What challenges will crypto face in 2023 after a disastrous 2022?

After crypto-currency prices skyrocketed in 2021, with the entire market approaching a $3 trillion valuation in November of last year, a series of high-profile blowups highlighted the real risk to the industry, causing the market to lose more than two-thirds of its value this year.

Should investors abandon their investments in digital assets? Only you can answer that question based on your personal risk tolerance, time horizon and understanding of the crypto-currency industry. But you can be sure that the new year will likely be full of key developments.

Bitcoin will lead the bull market

The Federal Reserve has signaled that it may slow the pace of future rate hikes, which could be a bullish sign for all risky assets. So if crypto-currencies rally at some point next year, I think bitcoin will lead the way.

As the oldest and most valuable crypto-currency, with a market capitalization of about $330 billion, bitcoin is probably the leading exposure to the asset class for individual and institutional investors. Capital that has left the market this year is waiting for the situation to improve, and new investors with no position in a crypto-currency could flock to bitcoin in a recovering market. This type of activity is spurred by the fact that it is incredibly easy to buy bitcoin today.

Again, it all depends on central bank actions, macroeconomic conditions and general sentiment towards digital assets. But I’m convinced that when the markets bottom out and prices start to rise, bitcoin will be among the first to soar.

Another delay for Ethereum?

This has been a monumental year for Ethereum, as the completion of the merge has allowed the network to move from proof-of-work to proof-of-stake, which requires 99.95% less energy and sets the stage for better scaling in the future. While the upgrade was acclaimed by the crypto community, it was long overdue. In fact, most developers had been waiting for this event since Ethereum’s launch in 2015.

The next phase of Ethereum’s development cycle is the introduction of sharding, a feature that will spread the load of the network across the blockchain, which will significantly speed up transaction throughput. Given the novelty of blockchain technology and the uncharted territory Ethereum is in, I think sharding will be delayed. It was supposed to be released in 2023, but Ethereum’s official website now says “2023 to 2024”.

Ethereum co-founder Vitalik Buterin has also added another step in the network’s development pipeline, called The Scourge. Including The Merge, there are now six different stages that Ethereum needs to go through to be fully complete. I see the likelihood of more delays, and perhaps even more development stages added to the mix, given the insane complexity of this new technology.

Stricter regulation on the horizon

As I noted in the introduction to this article, a series of high-profile accidents in the sector, including the failures of Celsius, Voyager, Terra Luna, and FTX, demonstrate the urgent need for clear and comprehensive regulation. These adverse events have highlighted the complexity, entanglement, and opacity of many of the industry’s major companies. The goal of legislators should be to increase trust and transparency and to protect investors.

Therefore, a stricter regulatory stance from the U.S. could prove to be a positive development for Coinbase in particular, which is based in the country and is a publicly traded company as of April 2021. This means that instead of circumventing U.S. laws by setting up shop in a foreign domicile, which is what crypto-currency exchange FTX did, Coinbase is already issuing under existing securities regulatory guidelines. And that should strengthen its position as a trusted broker and exchange.

Nevertheless, a patchwork of regulations from various agencies will not suffice. If the U.S. wants to be at the forefront of crypto-currencies on the global stage, it must introduce a unified regulatory framework. This will provide the foundation for the industry to grow in the future.