11 Crypto Predictions for 2023 | VanEck

Please note that VanEck may have a position(s) in the digital asset(s) described below.

Volatility is a given with crypto. The “crypto winter” stole most of the digital asset headlines throughout 2022, and the year is closing out with a spate of rapid collapses and bankruptcies. So is crypto done? Not by a longshot. We believe crypto’s financial disruption is here to stay. We explore why as we share here our top crypto predictions for 2023.

1. Bitcoin will test $10-12K in Q1 amid a wave of miner bankruptcies, which will mark the low point of the crypto winter.
2. In the second half of 2023, Bitcoin will rise to $30K. Lower inflation, easing energy concerns, a possible truce in Ukraine, and a turnaround in M2 supply will power the start of a new bull market.
3. Financial institutions will tokenize more than $10B in off-chain assets.
4. Brazil will emerge as one of the most crypto friendly countries of the world and tokenize a portion of sovereign debt offerings on blockchain.
5. Twitter will bolster its payment offerings with state money licenses, competing more directly with Venmo and Cash App.
6. A nation, most likely one dependent on oil exports, will announce it is adding Bitcoin and other digital assets to its sovereign wealth fund.
7. A new decentralized stablecoin will reach $1B in market cap.
8. Ripple will lose the SEC lawsuit.
9. Gary Gensler will leave the SEC, as proposed legislation fails to gain wide support.
10. Total web3 monthly gamers will rise from 2M to 20M as multiple triple-A games come to market.
11. Ethereum will enable withdrawals from the Beacon Chain.

1. Bitcoin will test $10-12K in Q1 amid a wave of miner bankruptcies, which will mark the low point of the crypto winter.

The MVIS^® Global Digital Assets Mining Index median market cap is now only $180M, with nearly all constituents burning cash and trading well below book value. With Bitcoin mining largely unprofitable given recent higher electricity prices and lower Bitcoin prices, we predict that many miners will restructure or merge. Ripple losing its SEC lawsuit (possible in Q1, more on this below) may coincide with this final downdraft, which would take out nearly the entirety of the post-2020 halving bull market.

2. In the second half of 2023, Bitcoin will rise to $30K. Lower inflation, easing energy concerns, a possible truce in Ukraine, and a turnaround in M2 supply will power the start of a new bull market.

Bitcoin and the broader crypto ecosystem have suffered through a brutal bear market in 2022. Numerous companies in the space have imploded and sentiment is quite poor. Bitcoin has traded like a risk asset over the prior year and has shown price sensitivity to interest rate hikes.

One reason why Bitcoin has reacted poorly to higher rates is that the political response to higher inflation in developed markets has been to attempt to cap energy prices, widen sanctions, and micro-manage economic activity to facilitate the “energy transition.” An end to the war in Ukraine would likely reverse at least some of these policies and make Bitcoin mining more politically palatable. On the other hand, the war is also creating a more economically integrated Eurasia with incentives to adopt novel payments methods for cross-border trade, as Russia and China are doing with the digital RMB and possible gold-for-oil swaps.

In developed markets, we think consumers will see Bitcoin act as a store of value over time and a hedge against M2 inflation rather than overt CPI inflation. In emerging markets, the focus is more on remittances and neutral alternatives to dollar hegemony.

Meanwhile, should our recession expectations materialize, the Federal Reserve would likely pause raising rates amidst softening inflation, while money printing and government budget deficits continue. Merely a lack of bad crypto-specific news, under the above scenario, could cause the price of Bitcoin to climb a wall of worry back to $30K again.

3. Financial institutions will tokenize more than $10B in off-chain assets.

Institutions will employ blockchains to simplify custody and settlement, while reducing costs for customers. KYC/AML will be enabled using identity protocols and permissioned sub-networks/applications. Already, MakerDAO has plans to deploy $1B into U.S. t-bills and other government securities with the help of BlackRock and Coinbase, allowing DAI holders to earn a higher yield on deposits.¹ Real world loans on platforms such as Goldfinch, TrueFi, Maple and Clearpool sum to another $300M+. KKR has tokenized one of its private funds in partnership with Avalanche and Securitize. The Monetary Authority of Singapore’s Project Guardian is a collaborative initiative with the financial industry that seeks to test the feasibility of applications in asset tokenization and DeFi. MAS recently participated in transactions against liquidity pools comprising tokenized Singapore Government Securities, Japanese Government Bonds, Japanese Yen and Singapore Dollar.

Among open-source blockchains, we think Ethereum, Polygon, Avalanche, Polkadot and Cosmos are best positioned. We can also predict with high confidence that industry pioneer VanEck will originate real world assets on open-source blockchains in 2023.

4. Brazil will emerge as one of the most crypto friendly countries of the world and tokenize a portion of sovereign debt offerings on blockchain.

With persistent inflation and a young population, Latin America is seeing the fastest crypto and stablecoin adoption in the world. Brazilian regulators have been aggressive in giving private companies a sandbox to play in this area. Itau Unibanco, the country’s largest bank, plans to launch an asset tokenization platform to transform traditional financial products into tokens and offer custody services for clients. Tokenization of sovereign debt may begin in Brazil first.

5. Twitter will bolster its payment offerings with state money licenses, competing more directly with Venmo and Cash App.

Twitter’s current payment abilities are restricted to peer to peer tipping, including Bitcoin over the Lightning Network, but the user experience is poor. We expect Elon Musk to implement payments functionality more akin to WeChat Pay, which would let consumers pay merchants for services. In November, Twitter filed registration paperwork with the Treasury Department’s Financial Crimes Enforcement Network (finCEN) to pave the way for it to process payments, according to the New York Times. Such an endeavor is likely to include dollars, Bitcoin, and possibly other crypto assets like Dogecoin.

6. A nation, most likely one dependent on oil exports, will announce it is adding Bitcoin and other digital assets to its sovereign wealth fund.

We have heard first-hand from multiple crypto companies that Saudi Arabia’s sovereign wealth funds are already mining Bitcoin, though at small scale. In addition, Russian government officials have clearly stated intentions to settle cross-border trade in crypto assets. Russia’s largest bank Sberbank recently integrated its blockchain platform with MetaMask and the Ethereum blockchain. And multiple Russian media have also reported that Russians have been aggressively buying Bitcoin mining ASICS in November.

7. A new decentralized stablecoin will reach $1B in market cap.

A stablecoin is a digital currency that is pegged to a “stable” reserve asset like the U.S. dollar or gold. Stablecoin projects differ in how they maintain their peg. For example, USDT and USDC are both run by centralized entities who collateralize their tokens with fiat reserves, including cash and government treasuries. DAI, on the other hand, is administered by a decentralized entity whose users deposit ETH into smart contracts to mint the dollar-denominated, over-collateralized DAI. There are more than $5B in DAI outstanding as of 11/17/2022.²

Algorithmic stablecoins differ in the fact that they are collateralized with digital assets and either under- or…