Crypto market outlook: How players will win in 2023

The year 2022 was by far the most eventful year for the crypto market. The industry that has been struggling for years to get mass adoption took back-to-back beatings from multiple crashes caused by hacks, poor risk management, and fraud by many of the industry’s largest players.

Alongside the crashes within the crypto market, Bitcoin’s value went down by nearly 80% from its all-time high in 2021 because of poor macroeconomic conditions namely, the continuing war in Ukraine, the Fed’s successive rate hikes, all-time high global inflation, volatile energy markets and strength in the U.S. dollar.

To be sure, Bitcoin price touched  $15,000 levels in 2022 from an all-time high of nearly $70,000 in 2021. The invasion of Ukraine in February 2022 disrupted exports for commodities including oil and gas that pushed up inflation to levels not seen in decades. To fight the high inflation, the Federal Reserve raised its benchmark interest rate 7 times to its highest level in 15 years, while the US dollar’s value strengthened throughout the year.

To top it all,  uncertainties came to the social media site Twitter as it got acquired by Elon Musk. The developments in Twitter are important as it is the go-to platform for crypto enthusiasts. For example, FUD was amplified by speculators on Twitter around FTX’s sudden downfall in November that snowballed from the Binance founder's tweet about the anomalies that were going on with Alameda Research’s balance sheet.

Events in 2022 that directly affected how you trade

The sanction against Tornado Cash in August 2022 is the strongest signal of the US government to the crypto players. Tornado Cash, which basically acts as a coin mixer, allegedly laundered the proceeds of cybercrimes, including over $455 million stolen by a North Korean state-sponsored hacking group. Takeaway - the US will seem to be not a good location for traders in 2023, with hints of further regulation. For traders, the narrative around privacy is interesting, on one hand, privacy solutions may face regulatory headwinds and struggles. However, privacy remains an important narrative in crypto in the long run and these events may highlight to many why privacy remains important.

The collapse of Terra sent massive shockwaves across the industry, with an estimated $60 billion wiped out from the crypto asset markets. Terra’s stablecoin UST crashed as its ecosystem coin LUNA  went on a hyperinflationary death spiral for having very little hard cash to collateralize UST. Takeaway - Possible further stablecoin regulation. Despite UST being an algorithmic stablecoin, regulators may view all stablecoins in the same basket. Likely more reliance on fiat-backed stablecoins by the industry in the future.

The collapse of Three Arrows Capital (3AC), once the most prominent crypto hedge fund in the world, can be traced to the collapse of Terra in May. 3AC once managed about $10 billion in assets but failed to meet margin calls from its lenders and trading counterparties. Takeaway - This is an important advert for DeFi. Had all of 3AC’s borrowing and lending been on the chain, not only would the collateralization requirements of DeFi prevent this, all of their borrowings would be visible on the chain for market participants to verify and better understand the extent of their leverage.

The $600 million theft from the Ronin Network, a sidechain built for the play-to-earn game Axie Infinity, was the largest hack this year. Hackers gained access to the majority of the private keys held by transaction validators for the network’s cross-chain bridge and approved the withdrawals. Takeaway - This was one of several bridges hacked during 2022. Bridges remain an important part of the crypto infrastructure and there continue to be innovative solutions, however, bridge risk is one of the biggest risks to the multichain thesis for crypto.

FTX's sudden and catastrophic collapse in October stemmed from its former CEO Sam Bankman-Fried using customer deposits to cover trading losses of his hedge fund Alameda Research and for personal expenses including real estate and political donations. FTX’s downfall sent reverberations and indelible stains throughout the entire crypto industry. Takeaway - FTX also highlighted the power of DeFi by reinforcing all of the principles that DeFi was built on. The transparency, decentralization, and self-custody of DeFi empower ordinary people to prevent companies like FTX from misusing their assets.

The negative news overshadowed the good news

Value propositions of crypto assets were on full display in Ukraine when the country received about $100 million in crypto donations to fight the war against Russia. Its decentralized nature and imperviousness to the actions of national governments make crypto highly effective for use as donations in a fast, efficient, and permissionless manner.

The successful completion of The Merge in September is the most defining moment of 2022. The historic overhaul of the second-largest blockchain network involved the joining of the original execution layer of Ethereum with its proof-of-stake consensus layer. It took two years of testing and more than 100 bi-weekly calls by hundreds of developers globally that resulted in the elimination of the need for energy-intensive mining and an increase in security that paves the way for future scalability upgrades.

Outlook for 2023: Bullish with less Bullcrap

Leaning on the lessons of the past year, the innovations in the crypto asset space will play against the extended backdrop of the Fed’s hawkish tone to curb the US inflation, the ongoing war in Ukraine, and the badly beaten trust of the wider population in the crypto industry.

