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We’re now hours away from ending what was arguably the most challenging year crypto has ever faced. We kicked off 2022 in a state of uncertainty; we knew that markets were starting to chill, but we weren’t quite ready for the manner in which winter finally fell. Bitcoin rang in the new year by dropping 30% in January, which wasn’t totally out of character (and also wasn’t its worst start ever). It was really in March when temperatures started to drop hard, with the record-breaking $650M Ronin Bridge hack. Our thermometers hit zero in May with Luna’s $40B implosion and then began to tumble into the negative zone with big names like 3AC, Voyager, and Celsius all succumbing.
While this was unfolding in crypto, Russian troops invaded Ukraine in February, further accelerating the rising prices of commodities globally. The Federal Reserve launched its battle against inflation in March, and with every subsequent announcement of interest rate hikes, speculative markets everywhere dropped a little further. Between June and December 2022, the global crypto marketcap shrank from $1.3T to its current $850B, its smallest in two years. Eventually, the winter would take its most high-profile victim: FTX and Alameda Research. (I suppose you could argue that FTX’s demise had nothing to do with winter and everything to do with criminal intent, but it was the weakening market that revealed their fraudulent activities.) At this point, with the Alameda executives pleading guilty, SBF himself under house arrest, and $SOL at -96% of its ATH, it feels like we’ve finally hit bottom.
I should mention that 2022 wasn’t all bad. For one, Ethereum’s transition to Proof-of-Stake finally happened. That ended, amongst other things, a years-long debate about whether or not NFTs were bad for the environment. There was around $9B in investments poured into the space, with the likes of Fireblocks, Polygon, Consensys, Animoca, and yes, FTX itself, all raising funds north of $300M a piece. (A far cry from 2021’s $25B though!) But just to be absolutely clear: I don’t think it’s an overstatement to say that overall 2022 was pretty fucking rough.
What can we look forward to in 2023? In terms of sentiments, I think the industry needs closure with SBF and FTX before it can start its recovery process. Why? Because crypto has always struggled against credibility-destroying scams, and SBF is by far its most visible and most embarrassing fraudster. If SBF doesn’t go to jail, it implies that the industry is not capable of recognizing and dealing with its most obvious bad actors. That, in turn, will have a chilling effect on investors who would otherwise be interested in buying the dip. It was good to see the Alameda executives admitting to the fraud, and I’m hoping that SBF himself will follow suit and allow the DOJ to wrap things up quickly in 2023.
Global inflation is believed to have peaked in this last quarter, implying that we’ll see the price of goods and services start to calm down in 2023, with a return to “target” by the following year. (Of course, “target inflation” just means that your money will buy less than before, but not ridiculously so.) That said, the Federal Reserve is expected to hike interest rates again on February 1st and March 22nd, bringing the total figure to over 5%. This could mean another drop in speculative markets both traditional and crypto alike. On the Philippine forex side, we correctly predicted both the strengthening peso in early December (we hit ~54 from 58) and the weakening peso in late December (we’re now over 55). With remittance volumes tapering off again, we’ll see the USD exchange rate return to 56 and beyond (-2%) in January. Basically, it looks like we can expect a bearish first quarter, before a cautiously-optimistic-but-mostly-sideways market takes over in Q2.
How does the average crypto investor navigate a timeline like this? The safest approach appears to be to accumulate fiat liquidity and look for a good entry point in Q1 2023. If you don’t want to wait, both Bitcoin and Ethereum are on a holiday sale already. To be fair, everything is on sale right now, but I wouldn’t recommend $SOL, $ADA, $AVAX, or any of the other ETH-killers. (Let’s just say that the odds of a Solana resurgence seem extremely low to me.) Don’t forget that every crypto cycle brings about a new set of contenders, and none have so far proven to have any significant staying power or developer mindshare. Prior to 2021, projects like $EOS, $XTZ, and $IOTA were top 10 coins, and now they’re barely hanging on in the bottom half of the top 50. Crypto loves the new new thing, so it’s way more likely that 2023 will bring about a fresh set of challengers for Ethereum’s crown. If you plan on gambling, save your chips for the new entrants and pray that you (a) pick the next 10000x coin, and (b) know when to exit.
I think 2023 will be a healing year. Not just for the industry, but in large part, we’re also trying to repair the way the world sees us. Of course, just like with all other kinds of healing, the actual recovery period will take time. It’s likely that the best market action that we can hope for will be some promising upticks, but nothing remotely resembling the 2021 bull run. If things get resolved positively at FTX, Celsius, BlockFi, or any of those other bankrupt/insolvent platforms, it’ll show that the industry is finally learning to clean up after itself. Only after that can we start rebuilding the trust and credibility that was lost.
See you all next year, cryptofam!