We are just a few months from the end of a disastrous year for crypto. After the markets did exceedingly well in 2020 and 2021, the crypto winter took hold, and it has been a long one. Very few investors have a risk appetite for cryptos at the moment. Instead, everyone is waiting on the sidelines to see what will happen next year in the crypto world. This article will make three crypto predictions about 2023, each more compelling than the last.
Making predictions about the crypto market is never easy. Tulipmania took hold of the Netherlands in the 1600s and is widely viewed as the first financial asset bubble, and many have likened it to the craze surrounding cryptocurrency. But even with the steep fall in the value of cryptocurrencies, one can argue that they have been great investments. When comparing the returns of major cryptocurrencies and solid stocks like Walmart (NYSE:WMT) and Coca-Cola (NYSE:KO), you see the merit of investing in cryptos. That’s why keeping an eye on crypto predictions is important.
Here are three key ones heading into the new year:
| BTC-USD | Bitcoin | $19,511.20 |
| ETH-USD | Ethereum | $1,320.71 |
Bitcoin (BTC) Will Make a Comeback as the Dollar Cools Off
The first cryptocurrency was Bitcoin (BTC-USD). It was created in 2009 by Satoshi Nakamoto. Bitcoin solved the “double spending” problem of digital assets (in which digital assets can easily be copied and thus counterfeit) through an ingenious combination of technologies. The result is a unique, immutable ledger that you cannot change without redoing the work done since the last “block” was completed, providing a reliable way for businesses to verify transactions.
Bitcoin saw spectacular success during the pandemic, reaching an all-time high of around $69,000 per token in November 2021. Since then, though, things are not looking so good, and the token price has fallen off a cliff.
Heading into the new year, everyone making crypto predictions is thinking about one thing. Will Bitcoin reclaim its former glory?
The U.S. dollar is the most traded currency in the world. It’s also the world’s reserve currency and consequently has a lot of influence over international trade. The dollar has been weakening for a long time, which makes Bitcoin more attractive to investors. If the dollar continues to weaken in the long run, Bitcoin will become an even better alternative for storing value and a means of exchange.
The Fed has been quite hawkish this year, and the U.S. dollar is gaining as a result. However, most interest rate hikes this year are already on the books. Next year, we will see the dollar stabilize, leading Bitcoin again to gain interest in the markets.
Web 3.0 Will Lead the Way
Web 3.0 is a vision of the internet that is under your total control. It’s a place where people can collaborate to share knowledge and resources to create equitable outcomes for all without the centralized governance or erosion of privacy that characterizes Web 2.0.
A decentralized Web 3.0 allows a platform to store information directly on users’ devices rather than a central authority. Users would be able to participate in a token economy where money, goods, and services are traded among the network of users. This would reduce the reliance on intermediaries, such as banks or governments. You would no longer have to trust any single source for the truth.
Web 3.0 comprises three main concepts: decentralized, token-based economies, and blockchain. Decentralized means that all the computing power is available to everyone online, and the data is distributed on a peer-to-peer network. A decentralized network doesn’t have a single central point of failure and has no intermediary between you and the provider of the service you’re looking for.
Decentralization means that information on a network is open and accessible to everyone. A decentralized economy means no centralized governing bodies dictate who gets what and who has to pay what for services and products.
Over the past three years, various themes have emerged and dominated the crypto industry. NFTs and DeFi are prime examples of this. Cryptos attached to the space did exceedingly well in 2020 and 2021. Looking at 2023, Web 3.0 and associated cryptos could eventually become the next big thing, so it’s important to stay on top of them. If you want to know more about the concept and how you can play this space, check out Brenden Rearick’s excellent piece on the topic.
Ethereum (ETH) Will Continue to Grow
Whenever we talk about predictions in cryptocurrency, one name that always comes up is Ethereum (ETH-USD). It is the world’s second-biggest cryptocurrency in the world. However, in the last few months, its value has fallen sharply. Unfortunately, investors are jumping to conclusions. This is because the recent downturn has little to do with Ethereum’s fundamentals. Instead, many of the reasons why Ethereum is down are beyond the control of its development team. These include the Fed raising interest rates and macroeconomic indicators like employment figures.
Furthermore, investors are choosing to focus on completing the Merge (sometimes called ETH 2.0). The Merge combines the Ethereum Mainnet and a new layer called the Beacon Chain. It eliminated the need to use expensive mining and reduced energy consumption by over 99%. The announcement was an important moment for Ethereum. A lot of Ethereum holders were panicking before it, but at the end of the day, they ended up seeing major gains in their portfolios. Following the Merge, serious selling pressure gripped the market, though.
The folly is thinking the era of innovation for Ethereum is over. Vitalik Buterin, co-founder and inventor, has mentioned plans for more innovative Ethereum systems within the next 12 months. He hopes to explore sharding and blockchain-based social media in greater detail and how they could come together to create a decentralized organization initiative.
The point to note is that many exciting things are happening in the Ethereum space in 2023. That means Ethereum won’t be staying stagnant any time soon.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
