Risks and Opportunities in Crypto for 2023

Thomas Perfumo

Thomas Perfumo, Head of Strategy at Kraken Digital Asset Exchange, shares what shaped the crypto space in 2022 and what investors may want to know about the industry going into the new year. Perfumo also shares the biggest risks and opportunities for the space.

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

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

Earlier this year, crypto proved its usability during the Russia-Ukraine crisis, specifically in providing humanitarian solutions and relief to those in need. Crypto’s inherent value as a frictionless, cross-border payment system helped highlight some of the key issues and ongoing problems the traditional financial system faces during global conflicts.

In September, Ethereum (ETH) completed the long awaited merge from a Proof-of-Work blockchain to a Proof-of-Stake blockchain. The engineering effort to complete this task was very significant - some compare it to rebuilding the engine of a plane in flight. Since the merge, Ethereum’s supply inflation declined significantly, and the network is now set to further scale for mainstream use. 

The Terra (LUNA) collapse kicked off a string of big changes for the year. The dramatic fall in asset values led to the failures of several well-known crypto companies and possibly contributed to FTX’s insolvency. Overall public sentiment in crypto declined as a result.

However, it is important to reflect on the distinction between crypto as a technology and the failure of centralized businesses. During this volatile period, many crypto protocols and underlying decentralized applications functioned without interruption. The headline business failures were not the result of poor technology, but rather excessive risk taking, and in the case of FTX, actual business malfeasance.

What’s the outlook for crypto in 2023?

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

What do you view as the biggest risks and opportunities?

The industry will face many challenges this upcoming year, including the continued spread of contagion. It is possible we will witness additional failures among centralized crypto firms, which will pressure an already subdued market. Despite this, the new year brings opportunities for reputable and trusted players to drive change that will facilitate the next wave of crypto adoption.  

Another industry concern is 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 recourse – most likely to be attributed to recent events – pressures governing bodies to enact rules that may stifle the industry’s ability to grow longer term. Therefore, we will continue to actively engage with regulators from an educational perspective, with the goal of allowing for growth in technological innovations and solutions. 

What should investors know about crypto going into the new year? 

We have always advocated that people do their own research about 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 purchase their assets from a reputable exchange. In addition to examining fee structures and assets listed on a centralized exchange, they should consider whether an exchange is recognized for its security protocols. 

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

We don’t make specific price predictions. Let’s just say we’re excited to see what’s next.

This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks 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.

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