The cryptocurrency market is facing a rude awakening as the shocking collapse of FTX, one of the largest exchanges in the world, shines a light on just how risky, complex, and untrustworthy the industry is. Bitcoin (BTC 1.27%) and Ethereum (ETH 0.20%) have seen their prices drop roughly 10% (as of this writing) since the announcement on Nov. 9 that Binance was backing away from its deal to buy FTX. Critics are doing a victory lap, celebrating the demise of crypto as we know it.
The two top cryptocurrencies, however, aren't going anywhere anytime soon, and they could both bounce back nicely next year, despite the overall industry's current turmoil. But will Ethereum produce a better return than Bitcoin in 2023? Let's take a closer look.
CRYPTO: ETH
Key Data Points
Updates for Ethereum
Compared to Bitcoin, Ethereum has some important characteristics that could allow the price of ETH, which is now around $1,205, to soar next year. The most obvious is the network's recent upgrade, called The Merge, which transitioned Ethereum from an energy-intensive proof-of-work system to an environmentally friendly proof-of-stake mechanism.
While the Merge doesn't immediately improve Ethereum's transaction throughput or fees, it does pave the way for Vitalik Buterin and his team to introduce sharding in 2023. Sharding will let Ethereum better scale and increase its capacity. It can spread data loads across the network, reducing congestion.
Ethereum is already a hotbed for the proliferation of decentralized applications (DApps), including decentralized finance protocols and non-fungible token marketplaces. But the potential implementation of sharding should spur an expanding ecosystem of interesting projects that will attract more users and developers. According to State of the DApps, there are currently just under 3,000 DApps running on the Ethereum blockchain. This number is sure to go up once shard chains are added.
And speaking of developers, it's worth pointing out that no other cryptocurrency has as many developers working on it than Ethereum -- not even Bitcoin. Findings from a survey conducted by venture-capital firm Electric Capital showed that in December 2021 Ethereum had over 4,000 open-source developers helping to advance the network. Admittedly, this data is somewhat dated, but I think the same key theme applies today.
All of this activity points to catalysts that could boost Ethereum's price as we look toward 2023.
It's anyone's guess
It's safe to say that 2022 has been a historically bad year for digital assets. Bitcoin and Ethereum are down 65% and 68%, respectively, this year, shining light on just how volatile and unpredictable this asset class is. However, they have both produced incredible returns since their respective launches, and this is what investors should focus on.
Along that same vein, I really believe it's anyone's guess as to whether or not Ethereum can outpace Bitcoin in 2023. Investors should certainly not buy into the asset class with a 12-month time horizon, as anything can happen in the short term, like we've experienced in 2022. And with many financial experts predicting, and companies preparing for, a potential recession in the not-too-distant future, 2023 could be another down year for the industry.
Therefore, it is absolutely paramount that anyone who invests in the crypto space adopt a decade-long mindset. And continuing to focus on things that are important, like new upgrades, more users, and regulatory clarity, is extremely important.
Ethereum may or may not outperform Bitcoin in 2023, but that doesn't mean investors shouldn't take a closer look at buying the world's second-most-valuable cryptocurrency ahead of the new year.
