It is a roller coaster. This is how the cryptocurrency price has evolved since the beginning of 2023. With a slight upward trend, especially in January, the primary tokens are fighting to reach their maximum prices – although they are very far away. But then, every piece of known bad news pushes them down again.
The sensitivity of the crypto world is high, caused by the fall of large projects last year, on the one hand, but also because capital is more fearful after the pandemic and the United States Federal Reserve (Fed) gives it refuge with tempting interest rates and safe returns.
Last year was challenging for cryptocurrencies, and the same factors that caused Bitcoin to halve its price between January 1, 2022, and the beginning of this year continue to impact the industry. These variables could be grouped into two groups: endogenous and exogenous.
The former include problems within the sector, mainly the fall of emblematic projects or sanctions imposed by public bodies on firms in the industry, while the latter relate to global macroeconomic variables, from whose impact they are not exempt.
The first 50 days of the year are a testament to crypto volatility, and February is a good example. After a first month of the year with increases of up to 40% in some tokens due to the slowdown in inflation in the United States, a real bullish rally occurred – with increases of up to 10% in 24 hours – after Jerome Powell’s speech at the beginning of February.
The Fed president indicated that he would be heading towards a slowdown in rate increases, which in the last year scared capital away from riskier investments, such as cryptocurrencies, to turn to more solvent instruments. Finally, he raised interest rates by 25 points.
But just a week later, the U.S. Securities and Exchange Commission (SEC) fined Kraken, the third-largest cryptocurrency exchange on the market (measured by daily transaction volume), $30 million because the company violated the law by failing to register its staking – as-a-service program, which involves acquiring cryptocurrencies and keeping them locked in a virtual wallet to receive profits or rewards. Bitcoin fell 3.61% in 24 hours and Ethereum fell 5.78%.
Another SEC action sent cryptocurrencies plummeting. Paxos, the company in charge of minting the official stablecoin of Binance, the world’s largest cryptocurrency exchange, announced on February 13 that it would end its relationship with the crypto giant and will no longer issue BUSD. This is because the New York Department of Financial Services (Nydfs) launched an investigation against it and made the decision “in close coordination” with the official body. As a result, BNB, Binance’s token, fell 11.27% in 24 hours and spread to the rest.
On February 16, cryptocurrencies rose by 10% again due to another positive data. It was learned that the year-on-year inflation in the United States was 6.4% in January, a decrease of 0.1 percentage points compared to December, which is why Bitcoin rose by 7.53% in one day and the rest of the digital currencies followed suit.
Previously, they had suffered a negative impact after the unemployment data in the northern country was known, which marked 3.5% – the lowest rate in 53 years. The market interpreted this as a signal for the Fed to continue with the high-interest rate policy.
These events marked a year-end with twists and turns, albeit with a slight rise since cryptocurrencies reached trading levels they had not reached since November 2020. Bitcoin, for example, started the year at around US$16,000 and, at the time of this edition, was at US$24,000.
Some market analysts believe the worst part of another chapter of the so-called “crypto winter” has already passed. Part of the fall in tokens in 2022 can be explained by the collapse of well-known projects, such as FTX, one of the most active exchanges in the market. Other cases were Celsius and Luna, which also sowed uncertainty in the sector.
However, other experts believe that a bull market is not coming yet. This is due to two factors. On the one hand, agencies such as the SEC are increasingly investigating and monitoring crypto projects. They seek to regulate this industry more firmly while part of it is resisting.
The data that reflects the official intention is, for example, that of 40,521 tokens launched in 2022, 9902 (24%) showed “signs of being a scam,” according to a report by Chainalysis (a crypto information platform). Each sanction, fine or suspicion increases uncertainty among investors and causes prices to fall.
On the other hand, the Fed has said it will apply as many rate increases as “appropriate” to bring inflation to the 2% annual target. In other words, the US government’s restrictive monetary policy has not yet ended. The Fed has raised benchmark interest rates eight times in a row since March 2022, including four consecutive increases of 0.75 percentage points, to cool the economy and contain inflation.
“Every time a major player in a sector fails, the retail consumers suffer. In recent years, we have seen great fluctuation in the supply of projects, but the ability to generate value, beyond the market context, continues to stand out. As regulatory frameworks develop, it will be easier to understand cryptocurrencies’ benefits within the financial industry,” explains Maximiliano Hinz, director of Binance for Latam Southern Cone.
Meanwhile, the industry is debating internally to what extent to advocate for – or collaborate with – greater regulation. Cryptocurrencies were philosophically born to be decentralized to separate themselves from the traditional economy and avoid government control, but the increasingly frequent collapses or scams.
This, which left hundreds of thousands of investors without their capital, produced changes in the perspective of the sector’s leaders. Binance, for example, is in favors achieving greater transparency, although there are some doubts about its stablecoin. Many exchanges recently made the so-called proof of reserve to demonstrate that their coins and savings have support.
Federico Ogue, founder of Buenbit, a crypto company of Argentine origin, was one of the first to foresee the “crypto winter” that left many industry employees out of work. He was also one of the first in the country to decide to lay off 80 people due to the financial drought he warned of.
When asked by our expert, he said that he considers the collapse of the Terra ecosystem “to be the worst event” of last year and comments: “It was a difficult year for the crypto and fintech industry worldwide. As a result of several situations that occurred during 2022, the market was purified.”
Denisse Donoso, leader of the BeInCrypto Spanish team, said that the worst thing about last year is that “users’ trust has been damaged.” She agrees with the diagnosis that the biggest “disappointment” was the fall of Terra, followed by that of FTX. “Being a custodian of your digital assets is important.
Speculative projects or those that are not well understood can be very risky when it comes to entrusting them with your crypto assets,” she mentions as a lesson for 2022.
Thus, part of the crypto world expects up to another year of tension with a probability of a downward trend and does not predict major upward movements until the end of 2023 or the beginning of 2024. Next year, in addition, the Bitcoin halving will take place, a moment that occurs every four years and in which the protocol cuts the number of blocks produced by half every 10 minutes on average.
In 2024, it will go from 6.25 BTC to 3.125 BTC. Therefore, Bitcoins will be finite. In 2140, the last one, the 21 millionth, will be issued. The effect will be an appreciation of the currency, followed by a rise in altcoins (alternative currencies), as occurs in all cycles.
“It will be a quiet year for the industry and it will allow each player to settle in and find their place. For Argentina in particular, cryptocurrencies will continue to be relevant due to all the limitations we have with the dollar, where the stablecoin format becomes a great solution,” adds Ogue.
Donoso also expects the bear market for tokens to continue, although new regulations may “drastically affect” (for better or worse) several projects in the industry.
Filip Karađorđević, Prince of Serbia and Chief Security Officer of JAN3, said: “During times of low liquidity, many crypto projects will fail and disappear because they are sold based on their narratives rather than their fundamentals.
Sadly, as long as crypto projects receive new investment, they can appear to be growing, even if they fail to deliver on their promises. Over 99.9% of all crypto projects will eventually fail. Bitcoin will hit a new all-time high, if not in 2023, then in 2024; it is inevitable.”
Cryptocurrency leaders will face an internal debate over-regulation, which some describe as a “confrontation” with public bodies. There is also concern about the possible collapse of more projects. And attention will have to be paid to news emerging from the global economy, but especially from the US.
The market does not seem to foresee major milestones for tokens in 2023, although the volatility shown by cryptocurrencies is raising alarm bells. For many, next year could be a better season, although there is still concern about the possibility of the crisis escalating prematurely.
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