Will Crypto Make a Comeback in 2023?

Will Crypto Make a Comeback in 2023?
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If the year 2021 was spectacular one for major cryptocurrencies like Bitcoin and Ethereum as they touched an all-time high of $68,789 and $4444.53, respectively, the year 2022 turned out to be extremely rough for them. Both currencies slumped by over 60 percent from their highs achieved a year ago. And it's not just the tale of these two cryptos alone, other tokens like Dogecoin, Avalanche, and Solana also plunged heavily. The market cap for cryptocurrencies has fallen to $810 billion from $2.18 trillion a year ago.

How cryptos got there

While the experts blame the slump in the prices of major currencies like bitcoin on various factors like rising inflation, interest rates and economic uncertainty that drove investors to sell risk assets throughout the year and also the fall of well-known crypto projects including Terra LUNA and Celsius, the major factor was the bankruptcy of FTX exchange.

In November 2022, when FTX exchange announced bankruptcy and Samuel Bankman-Fried, aka SBF resigned from his position as CEO of FTX, the bitcoin price dropped from over $20,000 to under $16,000 in a matter of days. The second major crypto Ethereum also saw a similar decline, falling from above $1,600 to below $1,200 as the events unfolded.

The fiasco affected investors across the globe. In India too, an estimated 3-5 lakh Indians lost their money owing to their exposure in FTX exchange. "This year will be etched in the memory of the Crypto users for a long time for the series of unprecedented events that shattered investor confidence, caused many long-time believers to question the principles, and affected users adversely. Centralized exchanges have been one of the leading platforms for buying and selling Crypto. The FTX crash might have users question the credibility of exchanges as it was one of the biggest platforms enabling Crypto purchase," says Rajagopal Menon, Vice President, WazirX.

The good news is in the wake of FTX collapse, Indian crypto exchanges took some steps to protect their investors. Says Raj Karkara, COO, ZebPay "As an immediate response to the FTX incident, the FTT token was delisted from ZebPay and the remaining FTT member balances were auto-converted to fiat to prevent further impact from the fallout. "We only partners with platforms that are overcollateralised and assure the safety of our members' assets"

"Since India has no well-defined regulatory framework for crypto, we looked to regulated financial institutions and other sectors to study their best practices and standards and have tried to replicate them at CoinSwitch," says Ashish Singhal, Co-founder, Coinswitch.

Adds Menon, "Ever since the dawn of the bear market this year, our attempt has been to educate our users about different aspects of trading in this ecosystem. We are also working on releasing our Proof of Reserves to assure our users of their fund safety."

Questions on survival

With chaos all around, the question on everybody's lips is: what will 2023 be for the crypto market? Will crypto survive? "The current situation is a mixture of concern and uncertainty with the future of crypto. The market has a lot of trust from the investors and which can be seen in the liquidity. Web3 gaming and Utility NFTs are trying to recover the market," says Amanjot Malhotra, Country Head, India, Bitay.

According to Karkara, the recovery of the crypto markets has always been stronger with most tokens making massive gains. "Since 2009, there have been four major instances where the price of Bitcoin corrected from its high by a large margin. And each bear phase was followed by a bull run. Moreover, data suggests that while the Bitcoin price has fallen since the start of 2022, close to 60% of circulating Bitcoin hasn't moved in a year. This shows that the trust remains strong," he further adds.

Concurs Singhal, "Crypto is here to stay. Alongside the sentiment, the chatter has gone down during the current bear phase, but that also means that noise is low and focus is on innovation. From a retail angle, new consumers entering the ecosystem have slowed but those who are entering know all the risks and are better equipped to handle volatility. The potential of cryptos and its underlying technology is massive. The realisation is increasing, just like its real world utility."

What about the regulations?

The FTX chaos prompted calls to increase crypto market regulations to protect investors. In the absence of regulations, customers holding their crypto assets at exchanges don't appear to get any financial protection. But exchanges are hopeful.

"The industry is steadily moving towards regulations globally. Countryspecific laws are being drafted to protect investors from market uncertainties, obliterate security risks, and prevent any impact on the monetary system should the Crypto industry go through a rough period" says Menon.

"The year 2023 will be a stepping stone of Crypto being regulated and the start of a new era where we will move towards mature teams, projects and investors taking informed bets on the future of Crypto," says Malhotra.

According to Karkara, the current tax norms are a good place to start for the Indian government, the industry would thrive more if the TDS and capital gains taxes are reduced further and levelled with other securities such as stocks and bonds.

Where are prices headed?

According to experts, the true contagion effects of the FTX fiasco will continue to unravel in the next few months "Overall, during 2023 crypto markets should trade sideways, with a downward bias due to the latest setback on institutional trust in the system. However, there are several token specific events that could trigger price rallies for individual tokens. For Bitcoin, the run-up to the halving event of 2024, any favorable regulations and major adoption by companies or countries could result in a price rally. For Ethereum, the Shanghai upgrade towards the end of 2023 could be a positive trigger," says Path Chaturvedi, Crypto Ecosystem Lead, Coinswitch.

Staggered approach for investors

While the bear market has caused many investors to rethink their future crypto investments, bitcoin's supporters have not stopped believing about its its bullish future. But they are asking investors to make informed decisions. "Crypto space is dynamic and changes keep taking place at a rapid pace. However, fundamentally strong cryptos are here to stay and will continue to grow in the future. Investors should ensure that they choose their investment partner after thorough due diligence." says Karkara.

Singhal advises investors not to fall for peer pressure. "Every individual should understand their risk appetite and plan their portfolio accordingly. Users should also explore investment schemes such as SIP that allow them set aside a fixed amount in a Crypto at regular intervals. Invest only the amount you can afford to lose. The same rule applies to crypto. Consult a qualified advisor before doing any of this.