Crypto in 2023: Trends to expect

2022 might just have been a year to forget for the crypto ecosystem. The year for crypto was characterised by scams, crashes and contagions, and was haunted by ferocious bears. For some, these events are part of the processes the ecosystem needs to go through to evolve into a system that is self-sufficient and secure, a system with integrity. For some, who were bitten by the bears and who got their assets exchanged for bankruptcy, it might be an entire story.

This article is not about 2022, it's all in the past. It's about 2023! Here are some of the trends I anticipate will occur in 2023.

Increased regulation of the crypto space.

We saw the shadows of regulators on the balcony of many crypto firms last year. The Securities and Exchange Commission (SEC) in the US sued and secured a judgment against crypto firm LBRY for the sale of unregistered securities. The SEC also sued Ripple for the same cause as LRBY. The court is set to give judgment early this year.

Against the backdrop of scams and crashes last year, in 2023, countries are going to swoop in with regulations and would quit being indifferent about crypto assets. It has become obvious that allowing the crypto space remain loosely regulated might be injurious to the public.

The European Union as a region has a law in the works that aims to comprehensively regulate the crypto space. The Markets in Crypto Assets (MiCA) Regulation is touted as the first all-encompassing crypto law. Amongst other things, the law seeks to establish a licensing regime for crypto companies to be overseen by national regulators. It has been reported that EU lawmakers will meet in February this year to approve the law. Although it may not come into force this year, we can expect crypto companies to start taking compliance steps to conform with the law.

Some countries have started taking positive governance action too. Indonesia, for example, is set to establish a national cryptocurrency exchange as part of its plan to switch regulatory oversight of the sector from its commodities regulatory agency to its securities regulatory agency.

I believe other countries around the world would no longer sit on the fence also. I anticipate that many countries may adopt and localise the MiCA just as they did the GDPR.

Nigeria is not left out. In 2022, the Finance Bill was passed by the National Assembly. The Bill purports to tax the sale of crypto assets. This is in spite of the directive of the Central Bank of Nigeria (CBN) prohibiting banks from processing crypto transactions. I believe that this is just one step in the agenda of the Nigerian government to regulate the crypto space.

Additionally, a Bill was introduced in the green chambers (House of Assembly) last year purporting to legalise cryptocurrencies. The Bill (Investment and Securities Act 2007 (Amendment) Bill) seeks to entrench SEC as the apex regulator of cryptocurrencies and other digital funds. This would transfer cryptocurrencies and digital assets from the regulatory oversight of CBN to SEC, providing SEC with the impetus to incorporate cryptocurrencies as part of the digital assets it intends to regulate under the Rules on Issuance Offering and Custody of Digital Assets.

Nigeria is the largest cryptocurrency market in Africa. This is enough justification for a regulatory awakening in 2023.

Wider adoption of Cryptocurrencies

One of the reasons why many are still indifferent about cryptocurrencies is because of the fact that the crypto space is loosely regulated. This may be remedied in 2023. There would be wider adoption of cryptocurrencies by countries, organisations and the public.

Another reason why cryptocurrencies have not enjoyed as wide an adoption as they could get is because of the scalability of the underlying blockchain technology. Major cryptocurrencies run on blockchain networks with limited transaction capacity. Bitcoin blockchain, for example, can only handle 7 transactions per second (TPS). Ethereum on the other hand has a better figure with 20 TPS. Compared to Visa's 24,000 TPS and MasterCard's 5,000 TPS, cryptocurrencies are still far away from truly disrupting the traditional financial structure.

In 2023, cryptocurrencies may achieve mass adoption as groundbreaking solutions and upgrades are going to be implemented. For example, Ethereum 2.0 is one project that is going live in 2023. Ethereum 2.0 is simply a layer 2 blockchain solution that would utilise sharding to improve the scalability of Ethereum. Alongside improved scalability, Ethereum 2.0 promises better security as it would transition to a Proof-of-Stake (PoS) consensus model, making a 51% attack extremely hard and costly. Also, through sharding and proof of stake consensus model, the energy and sophistication requirements for nodes will be reduced. With the possibility of using phones as nodes, many more nodes will be able to participate in the Ethereum network, thereby further fostering decentralisation.

Ethereum 2.0 boasts of a 100,000 TPS capacity. This makes Visa's and MasterCard's capacity look like child's play. 2023 might just be the year that cryptocurrencies truly disrupt and overtake the traditional financial structure. When Ethereum 2.0 goes live this year, it may spark demand for cryptocurrencies because the network would be faster and more accessible. Furthermore, the exorbitant fees for processing transactions on the Ethereum network would be significantly reduced as traffic on the blockchain network will be eased.

In 2023, many other cryptocurrencies may decide to follow the route Ethereum has taken.

Increase in the value of cryptocurrencies (or not).

This would be a natural consequence of regulation and wider adoption. There may be an increase in the demand for cryptocurrencies and this may drive the price of cryptocurrencies higher in 2023.

I also believe that this year, if the Federal Reserve (U.S Central Bank) pivots and lowers interest rates as some expect it to, people will have more money to invest in cryptocurrencies.

This is an aside. Since Cryptocurrencies and stocks are positively correlated, if there is an increase in the price of cryptocurrencies in 2023, expect a rise in the price of stocks

DISCLAIMER: This is not financial advice.