Dec 12 (Reuters) - Most big banks and investment managers expect the cryptocurrency market to rebound in 2023 after a brutal year that saw Bitcoin plunge around 75% from its all-time high in November last year. .
The collapse of the FTX cryptocurrency exchange, the latest in a series of liquidity squeezes and bankruptcy filings that have rattled investors, has underscored the need for more regulation in the highly speculative sector.
Ethereum and projects focused on real world functionality and utility are expected to fuel the next stage of growth.
While bitcoin may still test a potential low of $10,000-$12,000, it could rally to $30,000 in the second half of 2023, according to Matthew Sigel, VanEck's head of digital asset research. Bitcoin had hit an all-time high of $69,000 in November 2021.
The following are some comments from banks and investment managers:
MARION LABOURE, RESEARCH ANALYST, DEUTSCHE BANK:
"Although investors have suffered significant losses, we believe this second 'crypto winter' will be positive as the collapse of FTX will bring the crypto ecosystem closer to the established financial sector."
"The FTX accident highlighted well-known structural problems in the crypto ecosystem: insufficient reserves, conflict of interest, lack of regulation and transparency, and unreliable data."
โMarket concentration (on cryptocurrency exchanges) is higher than ever, with Binance being the biggest winner.โ
"Crypto does not yet pose a systemic contagion threat to traditional assets."
JPMORGAN:
โWe think that Ethereum Merge and really Ethereum Surge could be a major factor in terms of increasing blockchain use cases in new areas, including financial services,โ the analysts said in an early December note.
The Ethereum merger was a big software update to the Ethereum blockchain that went live in September and reduced its power consumption by 99.95%, according to the developers. The Surge, another anticipated upgrade, is seen as reducing costs to make the Ethereum network more secure and process transactions faster.
"We continue to see the Ethereum Surge as a catalyst for development in the cryptocurrency markets, appearing at least 6-12 months from now."
BOFA:
"Increased regulatory urgency may allow for greater institutional commitment, and a shift in focus and capital from speculative trading to projects with real-world functionality, and companies with roadmaps to profitability may accelerate industry maturity." ", the analysts said in a note.
"Our view is that we remain in the early stages of a major change in applications that will take place over the next 30 years."
GOLDMAN SACHS:
โWhile the FTX crisis appears to be reaching its peak, asymmetric mining responses to prices may weaken the market headwind โ now less sensitive to the downside and more to the upside,โ the economists said in a note.
โFrom the crackdown in China to the various price drops in early 2022, cryptomining has shown a price-to-power ratio of about 1 to 1. Along with the Ethereum Merge, this elasticity tends to shrink on the downside while expanding on the downside. The Up Side: Most recently, the 6% price rally in early September was followed by a 19% Bitcoin energy demand rally in early October (plus 1 to 3).โ
"It's still too short a track record to verify the change, but we could see the possibility of some immunity to the ongoing price decline amid the FTX crisis and possible tougher scrutiny from regulators in the coming months."
USB:
โBTC and ETH futures volumes and open interestโฆnow appear to be stabilizing. This coincides with implied volatilities falling in line with performance,โ the strategists said in a note.
โThe normalization is evident by the fact that outflows from centralized exchanges have narrowed. And the wrapped bitcoin (wBTC) discount has largely reversed after widening as much as 1.5%.โ
As with most other banks, UBS is pessimistic about the near-term future.
"Regulation is looming to the extent that we don't see any near-term positive catalysts for a strong recovery."
MATTHEW SIGEL, HEAD OF DIGITAL ASSET RESEARCH, VANECK:
"With bitcoin mining largely unprofitable due to recent higher electricity prices and lower Bitcoin prices, we predict many miners will restructure or merge in search of fresh capital."
They added that ending the war in Ukraine could reverse some of the policies aimed at curbing inflation and make Bitcoin mining more politically acceptable.
"Institutions will use blockchain to simplify custody and settlement, while reducing costs for clients."
"Our predicted winners are Ethereum, Polygon, Avalanche, Polkadot, and Cosmos."
"With persistent inflation and a young population, Latin America is seeing the fastest cryptocurrency and stablecoin adoption in the world. Sovereign debt tokenization may start first in Brazil."
"Twitter will bolster its payment offerings with state money licenses, competing more directly with the Venmo & Cash app, and possibly integrating crypto."
ERIC ROBERTSEN, GLOBAL HEAD OF RESEARCH, STANDARD CHARTERED:
In its "surprise" scenario for 2023, Standard Chartered forecasts that Bitcoin will drop to $5,000 if the current crash extends.
TOM NORWOOD, CO-FOUNDER AND CEO, LOOP MARKETS:
"Demand for bitcoin should continue to grow regardless of market conditions, as it is still better than most coins in the sense that it at least has a good chance of going up eventually, while most coins just flatten out." They will depreciate over time.
Norwood expects the crypto market to recover in about six months.
โI think it will have to come from real-world adoption by retail users who don't buy crypto to stake new tokens, but need to get out of their local Fiat currency.โ
Reporting by Susan Mathew and Bansari Mayur Kamdar in Bangalore; Edited by Saumyadeb Chakrabarty
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