times, yet the network hasn't faltered for even a moment.
3. More insolvencies, more bankruptcies
As with traditional financial markets, the 'search for yield' often leads some market participants into trouble, trouble that is sometimes irreversible. Leveraged positions and groupthink investment strategies can pay off handsomely during euphoric bull markets. However, when tides turn, they can also exacerbate losses to the point of irreparable harm. Crypto markets are no different.
Additionally, struggling businesses are far more likely to take excessive risks to try to reverse their course trajectory should they face any looming failure. The pressure to build a profitable business within this industry is far greater than in more traditional sectors. Failure is far more likely to be conflated with the narrative that the technology itself is problematic than any other macroeconomic factors.
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4. Fewer celebrity endorsements
Celebrity endorsements go hand-in-hand with enterprise success, especially in the Western world. Whether you're selling soda or software, global marketing teams rely on the likenesses of public figures with dedicated fan bases to promote their products. However, given the recent actions of regulators, I expect many public figures to be far more reluctant to collect checks for endorsing crypto projects. First, we saw Kim Kardashian settle with the Securities and Exchange Commission (SEC) for $1.3 million following the promotion of EthereumMax. Not long after this event, we witnessed probing into Stephen Curry and a cohort of celebrities affiliated with FTX.
5. More regulatory clarity
Lastly, and most importantly, we can expect to see an accelerated focus on crypto regulation from regulatory bodies around the world. As the asset class grows in size, the need to create safe and meaningful rules on how we can build and interact with blockchain technology grows exponentially. While the market capitalization for the asset class is significantly smaller than that of Apple (AAPL), various regulators and I understand that this could change dramatically after the next bull run. Because of this, the number of individuals involved and the total wealth at stake will grow to a point where they can no longer postpone regulating the asset class. The question is: how just will the supposed regulations be?
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While numerous challenges appear to lie ahead of us as we enter 2023, I do want to take a moment to emphasize that bear markets are necessary. They keep us honest and force us to fall in love with our assets for what they are instead of what they are worth. In crypto, patience can be a truly lucrative virtue, so hodl on, my friends, and I'll catch you on the other side.