Closing out Crypto Winter – A 2023 Look Ahead

TL;DR

• 2022’s crypto winter unveiled one of the most historic downturns in financial history and left many institutions like FTX without a plan or path forward. Ask any “crypto OG” or those who have been around since Bitcoin’s inception and they will tell you that while the crypto winter is harsh, the thriving bull market will return.
• The surge of interest in blockchain gaming from the NFL and traditional gaming studios emerged as one of the most noteworthy moments for crypto in 2022, with new games emerging and new audiences finally finding a home within the crypto community.
• While we can’t say exactly how the fallout of FTX will impact regulation from the US government in 2023, we can be sure that this will be a target of interest from both parties.
• Read more below on our predictions for the 2023 crypto year…

2021 was a pivotal and historic year for cryptocurrency – Bitcoin peaked at around $68,000 and the Web3 industry experienced an unprecedented flood of investors, engineers, builders, and curious minds joining the transparent and decentralized world of cryptocurrency. Industry experts, celebrities, and crypto “OGs” alike were enamored with the possibility of NFTs or “non-fungible tokens” being the next widely-adopted iteration of artistic expression while blockchain gaming grew in popularity given its enticing play-to-earn gaming model. Since its peak, however, the world has watched as crypto experienced one of the most historic market downturns since its inception in 2008. This era in crypto history, also known as “crypto winter”, signaled a tumultuous road ahead for many – with the most influential names in the space like Three Arrows Capital, Terra Luna, and FTX, the exchange once-valued at a breathtaking $32 billion valuation, being among the most extreme market casualties. As we look forward to 2023 however, the question is not “what went wrong,” but we should ask ourselves what lessons were learned and if crypto can rebuild beyond the bear market.

How did we get here?

In order to understand the current state of crypto and why so many bad actors were able to successfully operate for so long, we have to understand the difference between decentralized and centralized exchanges. A crypto exchange is a platform used to trade, sell, and store digital assets. On a centralized exchange, like FTX and Coinbase, the platform and user assets are controlled by the company that owns it. On the other hand, a decentralized exchange is run by peer-to-peer transactions, and control lies within the hands of the users – a more transparent and potentially riskier process given that there are fewer regulations on transactions and platform vulnerabilities – leaving users open to potentially more hacks. Centralized platforms are not necessarily obligated to expose just what exactly goes on behind the scenes, making it less appealing to users.

In light of recent events, however, crypto users are leaning more toward decentralized exchanges given that there is no intermediary when transacting and users are not required to share personal data in order to operate on these platforms. Decentralized exchanges also have lower transaction fees and are typically faster than a centralized exchanges. In 2023, we can expect to see a spike in decentralized exchange use and decentralized finance, however, due to the transparent and vulnerable nature of decentralized exchanges, there will also need to be an increase in security among the platforms.

What is next for crypto?

Blockchain Gaming

While NFT trading volumes plummeted more than 97% this year – blockchain and metaverse gaming grew in interest and adoption as it moved to its next iteration: moving from the “play-and-own” vs. the “play-to-earn” model. Blockchain games offer incentives for the time played within a game and provide utility to NFTs that can be exchanged for in-game rewards, advancements, and achievement, making gameplay more enticing and rewarding. With brands like the NFL turning their attention to the blockchain community, rolling out NFL Rivals in partnership with Mythical Games – larger audiences are interested in engaging with blockchain games and their respective digital assets. The NFL capitalized on the growth and potential of blockchain gaming as they announced a free-to-play game “NFL Rivals” alongside leading blockchain gaming studio Mythical Games. In a study released by DappRadar, blockchain games raised over $230 million in November, despite the looming crypto winter.

Regulation

The collapse of FTX raised many red flags surrounding crypto regulation and its potential vulnerabilities when platforms are able to operate outside of the realm of regulation. U.S. Securities and Exchange Commission Chairman Gary Gensler has remained vocal about the role of the US government in enforming the framework surrounding cryptocurrencies. In the coming year, we can expect to see congress navigating shaky waters surrounding crypto – from legislators in both parties we can expect more regulation and oversight into cryptocurrencies as a priority in 2023.

The Committee on Financial Services, led by chair Congresswoman Maxine Waters (D-CA), has investigated cryptocurrency and its impact on consumers and advisors for years, and while there has been no large investigation into any platforms to date – 2023 may experience a different reality as members of congress work to craft bipartisan legislation around cryptocurrencies following the collapse of FTX.

Cybersecurity

This year alone, crypto hackers were able to steal nearly $3 billion in digital assets and funds nearly the biggest year for hacking activity according to Chainalysis – primarily through cross-bridge hacks and decentralized finance apps. The vulnerabilities among these decentralized platforms compared to the hacks seen on centralized platforms is another reason for users to consider when deciding where to store, buy, or store their digital assets. At this time, there is also a growing talent gap among cybersecurity positions – making threat detection a difficult feat for most platforms. Consequently, the number of resources invested in cybersecurity hacks still needs to be increased.

2023 will be critical for developers to stop crypto hackers or, as a result, platforms will be subject to harsh scrutiny and regulations from the government. Inadequate securities when dealing with millions of dollars in assets just won’t suffice – and consumers have been extremely vocal about their lack of trust in centralized entities.

Regardless of market predictions and movements, we can expect 2023 to set the precedent for the next phase of crypto. No doubt, however, we will expect the blockchain gaming world to dominate the interest of crypto natives and those new to the space with deFi taking center stage among users. Crypto has seen its highs and lows but remains steadfast and resilient – 2023 will be no different. 

Crypto is here to stay – how do we embrace it?

Venture Capitalists poured nearly $14.2 billion into crypto spread across more than 725 deals in 2022 according to a KPMG study and while investments have ultimately remained steady, the pickup will continue as we head into 2023. Historically, crypto bear markets have weeded out the unstable and dishonest business dealings of companies, while builders and investors have found promise in the projects built on trust, transparency, and a dedication to the success of crypto and blockchain technology. In 2022 alone, Fidelity launched a crypto service for investors and Goldman Sachs created a crypto data service, Datonomy, to classify crypto tokens and coins.

The more that we see mainstream financial powerhouses taking an interest in crypto and blockchain technologies the more these companies will look to communicators to foster trust and instill faith in this technology that has been butchered and lost, given recent media coverage. Education has been and will continue to be the best avenue to continually engage mainstream audiences on the premise of crypto – an uphill battle, but an exciting and rewarding challenge for the most talented and creative minds.

2023 is a year to rebuild and our creative prowess will be tested nonetheless.

Photo by Art Rachen on Unsplash.