- Crypto markets have erased losses since the FTX fallout last year, but new potential headwinds are looming.
- Upcoming regulation, a harsh macro environment, and further contagion could affect token prices.
- Insider asked four crypto executives about the biggest hurdles facing the industry in 2023.
Nearly three months after FTX filed for Chapter 11 bankruptcy, the crypto industry is trying to ride out founder Sam Bankman-Fried's disaster, but potential new headwinds are looming.
For now, crypto markets continue to recoup losses from the FTX liquidity crisis, with the industry regaining a market capitalization of $1 trillion. Bitcoin and Ethereum are up 34% and 28% in the last month, but are still 66% below their November 2021 all-time highs.
Insider asked four crypto executives about the biggest hurdles facing the nascent space in 2023.
โI am cautiously bullish on the crypto markets this year,โ said Timothy Shan, chief operating officer of decentralized exchange Dexalot. "Last year was eye opening and definitely a hard lesson for everyone, a lesson that I feel had to be learned."
Shan added: "Given what has happened with the failures of some large centralized crypto entities, I am very excited about [decentralized finance] and look forward to a new focus on what blockchain technology is really all about."
Regulation, inflation and more crypto contagion
After the fallout from the major players, the biggest question on everyone's mind seems to be how regulation will play out this year.
โWell-written, thoughtful legislation from informed policymakers will help the market in the long run,โ said Eric Parker, CEO of crypto wallet developer Giddy. "But bad decisions by regulators who don't understand what happened will stifle innovation and could send markets in the wrong direction."
Shan added that he is also optimistic about regulation, but that "there could certainly be bugs that could seriously harm and restrict further innovation" of blockchain technology.
Elsewhere, the Federal Reserve continues to raise interest rates to combat inflation. However, economic data indicates that inflation may have peaked, giving the central bank some leeway to slow down the tightening. The Fed announced its smallest hike in almost a year last week.
As a result of an apparently more dovish stance, there has been a broad rally in risk assets like cryptocurrencies.
Cryptocurrency performance is still correlated with macro trends, and any resurgence of high inflation in 2023 would weigh on the prices of "long-duration assets" like cryptocurrencies, said David Wells, chief executive of cryptocurrency trading platform. digital assets Enclave Markets.
โThat being said, cryptocurrencies as an asset class are also a long-term hedge against inflation in many markets around the world, so this is likely to continue to drive fundamental adoption,โ he predicted.
But persistently high or rising inflation would force the Federal Reserve to be more aggressive, which could weigh on risky assets, said Jan Sammut, vice president of marketing at decentralized finance platform Origin Protocol.
High Treasury yields would also be a major hurdle, as they would make volatile assets like cryptocurrencies unattractive, Sammut added.
Finally, there have been a large number of crypto company bankruptcies in the last year. In addition to FTX, there is hedge fund Three Arrows, digital asset brokerage Voyager, and centralized lender Celsius, to name a few.
Another shoe could drop, which could cause the markets to trend down once again.
โAs the dust is still settling from the collapse of large crypto infrastructure providers, any further contagion of credit losses affecting larger exchanges, custodians or institutions in the space could be a setback to the recovery we have seen. during the last month." Wells said.
