While 2022 has not been kind to the crypto market, 2023 is likely to cure all its ills.
When China crypto mining banned in May 2021, the market fell into the red for several weeks. But little by little, cryptocurrencies began to recover, reaching all-time highs in November. An increase that was fueled by some positive events, such as the summit “The B Word” organized by the former CEO of TwitterJack Dorsey.
By 2022, back-to-back bankruptcies of market heavyweights have reduced its market capitalization to less than $1,000 billion. Similarly, Bitcoin, the world’s largest cryptocurrency, ended the year below $16,000. A scenario that even the most pessimistic analysts would not have believed.
Without a doubt, the crypto market has been destroyed by bear marketbut can it be reborn from the ashes in 2023?
Can the Fed help the crypto market turn green again?
This week, the market cap of the crypto market surpassed the $800 billion mark, reaching $852 billion on Friday. Yes, we still have a long way to go to recover the billions of dollars lost, but 2023 is already looking very promising.
In March, the US Federal Reserve (Fed) began a frenzied race against inflation by raising interest rates to historic lows. The Fed’s aggressive policy helped slow inflation, but caused huge losses in the stock and cryptocurrency markets.
If the Fed continues to raise interest rates, the hemorrhaging of financial markets, including the crypto industry, will continue. According to Scott MinerdThe Fed will continue to raise interest rates until it wins its battle against inflation and “Something is breaking in the financial system”.
For his part, the chairman of the Fed, Jerome Powell, said that the institution “It will only start lowering interest rates when they are significantly above the rate of inflation”. However, it is expected that the central bank will abandon its quantitative easing policy already this year, which would be very beneficial for the crypto market.
However, in case the Fed does not cut interest rates, investors will gravitate more towards government bonds and away from risky assets like crypto.
Is there a link between the rising dollar and stable currencies?
The second factor that could help the crypto market recover is also related to the Federal Reserve. As explained above, the Fed’s quantitative easing policy has taken billions of dollars out of the market. Most of this money has been spent on debt repayment or the US dollar. Since the greenback is considered a global reserve currency, many retail and institutional investors hold dollar-denominated bonds.
When the Fed raises interest rates, foreign dollar debt becomes more expensive. Therefore, individuals and institutions must sell their national currencies to buy US dollars and pay off their debts. that strong demand increases the value of the dollar against other currencies. This effect is often observed in countries suffering from an energy crisis, as the US dollar is also used to pay for energy.
When a country suffers from a lack of energy, it has to issue more banknotes and convert them into dollars to buy energy. Therefore, demand for the dollar is likely to increase this winter. Thus, citizens of countries affected by the crisis can begin to pour in IN stable currency to maintain their purchasing power.
Other countries will make Bitcoin legal tender
Adoption of bitcoin by some countries could also boost the crypto market. Since the year El Salvador gave Bitcoin legal tender, other countries are looking to follow in its footsteps.
For example, the Kingdom of Tonga, a small country located in Polynesia, plans to adopt Bitcoin as its official currency this year. If the Kingdom keeps its promises, other countries may join the adventure.
Let’s not forget that the US dollar has suppressed some foreign currencies, prompting some countries to settle CBDC to protect their savings. However, smaller countries that lack the resources to create their own CBDCs prefer to turn to Bitcoin.
What about the regulations?
Regulatory changes planned for this year could also strengthen the crypto market. For example, the first moments of MiCA invoice should be installed in the first half of 2023. Similarly, The FTX scandal prompted the United States to accelerate its regulatory efforts.
Whatever is said, the regulation of the crypto market will encourage more institutions pour in in digital assets. If all goes well, most of the new laws will be passed by the end of the year, which will set the stage for a bull rally in 2024 and 2025.
Of course, regulation also comes with its share of disadvantages. For example, confidential cryptocurrencies like Monero or Zcash is unlikely to escape the radars of lawmakers. However, the year 2023 will undoubtedly be decisive for the future of the crypto market.
It should also be noted that legal uncertainty is one of the main reasons why Securities Commission (SEC) has not yet approved an ETF for Bitcoin. The adoption of a spot Bitcoin ETF could cause a surge similar to the one that followed the release of BTC futures to the market. Chicago Mercantile Exchange (CME) in 2017.
A glimmer of hope on the horizon?
All the changes and events mentioned above are planned for 2023. If everything goes according to plan, the crypto market will undoubtedly be able to return to growth or at least limit its losses.
However, for now, uncertainty continues to plague all financial markets, including the crypto market. Therefore, unless European leaders find solutions to the energy crisis and rising inflation, the global economy will find it very difficult to recover.
Likewise, other negative events could exacerbate the crisis in the crypto market. That said, everything suggests that the worst is now behind us, so let’s cross our fingers and hope that 2023 is the year of healing and good news.
Finally, remember that regardless of market conditions, you can always generate profits by adopting a good investment strategy.
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