Cryptocurrencies, one of the most popular financial tools for investment portfolio diversification, had a challenging year and showed a lot of volatility in 2022. The turbulence in the crypto market happened partly due to events like the bankruptcy of FTX, massive user withdrawals, Terra Luna’s ecosystem collapse, and significant FUD. Analyst and expert opinions are divided regarding when the bear market might appear. Some expect the end of 2023 to bring good news, while others refrain from making assumptions or don’t believe in a revival at all. However, despite the collapse of major cryptocurrency-focused banks, Bitcoin is up around 50% compared to last year. Its price is seeing better days than three months ago, as at the moment of writing, it is up by approximately 11,000 dollars compared to the end of 2022.
When the price of the most important cryptocurrency, Bitcoin, goes up, other digital coins’ values also tend to grow a little. At the moment of writing, and as you can see online, the price of Ethereum has increased by 600 dollars since November of last year.
If you’re optimistic about where the market is going, it’s not too late to buy the dip. Just equip yourself with patience, determine an amount you wouldn’t mind losing, and acknowledge the following trends for a clearer picture.
Increased adoption of cryptocurrency ecosystem
2023 is following in the footsteps of 2022. Despite being a challenging year for many participants in the crypto market, last year, the total number of cryptocurrency owners jumped from 306 million in January to 425 million in December. Therefore, the total number of crypto owners grew by 39%, and Ethereum led the charge. Unsurprisingly, this cryptocurrency, the second largest crypto by market capitalisation after Bitcoin, recorded the most impressive gains in adoption. Its number of holders jumped 263% throughout the year, accounting for 20% of global crypto owners, and the long-awaited Merge upgrade is referred to as the primary catalyst.
Unsurprisingly, increased cryptocurrency adoption is among the most important news. There was a time when financial institutions and corporations were sceptical about cryptocurrency adoption owing to its decentralised feature. However, times are changing, and increasingly more institutions are starting to acknowledge cryptocurrencies and look to collaborate with the crypto market, while some are allocating capital to them.
Stricter regulation
Cryptocurrency regulation is a wild beast, and the virtual coins’ inability to self-regulate results in a stronger need for closer supervision and transparent regulatory frameworks. The FTX collapse sent shock waves through the crypto market and affected the trustworthiness and credibility of digital currencies as reliable, reputational assets. It also acts as a barrier to the industry’s development, depicting the vision of an insecure landscape and bringing with it the dangers inherent in this volatile, decentralised space. This is why trust has reached an all-time low, causing a decrease in interest among institutions and financial players in the crypto markets and causing prices to fall abruptly.
In 2023, expectations are for a volatile year, as well. Even though crypto adoption and investor interest are rising, there’s still a long way to go until regulatory needs are met. There’s an undeniable need for regulatory authorities to work on stringent laws and regulations for the wild crypto world, and this is happening for various reasons, among which the most prominent is the FTX collapse.
Regulation across the United Kingdom, the United States, and European Union
In April 2022, the United Kingdom government declared its ambition to make the country a global cryptoasset tech hub. On January 20, 2023, the United Kingdom government expressed its intention to include stablecoins – one type of cryptocurrency – in the legal framework via the Financial Services and Markets Bill. The Bill refers to allowing the development of experimental “digital sandboxes”. Meanwhile, the Economic Crime and Corporate Transparency Bill aims to include cryptoassets in criminal and civil asset recovery powers.
In the United States, cryptocurrency executives were hoping that this year would mark a new era after a period of setbacks. Instead, the industry is facing an aggressive government attack, with the Securities and Exchange Commission levying penalties against firms that lend cryptocurrency. The moves are likely the beginning of a period of legal battle as authorities try to respond to market instability that forced crypto businesses to file for bankruptcy in 2022, costing investors billions of dollars.
The European Union is ahead of the pack with the continuous push through the Markets in Crypto-Assets (MiCA) Regulation. The issues covered by the bill range widely, including the following:
- Money laundering
- Corporate reporting
- Consumer privacy
- The environment.
The Bill would require stablecoin users to prevent collapse by holding enough reserves and crypto miners to disclose their energy consumption. Furthermore, a financial regulator from an EU member state will monitor any operating exchange in the region.
Enhanced corporate crypto features
As cryptocurrencies soar in popularity, increasingly more companies like Apple, Google, Microsoft, and Disney are embracing them. One example this year is Microsoft’s “virtual office” project, which builds a more efficient and dynamic workplace by incorporating digital coins. This project relies on a SharePoint-based solution that allows for smooth interactions and transactions between team members.
The exciting crypto use cases and features can help further digitalise virtual currency in the eyes of traditional business leaders. Plus, as companies become more tolerant of cryptocurrency, it may gain acceptance as a valid method of payment and investment. When it comes to payment methods, a business can benefit in several ways by taking advantage of cryptocurrency. For instance, unless a third-party processor is involved in handling the payment flows or providing accounting tools and other operations, transaction fees are close to 1%.
The cryptocurrency world is unpredictable and has experienced some interesting periods over time. While digital coins’ past performance isn’t an indicator of future results, the existing trends described above offer a glimpse into this industry.
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