Cryptocurrency Outlook for 2023: The year 2022 has been atrocious for crypto, will it continue in 2023?

Cryptocurrency Outlook for 2023: Last year was a game-changer for the cryptocurrency market. The landmine events that took place in 2022 brought attention to the (not-so) hidden flaws of the crypto industry. From the initial Terra Luna collapse to Bitcoin (BTC) and Ethereum (ETH) losing 64% and 68% of their value simultaneously. Nobody imagined the crypto market cap to reach a low of US$727.58 billion after hitting US$3 Trillion in the final weeks of 2021. While the downfalls and bankruptcies that followed it were catastrophic, the fallout from the FTX-Alameda collapse was almost unforeseen. It wasn't just a downfall but an enormous breach of ecosystem-wide trust. With so much insufficiency, what is the future of cryptocurrencies in 2023?

With no doubts in mind, the cryptocurrency market in 2023 has a few bullets to dodge. After considering the performance of the crypto market in the past couple of years, it is apparent that the market is following the four-year cycle of Bitcoin. This cycle typically involves the market having a bullish year, followed by a correction year, followed by a good year and concluded by an excellent year. As 2021 was a bullish year followed by 2022 which was a year of "crypto winter", 2023 is expected to be a good year for crypto in general. While bearish in the short term, 2023 will bring once-in-a-decade opportunities to invest in broad and niche crypto themes. Themes like zero-knowledge proofs, NFT infrastructure, and web3 gaming are expected to see a substantial push on the development side and subsequent value accrual in the coming cycle.

Experts have pointed out that we are currently experiencing a cryptocurrency decline which is expected to hit the bottom by the end of this year. This is further supported by the fact that analysts think the bear market will soon come to an end. This should drive the prices of cryptocurrencies at the beginning of next year.

Countries that have so far been slow to regulate crypto may take concrete steps to control the market in 2023, especially as individual investors have also suffered serious losses from 2022's various incidents. The threat of contagion from the cryptocurrency sector to traditional finance has also increasingly been discussed as a reason to increase regulation. So, 2023 may be referred to as a year of regulation for crypto markets.

On the other hand, there may be important developments in the field of central bank digital currencies (CBDC), which countries have been working on for several years. Countries have already expressed their intention to compete with the crypto sector using the same technology. Thus, we may see a new front opened against cryptocurrencies with CBDCs.

Investment Thesis for 2023

People in developed markets will view Bitcoin as a long-term store of value and a defense against M2 inflation rather than apparent CPI inflation. We envision India as a potential leader in crypto regulation as the Finance Ministry has been quite vocal about international cooperation on its regulation. With India helming the G20, there have already been several discussions about the scope of recognition and regulation of the industry. The potential of the ecosystem will be completely realized only when there are regulations for centralized crypto players, which are prone to misuse by those who control them.

In emerging markets, remittances and non-dollar alternatives are given more consideration. The Federal Reserve would delay raising rates if our recession predictions pass because inflation would likely decline, and the government would continue to print money and run budget deficits. If there were no negative cryptocurrency-related news, the price of Bitcoin could climb a wall of worry back to $25K under the above-case scenario.

The majority of Federal Reserve officials anticipate that the benchmark interest rate will surpass 5% in 2023 as the U.S. central bank fights stubbornly high inflation. Then, rate cuts are expected to begin in 2024 after a pause in rates at that level. This trend supports the longer-term narrative and increases from the September 2023 median prediction of 4.6%. However, the long-term and median projections for 2022 remained unchanged at 2.5% and 4.4%, respectively.

The industry is also battling for increased innovation and adoption of decentralized infrastructure, to offer more transparent and secure trading methods and management of digital assets. With all this and more in the making, the coming year definitely looks promising for crypto enthusiasts who have continued to show faith as well as cynics who still question their viability.