How crypto tokens (not Bitcoin) will outperform stocks in 2023, Arca’s CIO explains

January 16, 2023 Coin Telegraph

Some crypto tokens will perform better than stocks in 2023 as they become less sensitive to macroeconomic factors, according to CIO at Arca Jeff Dorman.

Digital assets will largely decouple from traditional equity markets in 2023, says Chief Investment Officer at Arca, Jeff Dorman.

Discussing his outlook for 2023 in a recent interview with Cointelegraph, Dorman argues that as the global economy enters a recession this year, equities will be negatively affected while some crypto tokens will perform well: the value of the latter, he explained, is determined not only by macroeconomic factors but also by their utility within the respective ecosystems, which would remain unaltered in a recession.

“You're going to see a lot of stocks get punished under the weight of restructurings and under the weight of lower revenues and lower cash flows. And you're actually going to see a lot of tokens do really well”, Dorman explained.

Crypto's decoupling process from equities may not involve Bitcoin though, which according to Dorman, will remain highly correlated to the stock markets, given its high sensitivity to macro factors such as global liquidity and interest rates.

“Bitcoin has just become a 24-seven VIX, it's just a trading vehicle now for large funds who want to get in and out of risk on weekends and overnight trading hours”, Dorman pointed out.

To find out more about Dorman’s crypto predictions for 2023, check out the full interview on our YouTube channel, and don’t forget to subscribe!

Ripple exec expects more crypto acquisitions by TradFi in 2023

January 10, 2023 Coin Telegraph

Coin Telegraph

Crypto acquisitions in 2023 will further strengthen the industry in the aftermath of casualties like the FTX collapse, a Ripple exec predicted.

The cryptocurrency industry will see increased consolidation in 2023 as healthier companies acquire more crypto and blockchain companies, according to a senior executive at Ripple.

Sendi Young, Ripple’s managing director for Europe, took to Twitter on Jan. 9 to share a set of industry predictions for 2023, expressing confidence about crypto in the near future.

According to Young’s forecast, the coming year will bring many acquisitions in the blockchain and crypto industry, which will help such companies and startups fill the gaps in their capabilities. The acquisitions will further strengthen the industry in the aftermath of casualties like the FTX collapse as well as other issues experienced by firms like Celcius, Voyager, Three Arrows Capital and others, the Ripple exec noted.

Young also predicted that cryptocurrency and blockchain firms will be increasingly acquired by traditional financial (TradFi) companies and other established companies in 2023.

Young’s predictions about the state of crypto acquisitions in 2023 come amid the increasing interest by traditional finance giants in buying subsidiaries of the now-defunct crypto exchange FTX. As many as 117 financial and strategic counterparties have expressed willingness to purchase one or more of FTX’s branches like FTX Japan, FTX Europe, LedgerX and Embed, according to a court filing from Jan. 8.

The cryptocurrency industry has seen some major acquisitions recently, with Mike Novogratz’s Galaxy Digital acquiring Argo Blockchain’s flagship mining facility Helios for $65 million in late December. According to Novogratz, the Helios mining deal was a transformative acquisition for Galaxy as the firm works to increase its exposure to the Bitcoin (BTC) mining sector.

Among other predictions, Young also forecasted that 2023 will see greater adoption of fiat-backed stablecoins as institutions realize the benefits of blockchain for real-time merchant settlement.

At the same time, central bank digital currencies will also “come of age,” the exec predicted, adding that the FTX collapse has further triggered the need for nations to establish a “dependable digital settlement asset as a secure alternative to other crypto solutions.”

Year of Bitcoin miners’ merge? Analysts predict key mining trends for 2023

January 4, 2023 Coin Telegraph

Bitcoin mining

Public Bitcoin miners will actively work to minimize costs in 2023 by going private or merging with other firms, Hash Rate Index analysts predicted.

After a shocking year for Bitcoin (BTC), public miners will focus on strengthening balance sheets and minimizing costs this year, according to industry analysts.

Bitcoin mining cost minimization will likely lead public miners to either go private or merge with other companies in 2023, Hash Rate Index’s Bitcoin analysts Jaran Mellerud and Colin Harper predicted.

In a blog post titled “10 Bitcoin mining predictions for 2023,” the analysts pointed out that public miners are burdened with strict reporting requirements, such as spending millions of dollars on annual reporting.

After many Bitcoin mining stocks plummeted 90% in 2022, public miners could significantly reduce administrative costs by going private or merging with others to share the costs.

