Looking Ahead: The Crypto Market in 2023

In this unprecedented whiplash economy, the rest of 2023 should be full of interesting events. Crypto is definitely affected by macroeconomic developments and central bank edicts, but that doesn’t mean that this year will be a year of greater separation from the larger economy’s central planners. Uncorrelation from the macro economy will necessitate greater retail adoption, which will necessitate more intensive education from those of us in the crypto ecosystem. If crypto winter of 2022 taught us anything, it is that we must return to emphasizing fundamental principles for those who want to participate in blockchain-based economies. I noticed that the crypto space has shifted away from educating retail investors and advising professional investors to focus on the fundamental reasons why crypto exists in the first place. Since we’ve lost our way, refocusing on trustless systems, self-custody/security, thoroughly researching project missions and founders, and generally not engaging in foolish activities, goes a long way toward creating the type of environment required for long-term growth and prosperity. Here are Alpha Stake’s predictions for blockchain development in 2023.

Economic Outlook

GDP Growth:

Crypto analytics since 2020 shows the market cap of crypto is closely tied to the macroeconomic environment, particularly in the United States. The US economy is in an unusual state. The Fed has been able to control the economy for several decades using various tools such as interest rate adjustments, open market operations, issuing bank reserve requirements, overnight repos, the discount window with discount rates, term deposit facilities, and central bank liquidity swaps. Since 2020, all of these operations have been severely disrupted. With an inverted yield curve, the bond market is now signaling lower GDP growth in the future by valuing short-term bonds over the 10-year horizon. This occurred despite the Fed’s erratic policies, which ranged from the lowest interest rates since its inception to the steepest curve rate hike in history, rising from 0.25% to 4.5% in less than a year.

Although the rate hike curve is steep, the effects will lag. We have yet to see what this will inflict on the markets or the general economy. Individuals’ savings are low, but their money market accounts and T-bill investments are higher since average savings interest rates at a bank are well below 0.5%. Real Estate has yet to take the brunt of these rapid changes because most folks took advantage of the low-rate environment and are locked in without being affected by the higher rates. Corporates that survived or thrived throughout Covid are sitting on healthy cash balance sheets and many are debating about the need for real estate purchases or leases since hybrid or strictly remote work was proven to work for many companies and brought about more efficiency or just bottom-line savings.

However, business loan terms are usually refinanced more frequently than retail. Thus, the higher rates will begin to eat into industries causing more capital to go to service debt vs R&D, employment, or acquisitions. This will lead to stagnation and overall slow-down.

While the Fed is attempting to fight inflation, which means less overall spending on goods and services to bring down prices, and they also want less employment. The higher unemployment metric is a strange data point in this environment of the lowest W2-worker participation and the highest number of baby-boomer retirees leaving the job market. Demographics alone should cause the central planners to adjust their expectations of not only the financialization of the middle class who are seeking alternative means to earn money versus the standard non-farm payroll job, but replacement workers could never refill the high number of boomers leaving the workforce. So, open job demands will remain high and current workers will continue to demand higher wages due to less competition.

With more technological aid, most industries will continue to produce at current levels or even higher. The most onerous restraints for industries in all developed Western nations are regulatory burdens and the high costs of compliance. If the goal is higher and ever-expanding GDP to cover higher interest rates on magnificently large debts, smarter policies must be enacted to streamline approvals, allow more free competition in nascent spaces, encourage entrepreneurial innovations, and take on more risks with government-sponsored entities and grants.

