The cryptocurrency industry has developed rapidly over the past decade. It has grown steadily in terms of size and the number of its components.
Cryptocurrencies formed the main element of the industry in its initial development phase.
The next evolutionary step was the introduction of blockchain-based crypto assets, including non-fungible tokens (NFTs).
At the same time, blockchain technology itself has found its way into the business world through smart contracts and the Internet of Things. These attributes continue to determine the future development path.
When making a forecast for the crypto industry in 2023, it is necessary to focus on several aspects: the regulation, the technology and the market.
Let me share with you our expectations for the Kyrrex team in the new year.
regulations
Regulators tightened their grip on the crypto markets to make them less of an unknown territory. This attention was partly due to the growing size of the crypto markets.
It became necessary to introduce regulatory measures aimed at preventing criminal activities such as fraud and money laundering.
The anti-money laundering (AML) and know-your-customer (KYC) protocols became a requirement for cryptocurrency exchanges.
Regulatory oversight will be strengthened in 2023, particularly in the EU.
In particular, Europe plans to enforce the regulatory memo on crypto asset markets (MICA). It will feature new categories of crypto assets that were outside of the existing rules.
The case of FTX shows how one market participant that fails to meet its obligations can negatively impact the entire industry.
Sam Bankman-Fried, the founder and CEO of FTX, used FTX traders’ money to fund risky trades at his other trading firm, Alameda Research.
The embezzlement of assets is a clear violation of regulatory requirements
and Principles, but only became publicly available after FTX missed coverage
large outflows from the stock market.
This requires stricter regulatory compliance across the industry, which will happen shortly.
The legal context will also include more crypto litigation. The case is Toronto Cash, a cryptocurrency exchange accused of money laundering.
The exchange has not followed the compliance guidance protocol established by the US Office of Foreign Assets Control.
As Hong Kong, Seychelles, Panama and others plan to mirror the regulatory controls of leading economies, 2023 will see a surge in the number of such cases.
The launch of the Central Bank Digital Currency (CBDC) may also limit user anonymity of all crypto markets with the updated regulatory foundation.
technology
The technological changes will directly affect the crypto market. Ethereum’s recent technology upgrade has shown the need to eliminate the mining component.
The replacement of the proof-of-work concept by the proof-of-stake concept is a matter of time.
As Ethereum has undergone its upgrade by merging with another blockchain, further consolidation in the crypto markets is on the horizon.
Metaverse offers another stage of development that will include the appearance of the new DeFi apps and blockchain-based instruments.
Likewise, the extension of Web3 should offer a wide range of possibilities by introducing new levels of interaction and communication.
Layer 2 technologies will contribute to the scalability of cryptocurrencies and potentially expand their reach.
market
Cryptocurrencies have remained very volatile since their inception. They also remained relatively independent of the stock markets and the global economy.
Partly because of their historically smaller scale and partly because of their “safe haven” image during recessions, crypto assets have enjoyed gains during bear markets.
That trend appeared to have reversed in 2022.
Cryptocurrencies moved in tandem with stock and futures markets, essentially mirroring or even pre-empting periods of decline.
In addition, the volatility of cryptocurrencies fell below the volatility of the stock markets.
For example, Bitcoin was less volatile than the S&P 500 and NASDAQ over certain periods of 2022. These tendencies signal the maturity of cryptocurrencies and the resulting increased attractiveness for investors.
However, the S&P 500 has lost an average of 0.09% per day in 2022, versus Bitcoin’s 0.31% daily loss.
It is impossible to ignore external pressures on crypto markets. Stagnation in the global economy, Russia’s war against Ukraine, and tensions between the US and China are all contributing to overall market volatility.
Global inflationary pressures combined with the slowing economy are adding to future uncertainty.
Crypto markets should not expect an easy 2023. The combination of regulatory, market and economic pressures points to another year of volatility and possible decline.
The fall of FTX and its rapid bankruptcy will speed up the process. These new obstacles may prolong the recovery period for the crypto industry.
At the same time, the fundamentals for the crypto industry are looking very positive.
The Proof-of-Stake protocol completely eliminates environmental concerns by reducing mining energy consumption.
Institutional investors and large corporations are actively investing in crypto assets, which supports growing demand.
Banks are adding the option to process transactions and accumulate savings in cryptocurrencies.
Increased regulation crowds out gamblers looking for short-term gains or engaging in scams. These positive elements outweigh the negative ones, creating long-term optimism.
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