The crypto market has had a surprising start to 2023, with almost all coins in the green for the first two months of the year. However, even with many top coins up 30% to 50% for the year, they still sit well below all-time highs. Bitcoin (BTC 3.04%), for example, is up 41% for the year, but at a price of $23,432, it's still significantly below its all-time high of $68,789.63.

If cryptos such as Bitcoin are going to recover to previous highs, a number of things need to happen this year. Here's a closer look at several key catalysts that could send the crypto market soaring back to all-time highs.

1. The macroeconomic outlook

Arguably, the most important factor for the crypto market right now is the overall macroeconomic outlook, especially for the U.S. economy. As a result, all eyes are on the Federal Reserve right now. Any mention of further Fed rate hikes has the potential to spook the market, and that's one big reason why Bitcoin has been unable to break through the $25,000 level.

Investor in suit checking phone.

Image source: Getty Images.

The consensus right now is that if the Fed decides to tighten any further, the crypto market will have a tough time moving upward. Any signs of Fed easing, however, would be great news for cryptos such as Bitcoin. So if crypto has any chance of regaining its previous levels, the market will need to see a pause in rate hikes.

2. Institutional adoption

Another key factor is institutional adoption of blockchain technology. More use cases emerging for blockchain and Web3 technology will boost the long-term investment value of many cryptos that can provide clear utility. 

For example, Visa is currently looking into possible use cases for Ethereum (ETH 1.96%) as a way to process some types of payments faster and cheaper. At the same time, Amazon recently partnered with Avalanche to offer blockchain technology solutions to customers via its Amazon Web Services (AWS) unit.

3. Crypto as an asset class

Institutional adoption can also be thought of from the perspective of large institutional investors, such as endowments and pension funds. If large institutional investors decide to allocate a greater share of their investment portfolios to crypto, that would also have a strong positive impact on crypto prices.

A breakthrough event that occurred last year was the partnership between BlackRock and cryptocurrency exchange Coinbase. The partnership will now make it easier for BlackRock clients to invest in crypto via Coinbase. This is a huge development because BlackRock is now the largest asset manager in the world, with nearly $10 trillion in assets under management.

4. The regulatory outlook

Finally, there is the matter of cryptocurrency regulation. Right now, nobody can decide how crypto should be regulated, or by whom. In the absence of any comprehensive U.S. regulatory framework, the SEC has taken the lead.

While the SEC certainly has a role to protect individual investors from the excesses of the crypto industry, there is mounting concern that the SEC could be acting too aggressively. By launching enforcement actions against crypto intermediaries (such as cryptocurrency exchange Kraken) and by handing out fines and other penalties to market participants for offering crypto staking services, the SEC could be setting up the crypto industry for a much more restrictive growth outlook going forward.

This is not to say that the Wild West regulatory approach of the past few years is the only way cryptos can regain their former levels. A certain amount of clarity and certainty for crypto market players is needed from regulators. The only danger is that some lawmakers might overreact to events such as the collapse of FTX by calling for ever more stringent regulation that could cut short any rally.

Which cryptos are most likely to succeed?

Based on all this, it's possible to put together a set of criteria for which cryptos make for the best long-term investment plays. Cryptos with proven utility and real-world use cases, for example, should be at the top of the list. Moreover, cryptos that are favorite investment targets for large institutional investors should also do well in a rising market.

For that reason, I'm bullish on Bitcoin and Ethereum for the long run. These are the two cryptos most likely to recover their previous highs. There are plenty of other interesting crypto plays out there, but if I had to buy and hold just two cryptos this year, they would be Bitcoin and Ethereum.