Erik Weijers, a month ago

What will be the crypto trends of 2023?

Each year around Christmas, crypto analyst firm Messari writes a prediction report. What will be the main trends for the coming year? We discuss a few themes that pop out from this year's edition of the well-respected report. 

Bitcoin: outside money in a historic buy range

In the current wave of deglobalization and mutual distrust, fiat reserve assets like US Treasuries have become suspect: Russia got theirs turned valueless by a push of the button from the US. In this climate, 'outside money', such as gold or Bitcoin has the potential to rise in popularity. When looking at technical indicators for Bitcoin, such as MVRV, they shout: buy now. 

Possible regulatory headwinds

'It's unlikely global authorities will like technologies that make their jobs harder.' Decentralized Finance has faced the danger of being constrained by candidate DCCPA regulations in the US. The escape was narrow. It's now time that DeFi proves itself with non-ponzi use cases, secure protocols and audit standards. The upside is tremendous, but the risk of tight regulation is still very much there. 

Ethereum strong versus alternative Layer 1's

After Ethereum's successful Merge in September 2022, it has cemented itself has the proof-of-stake chain. Roughly 70% of value and developer centers around it. Alternative Layer 1's seemed to threaten Ethereum in the course of 2021. But the threat seems less real now. The Alt L1s face higher selling pressure from unlocks the coming year - and in the case of Solana, from its entanglement with FTX.

This doesn't mean that they will perish. A possible scenario is that two or three Layer 1s will survive alongside Ethereum, much like there are few mobile operating systems. As an investor, you face the option of picking a few winners, or spread out your bets and buy a basket.

NFTs: a lot of upside potential

Prices of NFT collections might drop further, but the market isn't going anywhere: big brands have invested in the technology last year. The NFT market cap is in the order of 10 billion dollars, still a hundred times smaller than the traditional art market it could disrupt.  

Investing in NFTs is hard if you're not into digital art. If you believe in the Bored Apes community, you could buy ApeCoin. You can also bet on the 'picks and shovels', i.e. the marketplaces that benefit from NFT trading. Some have a token, such as LooksRare and Uniswap. An upcoming player is Blur. 

Innovation: Decentralized physical infrastructure networks (DePIN)

The war of censorship will be fought in the cloud. A lot of nodes run on servers by tech giants. Decentralizing this hardware capacity is accoring to Messari the most important area of investment in crypto right now. Filecoin and Arweave are examples of projects tackling this decentralized storage.  

Bear market is for building

2022 was a mess and a lot of big centralized crypto institutions failed or are in distress (Celsius, BlockFi, FTX, to name only a few). The failed projects of the past cycle will give rise to innovations that solve these problems. It will be interesting to see which 'unicorns' will arise from the ashes. The bear market is a great time to build, as there is less distraction from all the hype. 

This is also a call to action to you, reader. Maybe you can code, write, or build in another way in crypto the coming year. In that way, you will have a front seat to benefit from the coming bull market.

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