Dubai: As the dust begins to settle on the colossal fallout from crypto exchange FTX, the crypto industry has been undergoing a dramatic shift towards increased scrutiny worldwide – and prices have plunged as a result. Will this trend continue in 2023? Will newbie buyers' benefit? Let’s find out!
While 2022 may not have been an optimal year for stocks, it’s been incredibly underwhelming for cryptocurrencies. With the world’s largest crypto Bitcoin down 64 per cent and the second biggest token Ethereum has plunged 66 per cent this year, most other major coins have fallen more than 90 per cent.
“The last 12 months have been strewn with crypto meltdowns, bankruptcies and chaos, so the losses should not be surprising to anyone,” said Brian Deshell, a UAE-based cryptocurrency trader and analyst.
“Now the question is whether all this market chaos will continue in 2023, and how long the ‘crypto winter’ might last,” he added, referring to an industry term for a long downturn in cryptocurrency prices.
The last 12 months have been strewn with crypto meltdowns, bankruptcies and chaos, so the losses should not be surprising to anyone
Bitcoin to be more buyer-friendly next year?
Bitcoin could drop to $5,000 (Dh18,365) next year in a market surprise that investors are not factoring in as much, according to analysts at global lender Standard Chartered. If that level is reached, it would mark a roughly 70 per cent plunge from Monday’s price of just over $17,000 (Dh62,441) for one bitcoin.
“Such a slump would allow newbie investors who were otherwise on the fence because of incredibly high Bitcoin prices since the start of this year,” agreed Brody Dunn, an investment manager at a UAE-based asset advisory firm, referring to the above-mentioned analysts’ evaluation.
Bitcoin has plunged this year after a string of high-profile collapses of projects and companies plagued the industry. The latest and biggest casualty is cryptocurrency exchange FTX which has filed for bankruptcy. Contagion from the fallout of FTX continues to spread through the market.
The drop in Bitcoin’s price will also coincide with a rally in gold, Dunn added, arguing the yellow metal could potentially rally 30 per cent to $2,250 (Dh8,264) per ounce “as cryptocurrencies fall further and more crypto firms succumb to liquidity squeezes and investor withdrawals".
How long will crypto prices stay depressed?
Cryptocurrency is no stranger to boom and bust cycles. A quick look at the price history of Bitcoin – the benchmark for the entire industry – illustrates the point. In 2018, following a meteoric run-up to around $20,000 (Dh73,460), Bitcoin fell 84 per cent to $3,000 (Dh11, 019).
However, Bitcoin turned around and rallied to nearly $17,000 (Dh62,441) in November 2020, then spiked even higher. In May 2021, BTC fell 50 per cent before recovering to all-time highs of nearly $69,000 (Dh253,437) later that year.
“Bitcoin is ending the year at around $16,800 (Dh61,706), down from about $19,500 (Dh71,623) on the eve of the FTX crisis. If contagion continues to reverberate from FTX’s bankruptcy, Bitcoin has more room to fall,” added Deshell.
Even Cathie Wood, CEO of Ark Invest and a well-known Bitcoin advocate, acknowledges that large financial institutions may take a step back from crypto in the near term because of FTX.
Bitcoin is ending the year in the negative amid the FTX crisis. If contagion continues to reverberate from FTX’s bankruptcy, Bitcoin has more room to fall
Will Bitcoin prices soar in the long term?
Despite standing by her Bitcoin prediction of $1 million (Dh3.67 million) by 2030 in a recent Bloomberg interview, Wood said, “The one thing that will be delayed is perhaps institutions stepping back and just saying, ‘Okay, do we really understand this?’"
“With the reputation of cryptocurrencies badly dented by the crises and scandals of 2022 and wider markets hurting, another leg downward to the $10,000 (Dh36,729) mark may not be so far-fetched for Bitcoin in 2023,” noted Dunn.
Crypto analysts at global investment banking major JPMorgan Chase & Co. agree that the bottom is not in yet. The bank sees Bitcoin’s floor at around $13,000 (Dh47,748), with “a cascade of margin calls” across the market following recent events.
How far will Ethereum prices drop?
Where Bitcoin goes, Ethereum most often follows. In September 2022, a major network overhaul for the second-largest crypto by market capitalisation, and some analysts are speculating that the price action of the pair could soon decouple.
“Ethereum or Ether is yet to benefit in terms of value from the recently launched overhaul. Part of the reason is because of the crypto winter,” explained Deshell, who believes the crypto could rise as high as $2,500 (Dh9,182) in the next six months.
“While this is an aggressively positive outlook, the fact remains that the same developments driving Bitcoin’s price are impacting Ether. The macroeconomic climate must cooperate for upside gains to return.”
If it doesn’t, Deshell evaluated that the price of Ethereum will likely fall further. “Having dropped below $1,000 (Dh3,672) in June, it would not be surprising to see a three-digit price for Ether again in the next six months, should more negative catalysts crop up,” he added.
More new, stable cryptocurrencies to come in 2023?
Until Bitcoin and Ethereum recover, other cryptocurrencies are expected to continue their downward trend. However, that may not be true for what is known as Stablecoins – a type of cryptocurrency whose value is pegged to another asset class, such as a fiat currency or gold, thereby improving its stability.
With the reputation of cryptocurrencies badly dented by the crises and scandals of 2022 and wider markets hurting, another leg downward to the $10,000 (Dh36,729) mark may not be so far-fetched for Bitcoin in 2023
Top crypto exchange Binance delisted several Stablecoins in September, including USD Coin (USDC), the fifth biggest cryptocurrency at a market cap of $43 (Dh157) billion. Circle, creator of USDC, announced shortly after that they would launch a euro backed Stablecoin on Solana (SOL) in the first half of 2023.
Some analysts are predicting that competition could promptly pick up even more. This is due to the growing number of government sponsored Stablecoin projects, known as central bank digital currencies (CBDCs).
The Bank of Japan is piloting a rollout with major banks in early 2023. Turkey even announced it would launch a Stablecoin next year, and many more countries are slated to do the same. So, while cryptocurrencies are largely plunging this year, there will be more reliable cryptos in the market in 2023.