A look forward at the crypto industry in 2023
The crypto market has generally maintained a correlation between price movements and stock indices (primarily SPX, NDX, and RUSSEL2000) and the dollar index (DXY) over the past year. There is also a solid intra-correlation factor between crypto assets. Since bitcoin (BTC) has always been the dominant crypto asset, other digital assets tend to follow the price movement of BTC in general. This tends to determine the importance of the macroeconomic environment for crypto assets in general.
Since November 22, when FTX contagion sent the bitcoin price to its lowest level of the year, a decrease in the correlation coefficient has been observed. Nevertheless, historical data and our research show that there is a tendency for correlations to converge again.
The latest FED plot shows that the target rate for the next FOMC meeting is estimated to be around 25 basis points. So, there is room for further pain in the markets until Q1 2023.
In the case of recession risk, this would be the first time that BTC and crypto assets experience a reces- sion. Bitcoin was launched at the height of the aftermath of the 2008 financial crisis, and now there is a chance of another financial crisis more than a decade later. Bitcoin was tested during the pandemic crash with a six-sigma event and then rallied to new highs, but this time we are far from a FED with QE policies on the table.
If the crypto market passes this stress test, a new era begins for BTC and digital assets! A new wave of adoption could emerge, and a decentralized currency system could develop in the coming years. On the other hand, many crypto projects born out of speculation and greed, with no innovative value in them, are doomed to fail. Who remembers the namecoin now? Every crypto winter is accompanied by a fundamental reshuffling of digital assets, with many projects failing to survive this bear market.
Based on the historical patterns of the last decade in the crypto economy, it is not unusual to see 2023 as the final stage of the capitulation phase for digital assets and the beginning of the accumulation phase. The key question here is: what digital assets are worth accumulating? The answer lies in a wide range of reasons, to name just a few:
• Defacto store of value assets in the crypto sphere: bitcoin and Ethereum
• Projects with solid governance, ﬁscal policy, strong community, and innovation
• Top DeFi projects in DEX, derivative, stablecoin, and lending sectors
• Emerging protocols: layer one and layer two
• Interoperability chains
What is not to be accumulated?
• Meme coins created around 2020
• Copycat projects and hard-forked chains
• Old Proof-of-Work chains
• Yield farming, Algo stablecoins (Luna Type)
• Crypto assets with a high risk of falling into the security classification, including exchange tokens, centralized lending protocols
Although 2022 was a year when the overall drawdown in crypto markets was high, there were opportu- nities such as bear market rallies, event-driven pumps such as the ETH 2.0 migration, and new projects coming to the market with good returns. This can be seen as a seasonal rally again in 2023!
Active management of crypto assets will continue to be crucial. As with any other investment, crypto assets can be volatile and unpredictable. Our trading and research team closely monitors the markets in order to respond appropriately to price fluctuations and to manage the risk associated with digital assets.