“In the past year, the macroeconomic events played a significant impact on the crypto market as crypto is treated as risk assets by institutions. It is worth noting that the crypto narrative didn’t play out in the macro events, for instance, the store of value (SOV) narrative didn’t play out during the war [in Ukraine] and the US dollar strength,” said Tiffany Wang, Analyst at WOO Network.

Crypto innovations will lean on the lessons of the past year. The short-term pricing and reevaluation of the crypto assets will play against the extended backdrop of the Fed’s hawkish tone to curb the US inflation, the ongoing war in Ukraine, and the badly beaten trust of the wider population in the crypto industry.

Macroeconomy

Wang said in a bull case scenario of 2023, US inflation would drop so as the Fed’s monetary policy tightening peaks while the labor market stays strong. This means better risk sentiment for the crypto market.

On the other hand, the bear case would be that the US inflation remains sticky. She said, “Although the October and November inflation prints this year surprised to the downside, more evidence is needed to confirm a shift and  there still can be uncertainties for inflation in 2023.” Wang also noted that there is a lag in the impact of the Fed’s hikes on the real economy. How much the real economy and labor market will slow down is yet to see.

Wang also highlighted the possibility of China opening up. “With China opening up, the growth in demand will help the global economy and supply chain. However, this demand can push up the energy price globally as well and bring inflation pressure,” she noted.

Narrowing the gap between DEX and CEX

The gap between Decentralized Finance exchanges (DEX) and Centralized exchanges (CEX) will be narrower as the DEX highlights its unique value proposition, especially in the light of the FTX debacle, said Kevin Feng, Head of DeFi at WOO Network. Below are his points to support the growth of DEX users:

Expect to see higher adoption of L2s to scale up Ethereum and EVM ecosystem in general. “With the maturity of Optimistic rollups and ZK rollups and implementation of the Proto-Dank Sharding, the scalability of Ethereum will drastically improve. I expect that more daily user activities will happen on L2s and Ethereum PoS mainnet will serve more as a settlement layer with the utmost decentralization and security,” noted Feng.

More people will be incentivized to adopt self-custody, which means more adoption of DEX. “Today DEXes still can't compare with CEX in terms of efficiency, user experience, and cost, but it will follow the same path as the development of CEX where more users and competitors lead to innovation which drives the cost down, and efficiency and UX to a higher standard.”

Account abstraction will drastically improve the UX of DeFi and the adoption of smart contract wallets. “The introduction of account abstraction in the Ethereum roadmap can solve a lot of the pain points in onboarding users to DeFi, such as private key management, gas fee payment, etc. DeFi’s transparency and immutable on-chain records can be leveraged to build a better credit system with the AA and smart contract wallet as critical building blocks.”

The convergence of DeFi and NFT. NFT was the hot topic in the last bull market, while the lack of utility becomes more obvious when the bear market hits. However, NFT has been proven to be the best tool to enhance user engagement, so we expect it to be used more by DeFi projects, leveraging the value-creation ability of DeFi to provide sustainable utilities to NFT.

Traders will be a lot smarter with the CEX choice

With transparency as one of the guiding themes for the new year, WOO Network moved quickly, building out a first-of-its-kind comprehensive dashboard of assets and liabilities that updates every fifteen minutes, setting new standards of transparency for CeFi.

“We believe that a large divide will emerge between many crypto-native businesses in 2023, between those with a strong commitment to transparency and those who operate opaquely. With this in mind, WOO Network plans to release more transparency around execution quality on WOO X and the tokenomics of the WOO token,” said Mitchell Nicholson, Ecosystem Team at WOO Network.

“2022 witnessed a violent transformation in the crypto assets space, leaving a market share vacuum as surviving businesses scramble to improve their transparency and win back customer trust. However, this also leveled the CeFi playing field, as users learned to sort out partnerships and marketing, focusing more on trust and transparency,” said Ben Yorke, VP of Ecosystems.

WOO Network positions for Decentralized 2023

Yorke noted that WOO Network is in a much better position for the expected developments next year. “We put in a lot of efforts to develop and improve WOOFi, in anticipation of more users of DEXes next year and beyond.”

Launched in October of last year, WOOFi has succeeded in surpassing every expectation - adding support for swapping, staking, and even institutional investing across 5 additional networks. More enhancements are still yet to come, and the introduction of cross-chain staking and consumable NFTs in Q1 feature as highlights, aiming to make the user experience more enjoyable and rewarding than ever before.

WOOFi DEX is maturing quickly, and the addition of more spot markets and perpetual futures now lies on the horizon. Transparent, decentralized perpetual exchanges have continued to increase in popularity, and WOOFi DEX will soon make its mark on this scene, leveraging its unique CEX-like look and feel to capture market share and drive more utility and awareness for the WOO token.

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