A month of gains in cryptocurrencies, after a challenging year. In the past year, the market has experienced a number of upheavals and frauds in which the collapse of ventures and companies, deletions of tens of billions of dollars, and significant decreases in the value of cryptocurrencies have been seen. All these intensified the skepticism as to the direction in which the market is moving. Against this background, it seems that the past year will not be a year that the crypto market and investors in the field will remember favorably. Despite this, and unlike other periods in the past when this field experienced crises and price drops, The blockchain and cryptocurrency space seems to be here to stay. The voices that claim that this is a temporary trend that will pass from the world are diminishing, and the main discussion these days is focused on the discourse on increasing regulatory oversight designed to regulate the field.
Interesting trends and predictions to watch out for in 2023:
Transition from underregulation to increased regulation
The year 2022 revealed significant weaknesses and risks associated with activity in the field of blockchain and cryptocurrencies. Therefore, the near future will bring with it significant regulation, which will move the cryptographic asset market, in a sense, from under-regulation to increased regulation. The first signs of this can be seen, for example, in the decision of the head of the American SEC, who announced the doubling of the resources allocated to the enforcement unit in the field of digital assets at the Authority, as well as an increase in the rate of investigations initiated by the SEC in connection with exchanges of cryptographic assets. Also in the local arena, in September 2022 the Chief Economist at the Ministry of Finance published a report on the regulation of the field of cryptographic assets, the purpose of which is to promote the governmental regulation of the cryptography market with reference to the risks and benefits inherent in the market.
Also, in December, a proposal was published to amend the applicability of securities laws regarding cryptographic assets, in which it was proposed to add a definition of “digital assets”. It can be assumed that the increased regulation will have several consequences: on the one hand, the new regulation will promote certainty and encourage entrepreneurs who in some cases preferred to operate overseas in a clearer regulatory environment. On the other hand, the regulation will make it more difficult and expensive to engage in the field, and will reduce the viability or profitability of certain types of ventures, including ventures of keeping, lending or trading in cryptographic assets.
Despite the above, in my opinion, the regulation will regulate certain types of activities in the field but there will still be other subfields, for example such as DeFi and DAO, which even under the new regulation will not receive a full response and provide certainty to entrepreneurs in the field.
The DeFi field will continue to grow
It will be interesting to follow the tension between licensed syndicated ventures that offer financial services (CeFi), and decentralized finance and trading ventures. The field of decentralized financing may enable the management of financial services in a more transparent manner compared to CeFi, while eliminating the need for an intermediary. It should be noted that most of the companies that collapsed in 2022 were centralized and unregulated platforms of the CeFi type, controlled by a small number of people. Against the background of the problems that were revealed this year in the CeFi economy, such as cases of fraud, manipulation, negligent conduct, money laundering and technological failures, there is an expectation that the benefits of the decentralized economy will gain momentum and be manifested in 2023.
A slowdown in the popularity of the crypto market
Publicized scams and frauds in the crypto market, which took a significant place in the headlines of the past year, included among others the largest investment bodies in the world. The main significant event that occurred was the collapse of the FTX crypto exchange at the beginning of November. Among the investors in FTX were large and well-known financial groups, old and established funds and dedicated funds that specialize in investing in blockchain projects, including Sequoia Capital, Insight Partners, BlackRock, Tiger Global, the Softbank Group, and the hedge fund Third Point.
The collapse of FTX, despite (and perhaps because of) the involvement of these entities, could damage public confidence in the market and even the desire of other “traditional” investors to invest in other areas. The lack of trust in the field, and the reluctance of potential players to enter the market, together with the expected slowdown in the financial markets as a whole, will likely lead to a slowdown in the field in the short term. In addition, it is possible that these events will affect the rate of adoption of the technology, and further push the stage of widespread public adoption of blockchain-based developments.
Regrowth and dilution of secondary players
Economic history, especially in the last two decades, shows that markets manage to deal with crises, even if they are deep crises. As evidence, since it began operating in 2008, the blockchain and cryptocurrency market has cyclically experienced crises and falls once every few years, and after each crisis manages to recover and sometimes reach higher values. Similar to previous “winter” periods in the field, I estimate that the year 2023 will be a good time to build and create a solid infrastructure, which is not focused on trying to shape the market so that it improves and adapts to the needs of investors – the opposite is true. In other words, the coming year will also create a kind of chilling effect for entrepreneurs, which will naturally filter out secondary players who focused on the “hype” created around the market in recent years. Those who will remain in the field are those players who believe and understand the basic benefits and potential inherent in the blockchain network, and can build significant platforms that will contribute to the consolidation of logical economic activity in the future.
Moreover, this period may be suitable for accelerating the resolution of elementary problems that prevent the market from moving forward, including the transfer of funds from crypto to fiat; cyber security for wallets; performing a greater number of operations on the network at low costs; Making platforms accessible to users and focusing on the transition from Web2 to Web3.
To sum up, 2023 is a challenging and interesting year for the blockchain and cryptocurrency market, hopefully the market will become more regulated and balanced. The coming period will be an excellent opportunity to acquire significant knowledge in the field and reduce gaps, since this is a relatively calm period of time, in which the market will work at slower rates and go through a renewed regulation.
This period is an excellent time to close gaps for players who have so far avoided market activity or did not fully understand if and how their business activities fit into this field. Among these we can name financial service providers, traditional entities and government offices, who would be happy to investigate the effects of the field in their case in depth, but did not always have the tools and knowledge to do so in real time in an extensive manner.
Attorney (CPA) Uri Tsihor, partner and head of blockchain, Fisher (FBC)