Why 2023 Might Be The Year of the Crypto Underdog Blockchain is in a much different position than it was a year ago, and external factors, such as incoming regulation and broader market trends, play a significant role in what projects will get or deserve substantial backing.
By Ariel Shapira Edited by Micah Zimmerman
Opinions expressed by Entrepreneur contributors are their own.
The 2023 Super Bowl is just under a month away, and if you remember anything about last year's game, the sheer amount of multimillion-dollar crypto ads indicated that the industry was on the precipice of becoming mainstream. Suffice it to say, the rest of the year would not be so prosperous. Though it seems unlikely that we'll see more flashy, celebrity-filled ads for crypto platforms on our screens in February, that doesn't mean crypto is a dead industry in the slightest.
Everyone likes to root for the underdog, but there are a few variables that investors, institutions, and entrepreneurs must consider before going full-speed ahead on any particular blockchain niche. Blockchain is in a much different position than it was a year ago, and external factors, such as incoming regulation and broader market trends, play a significant role in what projects will get or deserve substantial backing.
Related: 5 Things to Expect from Crypto in 2023
A wunderkind is not enough
This time last year, the crypto bull run was dominated by projects easily digestible by the public — think big exchanges, NFTs, Web3 and some DeFi. Typically, higher-profile projects were spearheaded by a savant-like leader, a mega-corporation with endless cash flow, or both.
While a cult of personality can undoubtedly bring in new audiences and sell them on a product, the heightened attention becomes a double-edged sword once times get tough. Once the crypto winter came into full force, skeptics likely felt vindicated watching the more founder-centered dramatic downfalls.
But any entrepreneur knows that projects fizzling out don't necessarily dictate an entire industry's future. Now is an opportune time to get creative and look toward worthwhile crypto uses that have flown under the radar thus far, perhaps for all the wrong reasons. So if everyone has seemingly learned their lesson on investing in projects based on charisma (or lack thereof) alone, should we look to projects working in tandem with new tech developments?
The general public's recent AI fascination driven by OpenAI's nearly miraculous generative AI model, ChatGPT, might be a signpost for crypto's next steps. Some startups are already banking on its potential to transform entire industries thanks to their fluency and competent prose. But despite AI's clear advancements and usability, it may not be ready for meaningful widespread implementation in crypto.
Related: Microsoft Invests Billions in OpenAI, Creator of ChatGPT
Most proposals for melding AI into crypto involve accessibility and fraud prevention. AI could help create a better user experience, while machine learning's propensity for patterns can flag unusual or risky transactions before they become catastrophic.
AI hasn't, so far, proven vital to industry-wide efforts to reign in and manage risk. Companies like Spool, for example, already create comprehensive DeFi tools for individual and institutional investors to build risk-assessed, diversified portfolios for DeFi returns easily.
Fusing new tech with crypto platforms should be encouraged, but it can't be viewed as a safety net or substitute for due diligence on the part of the investor. And we certainly shouldn't be adding AI to products for the sake of adding AI.
Playing by new rules
After a year or two of mostly superficial oversight, it appears governments are stepping back into being the parent in the room with crypto legislation. The next 12 months will likely build exponentially on 2022's regulatory developments from the European Union, Brazil and the UK, with the entire G20 committing to creating a policy consensus year at the end of the year.
But the question of how to regulate crypto is no easier to navigate, and every country seems to have its interpretation of what it entails. Even the United States has its own competing priorities in moving legislation forward. Debates over how to classify digital assets with the SEC, mounting sanctions thanks to continued cybercrime, and a push to create its own central bank digital currency have put U.S. crypto policy in a deadlock.
Nonetheless, there's a clear signal that firmer regulation will play a much larger role than it did this time last year. Crypto purists might scoff at having regulators spoil the fun and insist that crypto can regulate itself, but the sheer amount of scandal and seedy developments don't point in their favor.
If individual investors or smaller crypto VCs get scared off by having precise regulation and supervision after seeing the recklessness in the industry over the past two years, they should have never felt welcome in the first place. Transparent and decentralized blockchain projects have ways to self-govern — just look at any effective DAO. But setting clear guidelines could potentially woo back institutions and major VCs that slowed investment during the crypto winter.
Plenty of blockchain-focused and crypto-native VCs have no issue staying close to the regulatory pulse and conducting due diligence to avoid the hype cycle. They're also unphased by the turbulent crypto market. For example, Digital Finance Group (DFG) is pushing full speed ahead with its steadfast support for projects it considers to be Web3 pioneers. One of the standout blockchains the firm supports, Polkadot, performed comparably well in 2022 despite market conditions, its Annual Polkadot Report showed.
Trustworthy influencers and institutions imploring investors to do their own research may have had a point. And with a new playbook for crypto likely on the horizon, it may be time to internalize that lesson and re-evaluate what the blockchain industry should aspire to be.
We probably won't see crypto as a whole return to Super Bowl status any time soon. But a change in what projects and aspects of this industry investors and developers champion could help rebuild its reputation and operations. Instead of retreading old territory, it may be time to look at the crypto developments pushed to the sidelines. While they may be less glamorous, they could be the key to ensuring a blockchain-forward future.
