Why 2023 is an important year for cryptocurrency
With Cryptocurrency still quite volatile to extreme changes in price, 2022 was a bad year for the industry. In the first half, the value of Bitcoin and Ethereum crashed by more than 50%. This made it the worst quarter for Bitcoin since 2011 when it lost nearly 58% of its value. In comparison, Ethereum’s prices dropped by 67.7%. These sudden surges led to multiple bankruptcies in the crypto market.
But the industry already started 2023 with a bang. Crypto surged to its highest level in January after months as the U.S. inflation continues to rise.
Here’s why 2023 is a critical year for Cryptocurrency:
1. Recovering from FTX Collapse
2022 was especially a bad year for the market because of the FTX collapse in November. FTX is a cryptocurrency derivatives exchange that gained popularity because of its innovative features and products.
It collapsed due to a report by CoinDesk, a crypto news site, that cast doubts on the stability of the company’s assets. The report revealed that FTX’s sister foundation, Alameda Reseach, had a position of $5 million in FTT (native token of FTX). This raised concerns about FTX CEO’s assets and financial status. Multiple investors decided to pull out causing a liquidity crisis. The collapse shocked the market which fell below a $1 trillion valuation.
How did this impact the industry?
Cryptocurrency as an industry was finally gaining footing when the crash exposed its volatility. One of the biggest frauds in history resulted in increased doubt regarding the crypto market.
FTX has since gone through bankruptcy proceedings under new leadership and has reported a $5 billion recovery. Adam Landis, an attorney, commented on FTX’s behalf, “We have located over $5 billion of cash, liquid cryptocurrency and liquid investment securities measured at petition date value. [It] just does not ascribe any value to holdings of dozens of illiquid cryptocurrency tokens, where our holdings are so large relative to the total supply that our positions cannot be sold without substantially affecting the market for the token.”
While FTX is set to recover their remaining assets (which will reportedly take 2 years), its crash will have repercussions in 2023 — starting with scrutiny from law enforcement. It has also generated doubt and fear in investors.
2. Increased Crypto Regulations
As a result of numerous cases of fraud, bankruptcy and collapse of crypto exchanges in the last year, 2023 will see increased regulation of the cryptocurrency market. This could include measures such as stricter disclosure requirements for companies, greater oversight of exchanges, and more enforcement actions against fraudulent activities.
The PwC Crypto Regulation 2023 report highlights the ongoing regulatory developments in over 25 jurisdictions, indicating that regulators around the world are taking a more proactive approach to regulating the cryptocurrency industry.
Many countries have already implemented regulatory frameworks for dealing with digital assets, such as Japan, Switzerland, and Singapore, while others are in the process of doing so, such as the European Union and the United States. The report suggests that the speed of regulatory developments is likely to intensify in light of recent events in the sector, such as the collapse of exchanges and fraudulent activities.
The report also notes that regulatory frameworks vary significantly from country to country, reflecting different attitudes towards cryptocurrencies and different priorities in terms of investor protection, market stability, and innovation.
It is likely that regulators will continue to use litigation as a tool to enforce regulations in the cryptocurrency industry in 2023. The SEC’s recent lawsuit against celebrities like Kim Kardashian as well as its ongoing case against Ripple Labs, demonstrate the agency’s commitment to cracking down on fraudulent activities in the crypto space.
As the bankruptcy courts continue to settle cases related to the collapse of companies such as Three Arrows Capital, FTX, Voyager, and Celsius, we can expect to see legal precedents established that will shape the future of the industry.
3. Green Energy
Green energy crypto refers to cryptocurrencies and blockchain projects that are focused on promoting and developing green energy solutions. These projects aim to use blockchain technology to create decentralized and sustainable energy solutions that reduce the carbon footprint of energy consumption.
Given that the industry has faced major backlash for the energy-intensive processes, these projects are incredibly critical. One example would be shifting from Proof-of-Work consensus mechanism to mechanisms that require lesser computational power. In 2022, Ethereum also launched a software update, The Merge, that drastically cut electrical usage by crypto miners.
One example of a green energy cryptocurrency is Power Ledger (POWR), which is focused on enabling peer-to-peer energy trading using blockchain technology. Power Ledger aims to create a decentralized energy marketplace that allows individuals to buy and sell renewable energy directly, without the need for a centralized utility provider.
Overall, green energy cryptocurrencies and blockchain projects represent a growing trend towards sustainable and decentralized energy solutions. While these projects are still in their early stages, they have the potential to revolutionize the energy sector and promote a more sustainable future.
4. Wider Adoption
Mass adoption of crypto refers to a scenario where cryptocurrencies and blockchain technology become widely accepted and used by people and institutions around the world as a legitimate and mainstream form of payment and investment. Currently, cryptocurrency adoption is still in its early stages, with many people and institutions yet to fully understand or embrace the technology.
One of the primary intentions behind mass adoption of crypto is to decentralize policies of foreign governments or central banks. Bitcoin, for instance, is not only internationalized but also has a large economic stake. It is highly useful in bringing overseas investments and helping globalize world economies.
With regulatory advancements in 2023, wider adoption of crypto is also a part of the process. There are two ways in which governments can begin circulating digital tokens: mass adoption of an existing crypto or digitalizing traditional currency. The only other alternative would be issuing central bank digital currencies (CBDC).
5. The future of CeDeFi
CeDefi is a term that combines “Centralized Finance” and “Decentralized Finance” in the cryptocurrency space. It refers to a hybrid financial ecosystem that combines the advantages of both centralized and decentralized systems. The CeDefi ecosystem may utilize centralized exchanges for trading, while still allowing users to hold their own assets and manage their own private keys.
The idea behind CeDefi is to bridge the gap between centralized and decentralized finance, and to provide users with a more flexible and efficient financial system. CeDefi projects are still relatively new, and it remains to be seen how successful they will be in the long term.
By utilizing the transparency, lack of intermediaries, and new investment scenarios of DeFi, and combining them with the reliability and stability of traditional investment avenues, CeDeFi projects can appeal to both crypto enthusiasts and finance traditionalists.
Asset tokenization, particularly for physical assets, presents a significant opportunity for CeDeFi. Tokenizing assets like precious commodities or traditional corporate ownership like stocks can broaden the scope of CeDeFi projects and attract institutional players. Making traditionally centralized assets available through the blockchain helps level the playing field of who can invest in these commodities and allows retail investors to diversify their holdings into stable assets.
However, there must be a coherent connective tissue between the two spaces, and not all circumstances are conducive to combining DeFi and CeFi. Bringing centralized financial management strategies to a decentralized autonomous organization (DAO), for instance, is not always feasible.
6. Potential bear market
A crypto bear market is a prolonged period of declining prices and negative sentiment in the cryptocurrency market. During a bear market, prices of cryptocurrencies generally fall, trading volumes decrease, and investors may become more cautious or risk-averse. This can result in a vicious cycle of selling as investors attempt to limit their losses, which can lead to further price declines.
Bear markets in the cryptocurrency market can be caused by a variety of factors, such as regulatory crackdowns, negative news headlines, or changes in investor sentiment. They can last for months or even years, and can have a significant impact on the overall health and growth of the cryptocurrency industry.
Despite the challenges of a bear market, some investors see it as an opportunity to accumulate assets at a lower cost, with the expectation of future growth and price appreciation. It is important for investors to conduct thorough research and risk assessments before investing in cryptocurrencies, particularly during periods of market volatility.
2022 was definitely a long run of a beat market and the beginning has shown great potential for turning this around into a bull market.
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