Cryptocurrency Industry Outlook for 2023
Undoubtedly, 2022 has been a difficult year for global markets owing to worldwide economic crises, high inflation, fiscal tightening, and several other factors, all of which have exerted massive pressure on numerous asset classes, including cryptocurrencies. Cryptocurrency will be affected for years to come by the significant events of 2022. While the US Congress discussed bipartisan legislation to regulate crypto markets, the European Union approved its comprehensive Markets in crypto assets (MiCA) regulation. Regulators from Singapore to the United Kingdom established rules to protect consumers from fraud and deceptive advertising in the cryptocurrency market, while the shocking breakdown of Terra/UST ramped up policy initiatives to deal with the risks posed by stablecoins. In 2022, the Indian government implemented several initiatives to promote the adoption of cryptocurrency assets, including a 30 per cent crypto tax and the Central Bank Digital Currency (CBDC), which was launched by the Reserve Bank of India (RBI). Above all, major events like the crash of Terra-Luna, the insolvency of Vauld, and the downfall of FTX heated the cryptocurrency market. Regulators and policymakers are anticipated to start exploring new horizons in the cryptocurrency space in 2023.
Let us take a look at a few trends that will have a significant impact in 2023.
The Need for Regulation
The FTX debacle immediately sparked demands for increased regulatory oversight from the industry and regulators to bring more accountability and transparency to the cryptocurrency market. Although the ubiquity of counterfeit cryptocurrencies and NFTs have worsened the current scenario, regulation in this industry can help reinstate some parity. The freedom for different stakeholders to create and invest with much more confidence could be enabled by self-regulation and a clear legal framework for cryptocurrencies in India. The goal is to address the industry's many risks and difficulties—including those related to cryptocurrencies, crypto assets, stablecoins, DeFi, NFT, lending, staking, and other issues—while avoiding impeding or harming technological advancements.
MiCA - The Blueprint for the International Regulatory Framework
One of the most important regulatory developments in 2022 was the completion of the text of the European Union's massive Markets in Crypto-assets (MiCA) regulatory framework. MiCA's comprehensiveness enables market players to comprehend the rules and what's expected from them over time. It is expected that in 2023, an increasing number of cryptocurrency service providers will strive to enrol in Europe to avail the long-term benefits of MiCA. Additionally, it is anticipated that the effects of MiCA will go far beyond the boundaries of the EU. MiCA is likely to serve as a model for the development of crypto asset regulatory frameworks in several other nations around the globe due to its comprehensive nature. It is also expected that global organisations and financial watchdogs, such as the G20, the Bank for International Settlements (BIS), and the Financial Stability Board (FSB), will urge nations to enact legislative measures similar to those in MiCA aimed at safeguarding consumers and ensuring sound prudential practises at cryptocurrency exchanges.
Global Adoption of CBDCs
In 2022, we noticed that a large number of nations around the world became increasingly interested in the idea of CBDCs. More than half of the world's central banks are currently evaluating their potential because they might offer numerous advantages. As a result, the majority of central banks have already moved past theoretical discussions and have either begun collecting data, conducting assessments, or laying their plans into action. According to PwC, there are a variety of key drivers, including enhancing cross-border payments, reducing financial crimes, and enhancing financial inclusion. CBDC projects are also being driven by the growing risks associated with other types of digital currency. As we've seen with UPI, it's also anticipated that in 2023 there will be new startups and products centred around CBDCs.
Metaverse and NFT to Evolve at an Accelerated Pace
As NFTs have begun to be accepted as collateral for crypto loans, Decentralised Finance (DeFi) will incorporate them into its system. As individuals realise that possessing NFTs solely to display them serves no purpose, marketplaces with reward mechanisms based on staking NFTs will gain prominence. After undergoing numerous regulatory changes and receiving approval from authorities, real estate NFTs will finally begin operating in the real world. As documents are securely stored on the blockchain and rendered tamper-proof, the amount of paperwork required for real estate transactions will be drastically reduced. Music NFTs could become popular in 2023 as more artists use them to interact with their audiences. Several marketplaces have already begun to sell fractional ownership music NFTs in collaboration with well-known music producers. In 2023, NFTs will become more focused on practical business use cases than on digital art and collectibles (or utility NFTs).
Increase in Innovative Use Cases for Tokenised Assets
In the past few years, the tokenization of assets has gained traction among investors and collectors, who find value in tokenising their assets in a blockchain environment. It enables users to partially or fully trade and store these tokens depending on their preferences and requirements. Asset tokenisation is most commonly used in the real estate industry. It provides a plethora of new investment opportunities for both financial institutions and investors. It is anticipated that interesting applications of tokenised assets, like flash loans and real estate, will grow over time. A rise in start-ups aimed at integrating TradFi institutions into cryptocurrency in a legal manner may be foreseeable.
For the cryptocurrency sector, a turning point is about to arrive. We must continue to emphasise how cryptocurrencies can promote innovation, produce jobs, enhance financial inclusion, and ultimately lead to economic growth. The year 2023 is likely to be one of consolidation and growth. The latter half of the upcoming calendar year will see the emergence of innovative projects as well as potential signs of improved sentiment. However, it remains to be seen how the year will unfold.
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