If the Fed relaxes its monetary policies, it just might!
The state of cryptocurrency this year has been one for the comic books, where the protagonist—in the face of a crisis—says, “But it can’t get any worse than this, right?”, and it does.
It just wasn’t crypto’s year. From rising interest rates to mistakes made by cryptocurrencies like Terra Luna and CEOs like Sam Bankman-Fried of the crypto exchange FTX, a host of factors stunted the digital currency’s growth. It also led to investors losing money and becoming skeptical about its future.
Like them, we can’t help but wonder: what will happen to crypto in 2023?
Factors determining crypto prices
Before delving into the shape crypto could take next year, it is imperative to understand the factors that are likely to determine its future:
- Economic circumstances: If this year has taught us anything, it’s that the general economic environment can hurt cryptocurrency drastically. The economic downturn, high interest rates and inflation impacted people’s risk appetite and, subsequently, crypto value, as people pulled out of riskier investments.
One cannot predict events, like Covid-19, Russia’s invasion of Ukraine or the disastrous consequences of former British Prime Minister Liz Truss’s leadership. Yet, one must prepare for such unforeseen circumstances to throw a spanner in the works, especially when it comes to volatile financial investments like crypto.
- Increased adoption: A saving grace—and a point of contention—for crypto has been its adoption. Known brands, like Gucci, Adidas and Nike, have set up their metaverse presence, aligning themselves with blockchain-powered functions. This is what creates demand. Supply and demand influence crypto prices. Currently, there is supply in abundance; but without demand, it is fruitless.
- Social media hype and celebrities: Let’s call a spade a spade—people like to buy what their favorite celebrities ask them to, even crypto. From Matt Damon to Reese Witherspoon, a range of actors, sportspersons, comedians and digital personalities have promoted different cryptocurrencies over the past couple of years. More often than not, it has ended badly for their fans.
Many other factors, including regulations and governance, also influence—and will continue to influence—crypto prices.
Will crypto recover?
It’s a grim question, but one that needs answering for investors’ sake. The thing is: investing in crypto is not going to be a predictable undertaking until, perhaps, there is some regulation. That’s why opinions on its recovery are divided.
As of December 1, 2022, most altcoins are down 90%, with Bitcoin and Ethereum down over 60%. A crypto winter has eclipsed the world for the entire year, with no end in sight. According to investor Mark Mobius, Bitcoin could fall to US$10,000 in 2023 from its current value of about US$17,000. The CEO of crypto tax software CoinLedger, David Kemmerer, feels that this winter is here to stay for some time. He attributes that to macroeconomic factors, including “40-year highs in inflation, rising borrowing costs and political instability after Russia invaded Ukraine.”
Ultimately, the fate of crypto in 2023 rests in the hands of the U.S. Federal Reserve System which determines the monetary policy that ripples through the global economic system. People need to be able to take the risk and invest in crypto again.
Plus, FTX’s overnight collapse did little to help the currency’s reputation. People are more skeptical than ever to take a chance and hold cryptocurrencies.
Not everyone is so down on crypto though. Some feel that crypto will recover and how. Enthusiastic investors believe that by the end of 2023, Bitcoin will be well on its way to a valuation of US$80,000 and more. Frankly, crypto could go either way.
Which crypto will grow most in 2023?
Experts are keeping their bets hedged on well-known cryptocurrencies with a history of success. Here are some:
- Bitcoin: The largest crypto by market capitalization, Bitcoin might continue to be among the top cryptocurrencies to invest in in the coming year. Its large-scale adoption makes it a reliable asset class. Plus, with reputable companies, like Google’s parent company Alphabet, and renowned banks adopting Bitcoin, the odds of its value stabilizing are greater than those of other cryptos.
- Ethereum: Another well-known crypto, Ethereum is home to a range of decentralized applications (dApps) and organizations. The crypto has many use cases which might help it retain and raise its value.
- Other coins/tokens: Experts at Analytics Insight believe that popular crypto, like meme coin Shiba Inu, Solana and metaverse Decentraland’s token MANA, is likely to rise again next year.
Frankly, there is no way to know for sure which crypto will do well in 2023. Still, people are hoping that the rise of decentralized finance (DeFi), regulation, government adoption and fresh crypto use cases will breathe new life into the digital currency.
Strategies for investing in crypto
For the coming year, experts feel that investors can no longer invest on a whim or because their friends are doing so. They must understand blockchain as a whole and have a long-term plan for the platform. One cannot rely on celebrities or media personalities to call the shots. Now, you must treat crypto investing like traditional investing, where you consider all the risks, your emergency fund, and whether you have other life goals that could use the money instead.
This article is meant for informational purposes only. Please make investment decisions based on your discretion.
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