To the outsider, crypto might not appear like a market that pauses to self-analyse. But in 2022 there’s been a great deal of reflecting and soul-searching… and, of course, crystal balling for 2023.
Here, Stockhead grabs two Aussie crypto experts – Finder’s James Edwards and Magnet Capital’s Ben Celermajer –and shakes them down ahead of the new year for their singular takes.
‘Interest will return, pending a catalyst or several’
– James Edwards, crypto expert at comparison site Finder.com.au.
Crypto 2022, James… that’s been a barrel of laughs, hasn’t it? But looking on the bright side for a moment, what positives can you identify?
Adoption. Facebook continues to bet big on the metaverse and has integrated NFTs into Instagram via the Ethereum blockchain layer Polygon. JP Morgan even settled a DeFi trade on Polygon using the decentralised lending platform Aave.
Plus major asset managers like JP Morgan, Goldman Sachs and BlackRock see Bitcoin as a legitimate investment, and continue to grow their product offerings accordingly, allowing institutional investors easier access to crypto investments.
Good points, all. What needs to happen in 2023 to improve the crypto landscape? Can trust be restored after SBF and co all but shattered it?
FTX was a failure with centralised institutions, not cryptocurrency or blockchain per se. However, many retail investors are unlikely to separate the two and rebuilding trust is going to take a long time.
It will require a sustained effort by the industry to mitigate risk by introducing more transparency and decentralised technologies into exchanges.
“Interest will return, but it’s going to require a catalyst event or several; such as a triple AAA game implementing blockchain technology, the continued adoption of NFTs by major brands and a sustained interest by traditional finance.”
What broad, and/or specific predictions do you have for the crypto market in 2023?
Zero-knowledge proofs (ZK-proofs) are going to completely change how data is handled on the internet, and they are currently at the focus of cutting-edge blockchain technology.
ZK-proofs create a new layer of privacy on the internet that will help prevent data breaches like Optus and Medibank, as well as making transaction data private.
Interest in them may not go mainstream in 2023, but the technology looks poised to take off in the blockchain world which will filter out into other industries.
Got any lingering or looming fears related to the market next year?
I fear the politicisation of cryptocurrency regulation in the US and abroad in 2023. The industry was on a gradual and considered path to regulation, however following FTX it’s likely that that the topic may become a political football and regulations will be rushed through.
If that happens they are unlikely to be properly thought out and may stifle innovation. That being said, you can’t shut blockchains down and it just means developers and companies will go offshore if they have to. That’s a net loss for any government, as they lose influence and potential tax revenue from startups.
Meanwhile, companies are motivated to engage in regulatory arbitrage and set up shop in less scrupulous environments, which is how we got FTX in the first place.
Are you prepared to make any BTC price predictions?
I have never put any stock in Bitcoin predictions, but they make for fun headlines. I own Bitcoin because I see the value in a non-government currency that is built for the internet.
And I own Ethereum because it is the financial settlement layer of the internet. As long as the internet sticks around I feel pretty good about where each is headed.
‘Fallout to continue but a year of growth ahead’
– Ben Celermajer, Co-founder and Director of digital asset investment manager Magnet Capital
What insights or learnings would you like to share, Ben? That is, regarding the past several months in crypto, that is?
This year has been challenging for our industry. Some of the largest centralised crypto financial service providers have failed due to taking excess leverage, issuing uncollateralised loans and reportedly conducting fraudulent activity. The dust is yet to settle, and we expect the impacts to be felt into 2023.
However, if there is a silver lining it is that the situation has pushed the market towards some important basic principles, including: “don’t trust, verify”.
Blockchain and crypto were born upon the premise that users do not need to rely on centralised, opaque business models that are susceptible to wrongdoing. Moving forward, we hope that we can leverage the tools and promise of blockchain and crypto more safely and effectively, such as the self-custody of assets and utilising decentralised tooling such as
DeFi.
How does the crypto industry and market repair from here?
While some very hard lessons are being learned, we believe that sensible regulation, the ongoing emergence of stable, profitable crypto businesses and the onboarding of new users to digital asset platforms will bring momentum back. Our asset class must incorporate these learnings and continue to innovate.
Centralised financial service providers require regulatory clarity. Whether investors are trading equities, pork bellies or crypto, the principles and regulatory requirements of custodial exchanges should be consistent.
This would significantly help trusted institutional service providers feel comfortable in providing crypto products, as well as increasing trust from users of crypto native platforms.
We believe the other priority is education on the power of decentralised applications that are self-regulating via the immutable law of the code on which they operate.
What can we expect in 2023? Care to make any predictions?
It will be a year of growth and building for crypto assets, though we will continue to see fallout from the events of 2022. The entire asset class will be rebuilding to restore its collective reputation. Our predictions include:
• Profitable or productive assets, which collect real revenues and distribute those to token holders, will outperform.
• Bitcoin to perform. High inflation, high debt and high interest rates have resulted in a turbulent 2022 for global currencies. If these dynamics continue to cause headwinds for global currency, stores of value should become increasingly popular.
• Despite many writing off Bitcoin as a store of value, we expect it would get a vote of confidence here from the increasing base of believers.
• ETH will outperform BTC due to adoption of decentralised applications and the new economic design of Ethereum (post the Ethereum Merge).
• More bankruptcies may unfortunately be announced as companies that overleveraged or raised funds in the height of 2021’s FOMO market continue to struggle. Many early-stage crypto projects will not be able to raise again and some may fail.
• We’ll see the first successful Web3 metaverse/game. Several exciting Web3 native games are expected to launch (e.g., Otherside, Illuvium, Ember Sword).
• JP Morgan vs Goldman Sachs – both have continued to demonstrate interest throughout the 2022 crypto bear market. We expect they’ll both undertake significant buying sprees in 2023 as they try to acquire in-house skills and services in
preparation for the next stages of this technology.