2022 has been a difficult year for the cryptocurrency world. Confidence in this asset class has been damaged by the FTX crash. The market capitalization of cryptocurrencies has declined by more than $2 trillion as the bearish sentiment has taken hold.
Through Alan Bolhimez, Investment Strategy Director
However, this phenomenon has had the effect of making many projects more accessible. There are many reasons to be optimistic in 2023.
The first reason is that retail investors bought bitcoin in record volumes when prices fell during the FTX debacle. Research from ETC Group shows that smaller investors, those with less than 1 bitcoin in their accounts, added a record $1.55 billion worth of bitcoin in November 2022.
Main themes in 2023
- The recession: soft landing possible
- NFTs on the Polygon and Ethereum blockchain could skyrocket
- The “FUD” on bitcoin “mining”.
Recession: Is a soft landing possible?
The macroeconomic situation appears turbulent. Economists wonder if the next recession will be mild, moderate or deep?
A “soft landing” would mean that inflation, which is at its highest level in 40 years, would begin to decline without the economy falling into negative growth (i.e. a recession). Such a situation would allow central banks to scale back their interest rate hike programs. The latter put heavy downward pressure on stocks, bonds and cryptocurrencies last year.
Cryptocurrencies as an asset class and cryptoassets remain able to drastically outperform stock indices such as the DAX40, S&P 500 and Nasdaq. This is especially true during bear markets and recessions.
Analysts believe that continued high ISM survey results could encourage the Federal Reserve to continue raising interest rates. For the week ending Friday, January 6, the S&P 500 recorded a total gain of 1.5%. During the same period, bitcoin rose by 3.15% and ethereum by 8.5%. Cardano, a top ten blockchain by market capitalization, grew by 27.2%.
As we approach the second half of the year, bond markets are betting that interest rates will start to fall, with the cost of capital falling at the same time, providing startups and risky assets with a better growth environment.
At that point, the halving of the bitcoin mining reward (“the halving”) will take place in 2024. Historically, when the supply of bitcoin entering the market is halved once every four years, demand – and prices – tend to increase exponentially.
NFTs on the Polygon and Ethereum blockchain will skyrocket
While the headlines may suggest that NFT markets have plummeted, the fact is the cartoon monkey graphics and profile pictures are just the first iteration of what NFTs can be used for. .
Brands looking to build closer and deeper connections with their young consumers have turned to Web3 concepts en masse, such as blockchain, NFT and the metaverse, and we see this trend explode in 2023.
The success of polygon (an update of theEthereum) that allows the integration of dozens of mainstream companies is proof of this.
In August 2022, Nike (NYSE:NKE), which has a market capitalization of $196 billion, reported NFT sales of $185 million following its acquisition of virtual trainer marketplace RTFKT. These are sizable sales figures for an established company looking to grow organically.
In this way, Nike became the most profitable brand in the world thanks to NFTs, ahead of Adidas, Reddit, Gucci, Hermes, Burberry, instagram, tick tock, Robin Hood And JP Morganwho have all started using Polygon and Ethereum NFTs.
On December 8, 2022, Starbucks (NASDAQ:SBUX), which has a market capitalization of $121 billion, launched its NFT loyalty program with Polygon. This offers interactive experiences and additional benefits for customers.
Research from ETC Group shows Polygon users grew 400% in the last five months of 2022, from 200,000 to over a million.
Investors should be excited about potential use cases for NFTs beyond art: for example, for customer loyalty programs, schemes to encourage membership in creator communities, and the ability to tokenize real-world assets.
When we talk about abstraction, we mean that we expect to see more projects and products come out where the end user doesn’t necessarily know that cryptocurrencies and blockchains are running in the background.
Starbucks, for example, calls its NFTs “stamps,” while Reddit calls its NFTs “digital collectibles.” This may be due to the public’s misperception of NFTs as a technology.
More importantly, NFTs are moving beyond a work of art to something much more consumer-friendly. The biggest brands in the world are now using them to find better ways to connect with their online audience.
Beware of Bitcoin mining scare
In the land of cryptocurrencies, FUD stands for “Fear, Uncertainty and Doubt”. This is a tactic by malicious actors to focus on the fortunes of publicly traded Bitcoin mining companies to suggest doubts about the viability of the Bitcoin blockchain itself.
This happens in every bear market.
Looking back on the bitcoin bear market of 2018/2019, one can see doomsday headlines proclaiming the imminent end of bitcoin, given the problems bitcoin mining companies were facing.
In early 2018, bitcoin was trading at around $10,500. It fell in a range of $5,500 to $6,500 and stayed there from June to November 2018, before dropping to $3,200. Many bitcoin mining companies capitulated and went out of business as their margins plummeted and they were unable to cover the cost of producing bitcoin.
The Bitcoin network doesn’t care who is mining it. It will continue to produce blocks every 10 minutes, like clockwork.
Bitcoin will survive. Investors must be prepared to weather the storm of headlines and spread fear, however, in order to get the most out of bitcoin’s lowest price in years.