5 digital economy predictions for 2023

If 2021 was “the year of cryptocurrency”, then 2022 was the year of its collapse. Millions have been gained and lost by crypto investors as crypto companies have been built and closed.

With 2023 fast approaching, one thing is clear: the “Roaring Twenties” era of 2022 crypto parties and the overall irrational exuberance of the market is over. 2023 is the year crypto will have to grow and clean up. Ahead, here are five predictions for next year in the digital economy.

Tal Elyashiv is co-founder and managing partner of SPiCE VC. This article is part of Crypto 2023.

Prediction #1: Natural selection of the crypto ecosystem

Natural selection in the digital asset ecosystem will be a powerful force in 2023 – and that’s a positive development. Good companies will grow stronger and bad ones will disappear or be restructured, leaving a market better positioned for the future.

We are already seeing Darwinism take over the market, only well-run and well-meaning companies surviving. While there are more shoes to drop as 2023 approaches, this process is necessary and very healthy for the future growth of the digital asset ecosystem. The overhaul and rebuilding of the industry’s reputation and the way it does business will continue to be driven by institutional investors who demand more controls, risk management, transparency and reality checks.

While we’re talking about institutional investors, companies like Softbank, Sequoya, and Temasek (to name a few) also have things going. This process of maturing and sobering up will eliminate some of the fraud, incompetence and lack of industry experience – and that’s a good thing. The companies that are left standing will come out stronger and the industry will be in a better position to start thriving again.

Prediction #2: Regulation Everywhere But Here (US)

Countries around the world will make critical decisions on crypto regulation in 2023, while in the United States no significant regulatory movement will occur due to legislative dysfunction.

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One thing we know for sure will happen in 2023 when it comes to US crypto regulation is infighting (and lots of it). From the Securities and Exchange Commission and Commodity Futures Trading Commission to Democrats and Republicans, and let’s not forget the Decentralized Finance (DeFi) vs. Traditional Finance (TradFi) team, 2023 will be just as entertaining as WWE, so grab the popcorn. However, no one benefits from the dead ends of unresolved power struggles, and this coming year will be no different in the digital economy. While one would like to hold out hope that a new Congress can accomplish meaningful crypto legislation, the likelihood of that happening is as high as Sam Bankman-Fried keeping his Bahamian penthouse.

But while the United States bickers and debates, countries around the world are moving forward, and 2023 should see many of these regulatory regimes take shape.

The European Union is taking an important step in early 2023 to vote and implement the Crypto-Asset Markets Regulation (MiCAR/MiCA), which establishes a framework to regulate both the issuance of cryptocurrencies and of assets, and transactions (i.e., investment and payments). Specifically, the MiCA bill contains several provisions that regulators deem necessary to “master the Wild West of the crypto world.”

Meanwhile, Asian regulators are each taking crypto guardrails differently. Hong Kong’s goal for 2023 is to increase retail access to crypto, which requires a specific regulatory strategy to support these goals. In stark contrast, neighboring Singapore has signaled it will tighten regulations after big losses this year for investors, while South Korea, still grappling with the aftermath of Terra’s collapse, will focus only on the app. On the other hand, India, somewhat unique in the region, uses tax policy to guide behavior.

Prediction #3: The Metaverse and NFTs are coming back from the dead (but not the way you think)

The glitz and glamor of the metaverse and non-fungible tokens may fade, but the practical, versatile, and inevitable uses of both will be much clearer in 2023.

The recent narrative about the Metaverse’s demise (in part based on Meta Platforms’ dismal financial outlook) is premature, much as the exuberance about its immediate relevance and market adoption a year ago was. . No one should view Meta and the overall building of the Metaverse infrastructure as a 2023 or 2024 project. The truth is that the Metaverse is inevitable, but it will take years to fully materialize. That said, 2023 will mark the beginning of how we view “metaverse experiences”. New use cases in business, healthcare, education, and more will draw our collective attention to the practical utility of small doses of the metaverse, even in our daily lives. Advances in identity technology, as well as AR/VR devices (think Apple’s Project XR) will also be released in 2023.

The same goes for NFTs. The non-fungible token market will also see something of a renaissance in 2023, moving away from being a value driver in itself in digital art and collectibles and closer to what technology was supposed to be. being – primarily a digital proof of provenance and authenticity of an object, its value deriving only from what it represents. 2023 will also see the versatility of NFT begin to shine. The funnel of innovative ways to leverage NFTs will continue to expand in 2023. From supply chain and logistics to healthcare, real estate and retail, NFTs will play a more ubiquitous and permanent role in the digitalization of operations.

Prediction #4: 2023 could be the “Year of the CBDC” worldwide, but there won’t be a digital dollar in sight

The CBDC arms race will continue as central banks create alliances with commercial banks and technology providers to strengthen their position to test, launch and execute their unique CBDC strategies.

With over 80% of the world’s central banks already considering launching a central bank digital currency (CBDC), 2022 has been mostly filled with trial and error. However, the movements of nations around the world to make CBDCs a reality are accelerating and will become a major priority in 2023 – especially as the race to establish a global standard looms. Additionally, commercial banks are increasingly interested in the space and will begin (or continue) to partner with central banks and software vendors to ensure success and mass adoption.

As China’s digital yuan far outpaces others, many countries are making progress – with 2023 rollout targets a possibility. The Bank of Japan is piloting a rollout with major banks in early 2023. Turkey has announced it will launch its CBDC next year, while the ECB intends to begin work to develop a regulation in early 2023 on the deployment of a digital euro. The world of money and payments is clearly on track for wider blockchain adoption in 2023, with QUICK even recognizing the need to move in this direction.

Prediction #5: Institutional investments in the digital economy will skyrocket

Institutional investors will make big strides with their big bucks.

We learned in 2022 that beyond the organizational issues of crypto, it is intertwined with traditional market movements and the overall economy. For 2023, the domain’s performance will again depend on global economic sentiment. If concerns subside, we could see an increase in crypto prices as well as investments in the digital asset market.

Regardless of market trends, we are likely to see more traditional blue chip funds (i.e. KKR and Hamilton Lane with Securitize) tokenize – making them more accessible to a wider sphere of investors. Additionally, more and more large-cap market players will enter the tokenization space (e.g. JPMorgan, HSBC, Fidelity, Goldman Sachs) and we will see a significant increase in M&A activity as a result. . However, a caveat to all of this, as mentioned earlier, is whether or not lawmakers and regulators are stepping in to provide some needed stability.

2023 will also be a great time to invest in venture capital funds focused on the blockchain ecosystem (not crypto funds). History shows that venture capital funds that raise during recessions outperform funds with different vintages. Plus, it makes a lot of sense because valuations in the blockchain ecosystem will be much more reasonable and down to earth over the next two years.