Remember Messari's 2023 crypto report? From that time, it is 30 days into 2023, and many theses have been explored. But from the one month, we learned that there is still some space for growth and continued trends in the crypto space.
But what are the possibilities that we could see moving forward? From the current happenings, we offer a likelihood of what could happen.
1. The Macro Rebound vs. the Dumpening
There is a potential for a continued crypto bear market, with the sentiment that a recession may occur in 2023 and central banks continuing to tighten until inflation is under control. However, a global reserve currency crisis or a fed pivot could also lead to a recovery.
Within the crypto sphere, there are a few potential adverse shocks:
BTC miners are dumping to cover operating costs and debt. Mt Gox bankruptcy distributed proceeds being dumped and DCG/Genesis selling shares of GBTC.
ETH's post-Merge selling pressure from taxes on staking rewards to cover liabilities from staking income.
Token treasuries unlocking for founders & early investors, forced selling by bankrupt funds, and poorly designed tokens economics (death spirals).
2. On-Chain Forensics
Transaction monitoring for compliance teams and forensic tools of investigators and regulators are more needed than ever going into 2023.
The last 5 years saw the rise of many on-chain analytics companies: Nansen, Dune, Glassnode, and Messari.
A generally accepted accounting principle (GAAP) or IFRS standard of financial reporting for crypto protocols will become essential for investors to make better investment decisions and projects to remain compliant.
The thesis is that the IRS is expected to enforce stricter standards for reporting crypto taxes. As a result, apart from on-chain analytics firms, crypto tax software needs to keep pace with the increasing number of new blockchain networks and protocols.
Then again, traders with thousands of transactions yearly will find it challenging to do their taxes.
3. State vs. Federal Stablecoins
The future of stablecoins is an important topic, with 2 key points to watch:
New legislation from the HFSC on the authority of the Fed to issue a CBDC, which could impact the ability of banks and non-banks to issue stablecoins.
Scrutiny on algorithmic stablecoins, which may be limited to DeFi rather than regulated exchanges, and the future of stablecoin market caps will determine whether the Paxos or USDC model becomes dominant, with Tether unlikely to be the ultimate winner.
4. Bitcoin Mining
Miners used to pay ~$5-10K to produce 1 BTC traded at $60K. Now it costs ~$15-20K. Energy prices have soared, and BTC prices have declined, but this section focuses on the ESG aspects of Bitcoin mining, which I found interesting.
Negative Factors:
Bitcoin mining produces the same amount of e-waste as a country the size of the Netherlands (~17% of this is recycled).
60% of power comes from unrenewable sources.
Bitcoin mining can drive up marginal energy costs for consumers in some areas.
Positive Factors:
BTC mining costs are fixed and capped by market forces. Mining issuance rates will decline in the future.
BTC mining is less energy intensive than the global banking system.
More miners are co-locating to capture wasted/stranded energy sources.
5. Rollups and Modularity
2023 will see significant developments in the realm of rollups and modular blockchains. Celestia is frontrunning the modular blockchain narrative.
6. The trend in Decentralized Social (DESoc)
DeSoc redesigns traditional web2 social media, providing users with an on-chain reputation and content ownership. Currently, DeSoc is split into three layers: front ends, the social graph layer, and content storage.
The core piece of DeSoc is the social graph layer which represents the connections and relationships between users on the platform. Once a user's connections and content are stored in this layer, it can be used in any front end or app.
Takeaway
We are still in the first quarter of the year, and with the trends in this first month, things are looking more settled to take over.
I guess we have to get prepared for the rollercoaster.
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