After the crisis of confidence, five trends will follow in 2023

After the euphoria of 2021, the cold shower and the scandals. A year ago, cryptocurrency experts promised yet another new world, “greater acceptance of bitcoin as a means of payment, increased NFT activity”even cause “the new currencies of the metaverse”… against the background of“enhanced regulatory control”. The surge in interest rates, the collapse of tech stocks, the decline in crypto prices, and widening cracks in a still nascent and fragile ecosystem have shaken optimists somewhat.

However, the explosion of crypto exchanges in recent years raised concerns “New scams and new schemes in 2022”warned a Queen’s University study shared by the website The conversation. So simple growth crisis or deeper questioning of cryptos or even their underlying technologies like the blockchain? That is the question being asked today.

Deep crisis of confidence after the scandals

Indeed, 2022 will have witnessed a series of crises and collapses: collapse of trading platform Celsius Network and stablecoin – said to be more resilient because it is backed by the dollar – TerraUSD in May, spectacular bankruptcy, undoubtedly fraudulent, in November of the Empire FTX, still rated on $32 billion in early 2022… and the 60% decline in crypto capitalization to roughly $1.3 trillion. Bitcoin, the crypto star that doubled in value in 2021 and peaked at nearly $65,000, is now trading around $16,000. Its challenger, ether, is no better off with its price down 73% over a year.

A domino effect has swept through the sector, with one crypto asset playing the role of counterparty to another: BlockFIn, Genesis, hedge fund Three Arrows Capital, Gemini brothers Winklevoss lending platform, French Coinhouse… many platforms were exposed to the FTX bankruptcy . Latest, Core Scientificone of the largest publicly traded cryptocurrency mining companies in the United States, filed for bankruptcy in December. The magnitude is such that some have drawn an analogy with Lehman Brothers, which caused panic in the markets and took several banks with it.

“The return of trust is a long time coming, because trust is gained drop by drop but lost by the liter,” summarizes Clément Coeurdeuil, co-founder of the Yuzu platform.

The regulatory wind will blow stronger in 2023

In addition, 2023 should mark the end of some regulatory laxity. In Europe, this would be 2024 at the earliest, when the European MiCA Directive (Crypto Assets Market), the text that lays out the definition of each digital asset and imposes a permit on players, possibly ahead of a new regulatory tightening. The head of the European Central Bank (ECB), Christine Lagarde, has already called for a “MiCA 2”.

The European text is also heavily inspired by the French regulations that establish the status of digital asset service provider (Psan), which has been overseen by the Autorité des Marchés Financiers (AMF) since the 2019 Pacte law. In other words, it will be necessary to apply for licenses and other registrations before operating anywhere in the old continent. These service providers will also have to prepare for the TFR regulations in the next year (referral regulation), which in 2024 will force identifying both the originator and beneficiary of a transaction in cryptos.

Projects to issue crypto assets without a real business model behind them should no longer find buyers with stricter regulations, especially from an economic point of view. The MiCA regulation could have this effect of “ Escape to quality in the crypto market. The gap between the real value of assets and their “tokenian” rating should continue to narrow,” predicts Franck Guiader, Director – Innovation & FinTech at Gide Loyrette Nouel.

In the United States, the Biden administration, led by the SEC and its boss Gary Gensler, certainly wants to facilitate transactions in cryptos, but penalize fraud more severely. In the meantime, the market platforms and especially the main ones such as the world leader Binance, based in Hong Kong or the American Coinbase, listed on Wall Street and therefore subject to greater transparency, will mobilize their efforts to reassure customers, investors and… regulators.

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against a running of the bulls in 2023?

“An interesting thing that will follow in 2023 will be the activity of players in traditional finance, especially banking: they have a window that should not be repeated every year. Your pure player competitors are facing a valuation discount and the crisis of confidence, regulation is being structured and opening up the possibility to offer crypto services and demand continues to grow.” estimated Alexandre Stachchenko, Blockchain and Crypto Director at KPMG France.

These winds of regulation are likely to whet the appetites of mutual funds, which have already begun an approach to cryptos in the 2021 euphoria. bear market below in 2022, the “ running of the bulls of the crypto market, is on everyone’s lips.

“When valuations appear more “fair,” particularly through standards and methodologies shared by the crypto community and recognized by regulators, investors should follow and join this “bull run.” what is expected”confirms Franck Guiader from Gide Nouelle.

platform concentration

But for crypto platforms, 2022 will leave a lasting mark.

“In 2023, two phenomena could be observed. First, a concentration of platforms given the difficulties encountered and the need to generate volume to become more profitable. The year of preparation for entering MiCA should encourage platforms to integrate new legal skills, cybersecurity professionals and commercial developers to build new partnerships, especially abroad »anticipates Franck Guiader.

“Healthy” platforms will likely be forced to step back and refocus. For example, Kraken is downsizing and withdrawing from Japan. Less sane platforms will struggle to hide their shortcomings and end up in a sticky situation.”is rich in Alexander Stachchenko.

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The acceleration of central banks

At the same time, and already in preparation for several years, in 2023 central banks will try to realize their digital currency project to offer an alternative to cryptocurrencies.

While the adoption of crypto assets is accelerating in emerging markets, central banks in those countries are accelerating in parallel, according to a recent study by Chainalysis. In 2023, the experiments will therefore take place in Egypt, Turkey and India. In the middle of the war in Ukraine, Russia wants to continue its experiments with a digital ruble in 2023.

Finally, the European Central Bank (ECB) could go ahead with its digital euro, despite the hesitation of the banking sector.

“It is not unlikely that the ECB will propose its digital euro project. I very much hope that the issue will become more politicized than it is today. This is an essential issue for all citizens, and the current direction is an adopted Chinese model. Ms. Lagarde (President of the ECB, ed.) reminded that Europe is lagging behind China.”says Alexander Stachchenko.

But in Europe, as in the United States, there is still a long way to go to implement an “MDBC” (central bank digital currency). 2023, “Central banks’ response to the ‘tokenization’ of part of the economy must be done by refining the use cases for which a different format of currency could be useful. The central bank digital currency could initially meet certain needs and certain technological standards in BtoB given the use of blockchain, for example by certain financial infrastructures.” expects Franck Guiader.

Finally, to observe in 2023 the impact of recent legislation in Kazakhstan, one of the world’s leading producers of cryptocurrencies with mining activities. While China has already officially banned mining in 2020, the state has tightened its legislation regarding the crypto industry, introducing new taxes and a compulsory license for mining companies.

Also read Emerging markets at the forefront of cryptocurrency adoption