Alongside predicting that 2023 will become the year of Bitcoin miners’ merge, Hash Rate Index also forecasted a massive restructuring year in the Bitcoin mining industry. The analysts are confident that strengthening balance sheets will be a top priority for Bitcoin miners in 2023 as they fight to avoid bankruptcy.

The analysts noted that the unsustainable debt levels of some Bitcoin miners will force them to proceed with debt restructuring as the only option. Debt restructuring can imply negotiating lower interest rates or extending the due dates of the debt, the authors added.

According to the analysts, Bitcoin miners will also increasingly hedge risks in 2023 by utilizing Bitcoin mining derivatives, including those allowing miners to sell their future hash rate for a specific hash price. “We will see a trend commencing of miners seeking to hedge everything that can be hedged, just like what is expected in more mature commodity-producing industries,” Mellerud and Harper stated.

As for broader industry predictions, Hash Rate Index also predicted that the ongoing Bitcoin bear market will likely come to an end in 2023, referring to historical BTC price cycles. However, a full-scale bull market will not commence until traditional finance firms are ready to move into Bitcoin, which would take another one or two years, according to analysts.

Bitcoin hash rate growth is also likely to slow down in 2023, while mining equipment will become even cheaper, the analysts predicted.

Hash Rate Index’s Bitcoin mining predictions come amid the crypto mining industry going through a major crisis fueled by Bitcoin losing about 60% of value in 2022. As many as 100% of public mining companies have been forced to sell almost all cryptocurrency that they mined in 2022 in order to survive the crypto winter.

Reviewing El Salvador’s Bukele Predictions for 2022: What Went Wrong?

January 2, 2023 Bitcoin.com

Dollar Loses to Digital Currencies in 2023, Former Russian President Medvedev Says

December 30, 2022 Bitcoin.com

What to expect from crypto the year after FTX

December 29, 2022 Coin Telegraph

2023

Users are still seeking to move their funds away from centralized exchanges, paving the way for blockchain-based alternatives to thrive.

Cryptocurrency had its Lehman moment with FTX — or, perhaps, another Lehman moment. The macroeconomic downturn has not spared crypto, and as November rolled around, nobody knew that we were in for the collapse of an empire worth billions of dollars.

As the rumors of bankruptcy began to take hold, a bank run was inevitable. Sam “SBF” Bankman-Fried, the once effective altruist now under house arrest, continued to claim that assets were “fine.” Of course, they were not. From Genesis to Gemini, most major crypto organizations have been affected by the contagion effect in the aftermath.

The problem with exchanges like Binance, Coinbase and FTX

Time and time again, the feeble layer of stability has been broken down by the hammer of macroeconomic stress in an atmosphere of centralization. It can be argued that centralized systems grow quickly for the same reason: They value efficiency over stress tolerance. While traditional finance realizes economic cycles in a span of decades, the fast-paced nature of Web3 has helped us appreciate — or rather scorn — the dangers posed by centralized exchanges.

The problems they pose are simple yet far-reaching: They trap skeptical and intelligent investors in a false sense of security. As long as we’re in a “bull” market, be it organic or manipulated, there are far fewer reports to be published about failing balance sheets and shady backgrounds. The drawback of complacency resides in precisely the moment where this fails to be the case.

The way forward, for most people who got hurt by the FTX collapse, would be to start using self-custody wallets. As retail investors scramble to get their crypto off centralized exchanges, most of them need to understand the scope of the centralization problem. It doesn’t stop with retail investors parking their assets in hot or cold wallets; rather, it simply transforms into another question: Which asset are you parking your wealth under?

Often hailed as the backbone of the crypto ecosystem, Tether (USDT) has come under fire numerous times for allegedly not having the assets to back its users’ deposits. That means that in the case of a bank run, Tether wouldn’t be able to pay back these deposits and the system would collapse. Though it has stood the test of time — and bear markets — some risk-averse people might not push their luck against a potential depeg event. Your next option is, of course, USD Coin (USDC), which is powered by Circle. It was a reliable option for crypto veterans until the USDC associated with the Tornado Cash protocol was frozen by Circle itself, reminding us once again about the dangers of centralization. While Binance USD (BUSD) is literally backed by Binance, a centralized exchange, Dai (DAI) is minted after overcollateralized Ether (ETH) is deposited into the Maker protocol, making the stable system rely on the price of risky assets.