However, at least for the cryptocurrency space, it seems our government agencies are doing the exact opposite. We witnessed a definitive lack of regulatory scrutiny for several bad actors within the crypto space and a lack of cooperation with honest agents who sought guidance and clarity for the important work they are attempting. As of the first month of 2023, we are slightly up from 2022 all-time lows but remain far from 2021 highs. Many believe the crypto ecosystem will remain stagnant until the risk-off Quantitative Tightening (QT) period is over. QT is their attempt to pull liquidity out of the economy as many central banks around the world are attempting to do. However, much pressure is on the Fed to not break things too drastically domestically. Other nations that denominate much of their debt in U.S. dollars are also struggling to fulfill their obligations with a strong dollar that becoming harder to acquire. Many nations are facing even higher energy inflation, food production inflation, and capital flights from unstable nations such as Russia and China are finding Western real estate safe havens which cause more strain on the local Western citizenry. So, non-U.S. nations need a weaker dollar to grow their economies because everyone over-printed currencies and kept Quantitative Easing in place for too long.

As quoted by the IMF’s Gita Gopinath and Pierre-Olivier in October 2022 How Countries Should Respond to the Strong Dollar, “As of now, economic fundamentals are a major factor in the appreciation of the dollar: rapidly rising US interest rates and a more favorable terms-of-trade—a measure of prices for a country’s exports relative to its imports—for the US caused by the energy crisis. Fighting a historic increase in inflation, the Federal Reserve has embarked on a rapid tightening path for policy interest rates. The European Central Bank, while also facing broad-based inflation, has signaled a shallower path for their policy rates, out of concern that the energy crisis will cause an economic downturn. Meanwhile, low inflation in Japan and China has allowed their central banks to buck the global tightening trend”.

Commodities

The only saving grace for most emerging economies is to focus on their richest commodities and export them for a premium to compromised developed Western nations who seek much-needed raw inputs to maintain their industries and farmland production due to disassociation with China, a cut-off of Russia, and a compromised Ukraine.

Human Resources

Human resources are another asset that emerging markets may not want to lose. With low birth rates in Europe and other developed countries, the demand for replacement workers is increasing. Immigration policies will relax, and brain drain will be a major threat. Remote work may be the solution for professionals who can fulfill their responsibilities in front of a computer regardless of where they are. Developing countries should do more to allow their most talented university graduates to negotiate remote work and help build their home country by capturing a larger tax base.

This is especially important for the decentralized digital assets ecosystem. With greater openness to innovations and alternative financial systems, smaller nations can free themselves from the cycle of dependence on the IMF or WEF, or any other agency to rescue them when there’s economic turmoil caused by decisions made in other nations whose currencies they are entangled with. Many blockchain projects desire talent from around the world. The talent can remain local and operate servers (nodes, validators) in their home countries. This benefits the workers who are paid in uncorrelated digital assets, blockchain technology advances in the local area, and many talented individuals will seek to train others to expand their work capacity (jobs creator). The benefits are exponential, and many are advancing the conversation about these opportunities.

As quoted by Mayur Kamat, Head of Product at Binance, “What’s the next thing you want to do? Is it something that may potentially change the world and how people view financial investments, inclusion, and freedom? If yes, there’s never a better time than now. There’s so much room for growth and innovation, and some of the brightest minds are working here”. You can read more about Mr. Kamat’s journey at,

The Builder: How Binance Product Lead Mayur Kamat is Helping Build The Future of Web3

2022-03-23

Mayur Kamat’s resume includes some of the most prominent tech companies, from Google to Microsoft. Now, he brings his experience to take on a new challenge as the Head of Product at Binance.

Market Trends

Equity Markets

Equity markets began the year not really believing what Jerome Powell was declaring for interest rate hikes and Quantitative Tightening. Market conditions moved slightly towards the end of 2022 with a quote from CNBC, “Stocks slipped on Friday to end a brutal 2022 with a whimper, as Wall Street wrapped up its worst year since 2008 on a sour note. The Dow Jones Industrial Average slid 73.55 points, or 0.22%, to close at 33,147.25. The S&P 500 shed 0.25% to end at 3,839.50. The Nasdaq Composite ticked down 0.11% to 10,466.88”.

