What is the outlook for crypto in 2023 and beyond?
Today, the word “volatile” is still a very apt description of the crypto asset market. Many are even referring to the current state of the market as “Crypto Winter”, based on the significant loss of value in crypto asset prices in the second half of 2022. Traditional asset markets and economies are also dealing with similar challenges, and risk-if trading in growth assets has turned to risk positions in value assets .
Aside from the general macroeconomic environment and a general movement away from riskier assets, the industry-specific cryptoasset market turmoil of recent months, including FTX’s collapse, has also given pause to newer entrants and capital infusions into the space. But where some see danger in these valleys and peaks, others see opportunity – not just in the potential for future appreciation, but more importantly, in the underlying technology behind digital assets and currencies.
Digital asset innovation
It is important to note that the events that have occurred in the crypto asset market in 2022 are concentrated in the market structure of crypto as an asset class, and not the broader digital asset technology space. Almost all of the challenging news in the past six months has been about centralized devices and not the underlying technology stack. Many in the industry have also clarified this point, including the Monetary Authority of Singapore, which has said it seeks to limit cryptocurrency speculation but continues to support digital asset innovation.
The reality is that large financial institutions and incumbents see the benefits of smart contract-based blockchain infrastructure and recognize that related, innovative financial instruments are critical to building future financial services. It’s no surprise that our 2023 Global Innovation Report revealed that a majority (71%) of financial services firms globally recognized decentralized finance (DeFi) as a major growth opportunity for their organization.
Our research also found that the lack of clarity around crypto regulations was the biggest barrier to wider adoption. As regulatory support and clarity continues to mature, it will create comfort and certainty for new capital infusions into digital assets. I believe we will see a major turning point in 2023 in increased regulatory clarity, not just for crypto and stablecoins, but greater awareness of how Web3 technology can re-platform and support assets within existing regulatory frameworks. This will accelerate certain use cases and regional product developments.
What happens next in 2023?
In response to the market events of 2022, we are already seeing some notable improvements in the increased pace of regulatory policy development, increased emphasis on risk management and control by key industry players, and a general sense of industry focus on core value proposition and purpose.
Additionally, there are still areas where growth and investment continue at a strong pace, including corporate investment and pilot adoption of underlying Web3 technologies, central bank digital currency (CBDC) advances and pilots, institutional investors deploying capital to digital assets, and aggregate venture capital. support for the ecosystem.
These initiatives are all driven by a long-term technology investment cycle and outlook, which most industry participants – and even many non-industry participants – agree has not changed, even though the path between today and tomorrow may be longer and more complex than expected.
In terms of institutional adoption, we should expect to see continued and growing demand for three key innovation streams:
- Tokenization of real-world assets: The tokenization of real-world assets using Web3 technology to better connect different groups of issuer and investor capital, for example by connecting private equity fund managers and wealth management investors.
- Stablecoins in B2B value streams: Stablecoin use cases will begin to take shape in business-to-business payments and other value transfer use cases that are inefficient and slow today, such as in cross-border flows between businesses and business units.
- Expansion of existing business: Incumbent administrators, custodians and brokers will all continue to build out the pipelines connecting digital assets to their services for fund managers and asset managers – not just for cryptocurrency, but for all digital assets.
Although much of the speculative retail growth in crypto and other asset markets in this latest investment cycle has receded over the past six months, as with other market downturns in history, trading volume and asset prices will one day grow again. We must remember that we are still at the beginning of the journey. Institutional investors will continue to move in, and traditional enterprises will build and use the technology to ensure they stay in the transactions and capital flows across the industry.
There is no doubt that recent market events for cryptoassets have made the road ahead more challenging, but we expect the industry’s response and renewed focus on adopting Web3 infrastructure to provide more robust long-term benefits for the financial industry as a whole.
