Crypto is an uncharted landscape – with volatile prices and little regulation – but signs are emerging that its dynamics may change soon, such as President Joe Biden’s support for digital US dollars, or multimillion-dollar Super Bowl ads by cryptocurrency firms. So it pays to pay attention to some overarching themes which could shape its trajectory well into 2023 and beyond.
Inflationary pressures have placed greater strain on risky assets, including cryptocurrency investments. That’s because their prices often decrease when central banks increase interest rates – potentially curbing demand for them and thus leading to less demand.
Cryptos have also been subjected to regulatory pressure. The collapse of FTX, a major cryptocurrency exchange that handled billions daily transactions, caused havoc for the market, sending bitcoin’s price plummeting below $16,000 from its peak of $65,000 reached back in November 2021. Furthermore, other exchanges were forced to close down, and UK’s Financial Conduct Authority blacklisted Binance exchange.
Investors have become more cautious, which could slow the adoption of new cryptocurrencies and fuel speculation that some may move money from riskier assets into safer, more reliable ones like stocks and bonds.
The FTX fiasco also raised questions regarding government oversight of the crypto industry. While most governments currently take an uninvolved approach, with crypto’s rapid ascent and evolution leading regulators to begin crafting rules for it; the challenge being finding an equilibrium between mitigating traditional financial risks while not restricting innovation.
In the US, for instance, the Securities and Exchange Commission is working to determine how cryptocurrencies should be classified as securities. This distinction is crucial; if cryptos were classified as securities that would provide investors with similar protections as traditional finance such as deposit insurance.
Other key components that could impact cryptocurrency are:
One key concern with cryptos is their energy use, which can strain power grids and increase electric bills. That is why some developers are working on creating a new type of cryptocurrency which consumes less power. Furthermore, while price fluctuations can be profitable for long-term holders but costly for newcomers who buy in just before a crash hits. Finally, scams such as “pump and dumps,” in which people buy coins with hopes they will increase in value only to sell when its value plummets, present risk as well as scams like “pump and dumps”.