After the first month of 2023, the Forbes Advisor stated, “After logging its worst annual performance in 14 years in 2022, the S&P 500 kicked off 2023 with a very strong January. The benchmarked index gained a smidgen more than 6% for the month as the first wave of fourth-quarter earnings reports came in better than many had feared. In the background, inflation data suggest that Federal Reserve policy measures are starting to cool off red-hot price gains, while gross domestic product and labor market readings show that the U.S. economy remains on solid footing—for now”.

Since the beginning of 2023, optimism is high for growth potential, and many believe the Fed and other Central Bankers will ease by mid-year. However, others believe the rates will be held higher for longer, and max pain will occur throughout the first half of 2023, with relief from the bear market only being seen towards the end of 2023. This is if the stock and bond market associate with the physical economy more closely. The Fed’s fight against rising interest rates will take time to appear in the real economy. However, the stock market is a forecaster of future overall GDP and there could be premature front-running of what is to develop. The crypto market front-runs the equities market by about 6 months, so, the upswing for crypto in the first 6 weeks of 2023 is signaling a trend pivot of equities by late summer.

Physical Goods

Market outlook for the used cars expects a crash along with real estate. The larger question, however, is how much liquidity will be left in the market to allow these sectors to rebound quickly or slowly.

If trust in physical assets is low for recovery, larger investors may seek yield by investing in virtual economies such as the metaverse or web3. The first cycle of NFT assets is over, and builders are infusing more use cases into virtual assets. Many lessons were learned in 2020 and 2021 that will fuel innovation towards ongoing community building and thus increase value creation with each project.

With the decline of the ESG narrative and the increased awareness of the need for oil, natural gas, and nuclear energy sources, more investment may go toward infrastructure efforts for American and European energy sustenance. Since a renewed focus on re-shoring much of Western manufacturing, more cheap energy and regulatory policy changes are needed to meet our most basic needs. Cryptocurrency can assist in these efforts by enabling more transactional transparency between those who contribute to the energy grid and those who want to know the exact sources of their energy consumption. Projects such as Energy Web (EWT) are almost ready for prime-time. Grid+ (GRID) is a project that not only hopes to acquire uses to transfer their tokens for energy payments but also uses their hardware as a secure wallet for digital assets.

Bond Market

Safe havens for 2023 look to be defense stocks with geo-political activities around the world. Many hedge funds may outperform in comparison to the previous 10 years of monetary easing and an ever-increasing stock market. Diversifying back into bonds and fixed income with higher interest rate yields is a safe placement for excess capital until a definitive pivot is noticed. Corporate bonds are also a solid play until equities recover.

Venture Capital

Deal flow will slow for insider Limited Partners of private Venture Capital funds, but deal quality should improve, which could pay off exponentially in the coming years. Most managing partners will become much more picky about the startups in which they will invest. With so much capital on the sidelines, however, placements must be made. As a result, founders with a solid product/market fit and a competent team will receive headline-grabbing investments in 2023.

Crypto Economy

Improved infrastructure within the cryptocurrency economy is enabling more strategies for investors. For example, there are defi platforms that enable shorting (ByBit), forms of forex trading (Vela), and purchasing options (Deribit). Investment diversification allows more professional traders, whether day traders or swing traders, to enter the market, and curious investors will interact with UX interfaces they are familiar with. Retail will lead the next rally now that decentralized crypto exchanges, built on blockchains such as Solana, are nimble and fast enough to compete with centralized exchanges. Institutional investors will remain on the sidelines for a longer period of time until regulatory clarity is improved and the consequences of 2022 are fully realized.

Geopolitical Risk

The next black swan event that no one in the investment world will see coming could be a disastrous turn of events of escalation with the Russian conflict. If Russia continues to advance, they will eventually engage a NATO nation. If Russia begins to take heavy losses due to superior weapons being supplied to Ukraine by NATO nations, desperation may cause the Russians to launch nuclear weapons. Either outcome is becoming more likely as the war continues, however, these are not the only two outcomes possible. Investors must keep a close eye on developments and prepare for worst-case scenarios that will affect market moves dramatically.