Crypto 2023: Stronger (what doesn’t kill you)

After 2022’s bloodbath of the crypto world where so many firms were lost – FTX, Celsius, Terra, Three Arrows Capital, Voyager and Vauld to name just a few – this year will be sorting out the mess. Regulations will come to the crypto markets as will consolidation and organisation. It’s interesting that Coin Market Cap summarised this well in their end of year view, and came up with 10 key areas for the cryptocurrency market to focus upon in 2023:

1. Transparency with users is crucial. Wonderland's treasury chief was a convicted fraudster who had helped launch the doomed crypto exchange QuadrigaCX. But to the DeFi protocol's users, Michael Patryn was only known as "0xSifu." While pseudonyms are commonplace in the world of crypto, it can have major downsides.
2. Algorithmic stablecoins don't work. Traditional stablecoins are backed by dollars held in reserve — but in UST's case, complex algorithms aimed to keep this digital asset pegged to $1. Terra's collapse saw billions of dollars wiped from the crypto markets in a matter of days. Now, some regulators want algorithmic stablecoins banned.
3. Careful what you tweet. So many crypto CEOs have seen their past tweets come back to haunt them this year. Sam Bankman-Fried told his followers "assets were fine" on FTX when they weren't. Other executives just posted in bad taste, with Do Kwon telling one economist: "I don't debate the poor on Twitter."
4. Too much risk is a bad thing. From excessive leverage to lending funds without collateral, "risk management" wasn't a phrase that many bust crypto firms were familiar with. The likes of 3AC and Alameda Research made big bets that just didn't pay off — and now, it's their creditors who are left holding the bag.
5. Crypto firms are too interconnected. The bankruptcy of Three Arrows Capital directly led to the demise of Voyager, and FTX's implosion dragged down BlockFi too. So many crypto businesses held funds on the world's second-largest exchange — capital that they may never get back.
6. Skyhigh interest rates were too good to be true. Double-digit yields for investors who staked altcoins were common before the crypto lending sector collapsed. One firm that went bust — Freeway — was offering returns of up to 43%. As the old saying goes: "If you don't understand the yield, then you are the yield."
7. Holding crypto on an exchange can be a risky move. If withdrawals are suddenly frozen, users end up having little control over what happens to their savings. As 2022 progressed, we've seen growing interest in self-custody — with more and more investors learning about how to store their crypto in cold wallets.
8. It's a tough time to be a Bitcoin miner. Large swaths of the industry have been hit by a double whammy of plummeting BTC prices and rising energy costs. And some have had no choice but to sell off their Bitcoin reserves, piling further selling pressure onto an already vulnerable market.
9. Scepticism is crucial. Sam Bankman-Fried had won round politicians, regulators and consumers as he built his FTX empire into the world's second-largest exchange. But now, it's being alleged that funds were misused from the start. As an investor, it's crucial to take everything (and everyone) in the crypto sector with a big pinch of salt.
10. All this carnage could make the crypto industry stronger. We've seen a number of bad actors exit the sector this year — and now, regulation is becoming a bigger priority. This could help protect customers, and the businesses that manage to weather the bear market may achieve newfound credibility and trust in the years to come.

Building upon this, Coindesk have 10 Predictions for the Future of Crypto in 2023, namely:

1. Epic battles over regulation.
2. Web3 platforms continue to grow.
3. More bleeding, more losses, more pain.
4. Truly global bitcoin adoption.
5. Maybe a focus on life outside of crypto/bitcoin/blockchain.
6. Web3 gets fashionable.
7. Don’t count out NFTs.
8. Gaming and DAOs continue to grow.
9. The big exchanges become “disaggregated.”
10. The space regroups.

I particularly had a little schadenfreude at their comment that the crypto “golden child, Sam Bankman-Fried … turn[ed] from Anakin Skywalker to Darth Vader”.

Overall, my view is that cryptocurrencies 2023 are down, but not out. In fact, a bit like FinTech and Tech in general in 2022, we’ve all taken a hit. But what doesn’t kill me makes me stronger. 2023 is the year all of tech will rebuild and strike back. And, by all of tech, I mean Big Tech, FinTech, Crypto and more. It’s going to be an exciting year.