The poor performance of cryptocurrencies in 2022, during what has been dubbed the ‘crypto winter’, could give way to a ‘crypto spring’ in 2023, according to one crypto expert.
EToro crypto market analyst Simon Peters predicted that inflation peaking will provide a positive tailwind for crypto and may lead to a change in sentiment to buy once again.
“A return to a crypto bull market might also be helped by a Fed pivot and interest rate cuts expected from November 2023, and once interest rates start falling, more liquidity will become available to enter investment markets again,” he said.
In his outlook for 2023, Mr Peters said that crypto regulation will remain one of the most prominent issues, which he said will be broadly welcomed by investors, platforms and users.
“Regions such as the EU are already making headway with legislation such as MiCa, while the Financial Services and Markets Bill is going to be a game-changer in the UK,” he said.
“The US is also making big regulatory noises but it remains to be seen what material direction that takes in 2023.”
Locally, the Albanese government has committed to taking action to improve the licensing and regulation of crypto service providers, including through its token mapping project.
“Ensuring best practices are being followed, such as segregation of customer assets, correct collateralisation and reconciliation, plus transparency, will be really important for both regulators and crypto market participants looking for a more sustainable market in the aftermath of events this year. It will also be key to rebuilding trust,” said Mr Peters.
As for other influences on crypto in the year ahead, Mr Peters suggested that the next Bitcoin ‘halving’ scheduled for 2024 could lead to increased market participation as early as 2023.
The halving means that the reward for mining Bitcoin will be cut in half. Mr Peters said this will influence investor sentiment due to supply and demand considerations.
“The maximum number of bitcoin that will ever be in existence is 21 million,” he explained.
“This, combined with a decreasing issuance due to the smaller block rewards, creates an element of scarcity for the asset and theoretically will create price increases. If new issuance falls and demand remains firm, then prices go up.”
While central bank digital currencies (CBDCs) have been caught up in all of the noise of 2022, Mr Peters noted that projects and innovations are currently underway by a range of central banks and governments, including in Australia.
“2023 will see more pilot testing, feasibility studies by central banks into the use cases and potential for the technology, and its possible uses — particularly in the realm of cross-border payments,” he said.
“We’ve already seen some moves in this direction, particularly from institutions such as the Bank of Japan, and authorities in Singapore, which are making headway on major testing already.”
