With 2022 coming to a close, many crypto investors are ready to turn the page on what has been a tumultuous year for the industry. After cryptocurrency prices soared in 2021, with the entire market approaching a $3 trillion valuation in November of last year, a string of high-profile blow-ups have shined light on how risky the industry really is, causing the market to lose more than two-thirds of its value this year.
Should investors abandon their investments in digital assets? Only you can answer that question given your personal risk tolerance, time horizon, and understanding of the cryptocurrency industry. But you can be sure that the new year will likely be full of key developments.
Without further ado, here are my top three predictions for the cryptocurrency market in 2023.
Bitcoin will lead the bull market
The Federal Reserve has signaled that it may slow the pace of future rate hikes, which might be a bullish sign for all risky assets. So if cryptos recover at some point next year, I think that Bitcoin (BTC -4.36%) will lead the way.
As the oldest and most valuable cryptocurrency, with a market cap of about $330 billion (as of this writing), Bitcoin is likely the first exposure to the asset class for both individual and institutional investors. Capital that has flowed out of the market this year is waiting for things to turn around, plus new investors with no position in any crypto, could flock to Bitcoin in a recovering market. Spurring this type of activity is the fact that it is incredibly easy to buy Bitcoin today.
Again, this all depends on the central bank's policy moves, the macroeconomic picture, and just general sentiment toward digital assets. But I feel confident that as markets bottom and prices start to go up, Bitcoin will be among the first to soar.
Another delay for Ethereum
This year was a monumental one for Ethereum (ETH -4.02%), as the completion of the The Merge transitioned the network from proof-of-work to proof-of-stake, which requires 99.95% less energy and sets the stage for improved scaling in the future. While the upgrade was cheered by the crypto community, it was long overdue. In fact, most developers have been waiting for this event since way back when Ethereum launched in 2015.
The next phase in Ethereum's development cycle is the introduction of sharding, a feature that will spread out the network load across the blockchain, resulting in significantly faster transaction throughput. Based on how novel blockchain technology is and the uncharted territory Ethereum is in, I suspect sharding will be delayed. It was supposed to be released sometime in 2023, but now Ethereum's official website says "2023 to 2024."
Vitalik Buterin, a co-founder of Ethereum, also added another step in the network's development pipeline, called The Scourge. Including The Merge, there are now six different stages Ethereum must make it through to be fully complete. I see the likelihood of more delays, and maybe even more development stages added to the mix, given the insane complexity of this new technology.
Stricter regulation on the horizon
As I noted in the introduction to this article, a string of highly publicized blow-ups in the industry, including the failures of Celsius, Voyager, Terra Luna, and FTX, demonstrate how urgent the need is for clear and thorough regulations. These adverse events have shined a light on how complicated, tangled, and opaque many of the major ventures in the industry are. The goal for lawmakers should be to increase trust and transparency, as well as protect investors.
Consequently, a tighter regulatory stance by the U.S. could prove to be a positive development for Coinbase (COIN -5.10%) in particular, which is based domestically and has been a publicly traded company since April 2021. This means that instead of skirting U.S. laws by setting up shop in a foreign domicile, which is what crypto exchange FTX did, Coinbase iss already operating within existing securities regulatory guidelines. And this should bolster its position as a trusted brokerage and exchange.
Nonetheless, a patchwork of regulations from various agencies isn't going to cut it. If the U.S. wants to be at the forefront of cryptocurrencies on the global stage, then it must introduce a unified regulatory framework. This will provide the necessary foundation for the industry to grow in the future.
Investors should keep an eye on these three predictions as we head into 2023.
