Should We Invest in Cryptocurrency in 2023?
Is crypto dead? Was it all just a fad? Let's find out.
Opinions expressed by Entrepreneur contributors are their own.
How much will bitcoin or any altcoin cost in 2023? Great question. Even professional traders cannot foresee the price of crypto due to multiple impact factors. But as an investor, I want to reflect on something else. Are those who have already buried the crypt right, or is last year's market crash not the end?
Related: Now that Crypto Has Crashed, What's Next for The Metaverse?
Bugatti for bitcoin — failed
In February 2021, the capitalization of bitcoin exceeded $1 trillion for the first time. The first cryptocurrency grew by 900% in a year and traded for $54,000 per coin.
Despite the record price, there was no release from investors. For example, the Square payment service, owned by Jack Dorsey, then bought over three thousand bitcoins.
Amid the rising bitcoin price, in March 2021, the founder of the Kraken cryptocurrency exchange, Jesse Powell, made a sensational forecast: by the end of 2022, one bitcoin can buy a Lamborghini, and in 2023, a Bugatti.
The forecast failed: today, you can only buy a Kia Rio or a Mitsubishi Mirage for a bitcoin. And this is after the boom of ETFs, NFTs, DeFi and stablecoins. So what went wrong?
Related: Everything You Need to Know About NFTs and Cryptocurrency
High-interest rates — done
In 2022, the growth rates of blockchain technology remained high. For example, we witnessed the Ethereum protocol modernization: now, instead of the Proof-of-work algorithm, the blockchain uses Proof-of-stake. After the change, the network will consume 99.95% less energy.
However, this event was overshadowed by others — the bankruptcies of the Terra project, Voyager Digital and Celsius Network crypto banks, Three Arrows Capital hedge fund, BlockFi and FTX exchanges.
Also, inflation in the US reached 7% in 2022, just as in the early 1980s. To curb inflation, the Federal Reserve raised rates seven times a year. The base rate is between 4.25% and 4.5%, the highest mark in 15 years.
The Fed's policy affected the value of risky assets, namely stocks and crypto. The dollar strengthens as interest rates rise, but risky assets fall. Due to this and the bankruptcy of key crypto projects, the cryptocurrency market collapsed. The media again started talking about the onset of crypto winter — a decrease in the cost of all coins and a long bearish trend.
But I disagree that due to the fall (over the past year, according to the Coinmarketcap charts, market capitalization has more than halved - from $2 trillion to $800 billion), this segment can be put to rest.
Regarding crypto, price fluctuations are the last thing you should focus on. I look at less obvious factors to understand the market prospects.
Venture capital impact
The activity of venture capitalists decreased significantly in late 2022. This information can make beginners panic, but let's read the news more carefully.
How did the timing of entry into projects change the enthusiasm of investors? Seed and early-stage crypto startups received larger checks in 2022. Investors are buying up young startups, meaning the game is not over, and funds will be poured into the sector.
Besides, the cryptocurrency market is only developing. You can fail in school but enter college on the first try. So the failure of 2022 is not a sentence, but only growing pains.
Related: Decentralized Venture Capital Will Transform Startup Investing Forever
Development of Web3
Web3 is a new blockchain-based decentralized and tokenized incarnation of the internet. It is both financial applications and NFTs. But the most dynamic segment of Web3 is blockchain games.
The crypto winter did not affect the growth of gaming programs based on distributed ledger technology: in 2022, the number of transactions in gaming blockchains increased by 94%.
It is such a strong trend that only full-on electricity cuts across the planet can bring it down. So the entire blockchain sector will become less speculative and more practice-oriented.
Return of NFTs
After COVID-19, even people far from business learned that the most affected sectors actively recovered after the crisis. This is precisely what should happen with the NFT segment.
Over 2022, it decreased by 97%. But the fall is not a trend — unlike the arrival of big players in this market. NFTs were launched as part of a loyalty program by the giant Starbucks. By year's end, the list of majors that launched NFTs was replenished with Reddit, Meta, Nike, Disney and Coca-Cola.
All these companies invested in developing their own projects based on Web3 and will continue to develop them in 2023. My guess, other companies will pick up the trend, so the NFT market revival is only a matter of time.
Related: 5 Ways to Maintain and Expand Your Wealth During the Cryptocurrency Dip
In December 2013, on the Bitcointalk forum, a user, GameKyuubi wrote a post with a typo in the title - "I AM HODLING." He criticized traders who use bitcoin to get rich, contrasting their position with his own — to keep the crypto even when market signals indicate a need to get rid of the asset.
The term HODL became a meme, and the change in the number of hodlers became the data for analytical platforms to evaluate the development of the industry.
New statistics from Glassnode demonstrate a sharp increase in the accumulation addresses in the Bitcoin blockchain. These hodler wallets have received at least two transfers in the past seven years. Yet, funds were never withdrawn from these addresses.
The number of such wallets reached almost 800,000 — increasing by 18% during the year. The figures show that the number of committed users of the service is growing.
Hodlers don't make money off bitcoin. They believe in its potential as a universal means of payment. And user growth is a significant factor in the global adoption of bitcoin. I am sure that while some faithfully accumulate crypto and those who develop the blockchain and projects based on it, seasonal and annual jumps are just ripples in a pond. The most exciting things happen in the depths.