There is also a counterparty risk involved here, as you have to take the word of auditors when they say that a particular protocol has the assets to return your deposits. Even in the bull run, there were cases when these assessments were found unreliable, so it makes little sense to outright believe them in such trying circumstances. For an ecosystem that relies so much on independence and verification, crypto seems to be putting up quite a performance of iterative “trust me” pleadings.

Where does that leave us now? Regulators eye the crypto industry with the wrath of justice, while enthusiasts point fingers at multiple actors for leading up to this moment. Some say that SBF is the main culprit, while others entertain the hypothesis that Binance CEO Changpeng Zhao is responsible for the undoing of trust in the ecosystem. In this “winter,” regulators seem convinced that human beings and the protocols they come up with require legislation and regulation.

Users leaving FTX, Binance, Coinbase and other exchanges is cause for hope

It is no longer a question of whether the industry should abandon centralized exchanges. Rather, it is a question of how we can make decentralized finance (DeFi) better in a way that doesn’t infringe upon privacy while also reducing the current notions of it being the “Wild West.” Regulators — alongside investors — are awakening to the refurbished idea of centralized organizations collapsing under stress. The wrong conclusion to derive would be that centralized exchanges need to be more tightly regulated. The optimistic and honest one is that they need to be abandoned in favor of DeFi at a much higher pace.

DeFi has been developed to avoid these risks entirely. One such method is to develop agent-based simulators that model the risk of any lending protocol. Using on-chain data, battle-tested risk assessment techniques and the composability of DeFi, we are stress-testing the lending ecosystem. DeFi offers the transparency needed for such activities, unlike its centralized counterparts, which allow funds to be obfuscated and privately rehypothecated to the point of collapse.

Such monitoring can be done in real-time in DeFi, allowing users to have a constant view of the health of a lending protocol. Without such monitoring, insolvency events that have taken place in the centralized finance industry are made possible and can then go on to trigger a cascade of liquidation as the daisy chain of exposure crumbles.

Imagine if all of FTX’s assets were being monitored in real time and shown in a publicly available resource. Such a system would have prevented FTX from acting in bad faith to its customers from the start, but even if there were too much uncollateralized leverage that would lead to a collapse, it would have been seen, and the contagion would have been mitigated.

A lending system’s stability depends on the collateral value that the borrowers provide. At any point in time, the system must have adequate capital to become solvent. Lending protocols enforce it by requiring the users to overcollateralize their borrows. While this is the case with DeFi lending protocols, it isn’t the case when someone uses a centralized exchange and uses immense amounts of leverage with little to no collateral.

This means that DeFi lending protocols, specifically, are protected from three main vectors of failure: centralization (i.e., human error and humans falling to greed from conflicts of interest), lack of transparency and undercollateralization.

As a final note to regulators, moving away from centralized systems doesn’t absolve them of the responsibility — or eradicate the necessity — of regulating even decentralized spaces. Given that such systems can be regulated only up to a certain extent, they’re much more reliable for decision-making and predictability. A code will reenact its contents unless a systemic risk is found within it, and that’s why it’s easier to narrow down on particular codes and come up with regulations around them rather than believing that each human party will act in the interest of the group at large. For starters, regulators can start stress-testing DeFi applications regarding their transaction sizes and transparency.

Amit Chaudhary is the head of DeFi research for Polygon. He previously worked for finance firms including JPMorgan Chase and ICICI Bank after obtaining a Ph.D. in economics from the University of Warwick.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

10 predictions for crypto in 2023

December 28, 2022 Coin Telegraph

2023

Expect blockchain adoption to increase in the year ahead — in addition to the culture wars surrounding it.

This year has been a particularly tumultuous one for the crypto market, with many decentralized and centralized entities failing or struggling to stay afloat. It feels as though we are in the final stages of the bear market, with bad actors and practices being purged in a process that is both dramatic and necessary for the maturity of the entire system. Despite this, the Web3 technologies that emerge from this crypto winter will change everything.

Web3 represents the next evolution of information exchange, with similarities to the transformation from a largely agricultural society to a more industrial one. It is a computing fabric that is designed to put humans at the very center and prioritizes privacy. Blockchain technology will bring about a new way of interacting with the internet and will fundamentally change how we engage with each other. As we move into the future, here are some predictions for what we can expect to see on the other side, in 2023.

