If 2021 was the “Year of the Cryptocurrency,” then 2022 was the year it collapsed. Millions were made and lost by crypto investors while crypto companies were built and folded.
With 2023 right around the corner, one thing is clear: the “Roaring Twenties” era of 2022 crypto parties and the market’s overall irrational exuberance is over. 2023 is the year crypto will have to grow up and clean up its act. Ahead, here are five predictions for the next year in the digital economy.
Tal Elyashiv is co-founder and managing partner of SPiCE VC. This article is part of Crypto 2023.
Prediction #1: Natural selection of the crypto ecosystem
Natural selection of the digital asset ecosystem will be a powerful force in 2023 – and that’s a positive development. The good companies will get stronger, and the bad ones will fade away or be restructured – leaving a better-positioned market for the future.
We’re already seeing Darwinism sweep through the market, with only the well-managed, well-intentioned companies surviving. While there will be more shoes to drop as we head into 2023, this process is needed and very healthy for the future growth of the digital assets ecosystem. The reshaping and rebuilding of the industry’s reputation and the way it does business will continue to be driven by institutional investors requiring more controls, risk management, transparency and reality checks.
While we’re on the subject of institutional investors, firms like Softbank, Sequoya and Temasek (to just name a few) have some sobering up to do as well. This maturation and sobering up process will weed some of the fraud, incompetence and lack of experience out of the industry – and that’s a good thing. The companies left standing will be stronger for it and the industry will be better positioned to begin thriving once again.
Prediction #2: Regulation everywhere but here (U.S.)
Countries across the globe will make critical decisions on crypto regulation in 2023, while in the U.S., no meaningful regulatory movements will occur due to legislative dysfunction.
One thing we know for certain will happen in 2023 as it relates to crypto regulation in the U.S. is infighting (and lots of it). From the Securities and Exchange Commission and the Commodity Futures Trading Commission to the Democrats and the Republicans, and let’s not forget the decentralized finance (DeFi) versus traditional finance (TradFi) crew, 2023 will be just as entertaining as WWE, so grab the popcorn. However, no one benefits from stalemates from unresolved power struggles, and this coming year won’t be any different in the digital economy. While one would like to hold out hope that a new Congress can accomplish meaningful crypto legislation, the likelihood of it happening is as high as Sam Bankman-Fried keeping his Bahamian penthouse.
But while the U.S. squabbles and debates, countries around the world are making progress and 2023 should see many of these regulatory regimes take shape.
The European Union is taking a massive step early in 2023 to vote on and implement the Markets in Crypto-Assets Regulation (MiCAR/MiCA), which lays out a framework to regulate both the issuance of cryptocurrencies and assets, and transactions (i.e., trading, investment and payments). Specifically, the MiCA bill contains several provisions regulators say are necessary to “rein in the Wild West of the crypto world.”
Meanwhile, Asian regulators are each taking on crypto guardrails differently. Hong Kong’s goal for 2023 is to increase retail access to crypto, which requires a specific regulatory strategy to support those objectives. In sharp contrast, nearby Singapore has signaled that it will tighten regulations after big losses this year for investors, while South Korea, still dealing with the aftermath of the collapse of Terra, will focus solely on enforcement. On the other hand, India, somewhat uniquely in the region, is using tax policy to drive behavior.
Prediction #3: The metaverse and NFTs come back from the dead (but not the way you think)
The glitz and glamor of the metaverse and non-fungible tokens may be tarnishing, but the practical, versatile and inevitable uses for both will be much clearer in 2023.
The recent narrative about the metaverse’s demise (partly based on Meta Platforms’ dismal financial outlook) are premature, the same way the exuberance about its immediate relevance and market adoption a year ago was. No one should be looking at Meta and the overall building of the metaverse infrastructure as a 2023 or 2024 project. The truth is, the metaverse is inevitable, but it will take years to fully come to fruition. With that said, 2023 will mark the beginning of how we perceive “metaverse experiences.” New use cases in enterprise, healthcare, education and more will bring the practical utility of smaller doses of the metaverse to our collective attention – even in our daily lives. Advances in identity technology, along with AR/VR devices (think Apple’s XR project) will come into focus as well in 2023.
The same is true about NFTs. The non-fungible token market will also go through a rebirth of sorts in 2023, moving further away from being a value driver on its own in the digital art and collectibles domain and closer to being what the technology was meant to be – mostly digital proof of provenance and authenticity of an object, with its value deriving only from what it represents. 2023 will also see the NFT’s versatility beginning to shine. The funnel of innovative ways to leverage NFTs will continue to widen in 2023. From supply chain and logistics to healthcare, real estate and retail, NFTs will have a more pervasive and permanent role in digitizing operations.
Prediction #4: 2023 may be the ‘Year of the CBDC’ around the world but there will be no digital dollar in sight
The CBDC arms race will continue as central banks create alliances with commercial banks and technology providers to strengthen their position to test, launch and execute on their unique CBDC strategies.
With more than 80% of the world's central banks already considering launching a central bank digital currency (CBDC), 2022 was mostly full of trials and testing. However, the movements by nations across the world to make CBDCs a reality is picking up speed and will become a major priority in 2023 – especially as the race to set a global standard is in sight. Additionally, commercial banks are increasingly interested in the space and will begin (or continue) to partner with central banks and software vendors to ensure success and mass adoption.
While China’s digital yuan is far beyond the rest, many countries are making headway – with 2023 goals of rollout a possibility. The Bank of Japan is piloting a rollout with major banks in early 2023. Turkey announced it would launch its CBDC next year, while the ECB intends to start work to develop a rulebook in early 2023 on rolling out a digital euro. The money and payments world is clearly on a path of adopting blockchain more broadly in 2023, with SWIFT even recognizing the need to move in this direction.
Prediction #5: Institutional investments in the digital economy will skyrocket
Institutional investors will make big moves with their big money.
We learned in 2022 that beyond crypto’s organizational woes it is closely tied to traditional market movements and the overall economy. For 2023, the domain’s performance will again depend on world economic sentiment. If concerns ease, we may see an uplift in crypto prices as well as investments in the digital asset market.
Regardless of the market trends, we will likely see more traditional, blue chip funds (i.e., KKR and Hamilton-Lane together with Securitize) tokenize – making them more accessible to a broader sphere of investors. Additionally, more and more large cap market players will move into the tokenization space (i.e., JPMorgan, HSBC, Fidelity, Goldman Sachs) and we’ll see a significant uptick in mergers and acquisitions activity as a result. However, a caveat to all of this, as mentioned prior, is whether or not legislators and regulators step up to provide some needed stability.
2023 will also be an excellent time to invest in venture capital funds focused on the blockchain ecosystem (not crypto funds). History shows VC funds that raise during recessions outperform funds with different vintages. Plus, it makes a lot of sense because valuations in the blockchain ecosystem are going to be much more reasonable and down to Earth over the next couple of years.