Risks and Opportunities in Crypto for 2023

JHomas Perfumo, Head of Strategy at Kraken Digital Asset Exchange, shares what shaped the crypto space in 2022 and what investors might want to know about the industry as the new year dawns. Parfumo also shares the greatest risks and opportunities for the space.

What were some of the biggest events and trends shaping the crypto space in 2022?

2022 has been an extremely volatile and complicated year for the digital asset industry.

Earlier this year, crypto proved its usability during the Russian-Ukrainian crisis, particularly in providing humanitarian solutions and relief to people in need. Crypto’s inherent value as a frictionless cross-border payment system has helped highlight some of the key issues and lingering problems facing the traditional financial system during global conflicts.

In September, Ethereum (ETH) has completed the long-awaited merger of a Proof-of-Work blockchain to a Proof-of-Stake blockchain. The engineering effort to accomplish this task was very significant – some compare it to rebuilding an airplane engine in flight. Since the merger, Ethereum’s supply inflation has decreased significantly and the network is now poised to expand further for consumer use.

The collapse of Terra (LUNA) triggered a series of big changes for the year. The dramatic drop in asset values ​​led to the bankruptcy of several well-known crypto companies and possibly contributed to the insolvency of FTX. As a result, the general public sentiment towards crypto has declined.

However, it is important to think about the distinction between crypto as a technology and the failure of centralized companies. During this volatile period, many cryptographic protocols and underlying decentralized applications operated without interruption. Major corporate bankruptcies weren’t the result of bad technology, but rather excessive risk-taking and, in the case of FTX, outright business malfeasance.

What is the outlook for crypto in 2023?

This year will be focused on restoring trust in the crypto industry. The collapse of FTX has made it vital for crypto companies to provide genuine utility and solutions. Developers, including those at Kraken, will continue to dedicate their resources to creating innovative products and services that accelerate crypto adoption and further encourage financial freedom and inclusion.

What do you see as the main risks and opportunities?

The industry will face many challenges in the coming year, including the continued spread of contagion. We may see additional failures among centralized crypto firms, which will put pressure on an already subdued market. Despite this, the new year presents opportunities for reputable and trusted players to drive changes that will facilitate the next wave of crypto adoption.

Another industry concern is the rushed regulatory response. At Kraken, we aim to comply with regulatory requirements and work closely with regulators, both regionally and globally. But the demand for legal remedies – most likely attributable to recent events – is pushing governing bodies to enact rules that could stifle the industry’s ability to grow in the longer term. Therefore, we will continue to actively engage with regulators from an educational perspective, with the aim of enabling the growth of innovations and technological solutions.

What do crypto investors need to know as the new year dawns?

We have always advocated that people do their own research on crypto assets before investing. Some investors may also wish to consult a financial and/or tax advisor to construct a portfolio that meets their personal needs and risk tolerance.

Kraken always recommends people interested in crypto to purchase their assets from a reputable exchange. In addition to reviewing fee structures and listed assets on a centralized exchange, they should determine whether an exchange is recognized for its security protocols.

Where do you see Bitcoin (BTC) ending in 2023?

We do not make specific price forecasts. Let’s just say we can’t wait to see what’s next.

This interview originally appeared in our TradeTalks newsletter. Register here to access exclusive market analysis by a new industry expert every week. We also highlight TradeTalks’ must-see videos from the past week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.