1) Crypto venture capital funding will continue to decline through the first half of 2023, but that is not necessarily a bad thing; rather, it is normalizing to a point that is rational. Investors don’t want to catch a falling knife, so they are waiting for things to bottom out while also weighing broader macroeconomic concerns and the global recession risk. At the same time, new settlement (layer 1s/2s), interoperability (layer 0/bridge), lending and trading protocols will continue to get funded to fill the vacuum resulting from the changes resulting from the recent hacks, treasury shortfalls, regulatory changes and exchange collapses.

2) In 2023, the initial Web3 anarchist ethos that rejected the need for big brands will go away. Participants will finally realize that when there is no outside money from big brands, then all you have is a token whose only value comes from user and speculator dollars. Instead, projects will embrace large brands and the ad, marketing and sponsor dollars they bring so that the dream of Web3 (token representing microequity) can be achieved via divvying up meaningful outside capital among actual users. Web2 brands — such as Nike, Starbucks and Meta — will continue to experiment in Web3, with a continued focus on nonfungible tokens (NFTs) as the preferred format, and with an emphasis on customer acquisition and engagement over monetization.

3) People will realize that the way many have been thinking about community in Web3 is bullshit. “Community” was often simply a lovely word used primarily to describe “a bunch of speculators in a Discord sharing a common dream of rapid wealth who abandon the project once the growth carousel stops moving.” While we’ll continue to see exceptions to the rule — such as strong, engaged decentralized finance communities, as well as online-to-offline decentralized autonomous organizations like LinksDAO — what we’ll realize in 2023 is that the whole Web3 ideal of project/community fit was frequently just project/speculator fit. So, we can’t afford to ignore the fundamentals of actual product/market fit.

4) As Web3 app development costs go down and user acquisition costs go up, there will be an emphasis on quality and discovery. Web3 will have its App Store and AdMob moments, which will help developers and users find each other more efficiently. L1s and wallets will initially compete for this position, but a new player will likely take over. Breakout Web3 apps in 2023 will look more like the top-downloaded and top-grossing apps in the early days of mobile — simple user experience and graphics with intuitive but innovative engagement and monetization mechanisms — like Angry Birds in 2009.

5) The current trend toward “stability” and “sustainability” in games — in some ways resulting from the bumps of Axie Infinity — will spawn a wave of products with built-in stability but that lack the dynamic boom-and-bust nature of most crypto speculation. This will create a flat, muted player experience, which just feels like a copycat version of existing Web2 video games. Over time, game developers will relearn that market speculation is part of the fun and try to incorporate it in healthy, responsible ways.

6) Web3 will continue to offer a solid niche, with apps that are functionally clones of existing businesses, but with some basic blockchain components. These apps will carve out a market niche of users who want that same traditional core product offering but have some affinity for Web3, similar to many early internet companies (such as Amazon as a web bookstore) or mobile companies (such as Robinhood as a mobile stock trader). They will differentiate largely on marketing and experience rather than on core product offering. A few of them will take moonshot bets at truly paradigm-breaking innovation, a la Amazon.

7) To deal with compliance costs and overhead, blockchain apps will increasingly rely on existing, large-capitalization tokens to power token-related mechanisms. Ethereum will continue to delay its roadmap in 2023, but once it does eventually ship sharding to reduce gas fees, alternative L1s will see a big dropoff in interest.

8) Stablecoins will find more use cases outside of crypto capital markets, which will drive more mainstream adoption — primarily among businesses — and innovation within Web3. Governments and private blockchain research and development will continue, with some announcing centralized public infrastructure like central bank digital currencies or marketplace infrastructure.

9) Culture wars around crypto will heat up toward the end of 2023, leading into the United States election cycle. Booms and busts will continue, with accidental hacks (like Wormhole), over-aggressive risk exposure (like Terra) and outright fraud (like SafeMoon). More politicians will take strong stances on crypto. However, the U.S. government will continue to be indecisive on regulation, to the detriment of the domestic industry. Any regulation that does emerge will be patchwork and could still allow risky projects to slip through the cracks.

10) As builders develop through the bear market, there will be a point in 2023 when new growth areas start emerging beyond existing prevailing narratives like NFT profile-picture projects, play-to-earn projects, alternative L1s, etc. The new narratives will propel the next cycle, and hopefully, these fresh frameworks will drive real consumer utility and adoption, bringing in several hundred million new crypto users/wallets.

The uncertainties of the future also represent opportunities, and those who are able to adapt quickly stand to benefit if significant changes do occur.

Mahesh Vellanki is the managing partner of SuperLayer and a co-founder of Rally. He served previously as principal at Redpoint Ventures after working for Citi as an investment banker.

Predictions