Should Institutions Brace Themselves for a 2023 Crypto Bull Run?

It’s fair to say that 2022 was a disappointing year for the cryptocurrency landscape. However, as momentum steadily builds within the industry in 2023, is it finally time for institutional investors to brace themselves for a cryptocurrency bull market?

At the beginning of 2023, the cryptocurrency ecosystem had been looking worse for wear in the wake of a year of great economic challenges sweeping through traditional financial markets. Record-breaking inflation, geopolitical tensions and widespread tech stock sell-offs carried great ramifications for crypto, and the total cryptocurrency market capitalization suffered as a result. 

As CoinMarketCap data shows, the total crypto market cap fell from a peak of around $3 trillion in late 2021 to just less than $800 billion by the end of 2022. 

"This is now the crypto ice age," Alex Au, founder of Alphalex Capital, told Nikkei Asia in December 2022. "I think that 2023 will continue to be subdued in the crypto market, mainly because of people's confidence."

Despite Au forecasting a quiet 2023 for crypto, we’ve seen assets like Bitcoin rally well in the first quarter of the year, leading to some optimism that a fresh bull run could be on the way. 

Although BTC is still some 60% adrift from its November 2021 all-time high value of $69,000, the world’s most famous digital currency almost doubled in value between the beginning of January and early April. 

While it’s a little early to claim that the ‘ice age’ is over, should institutional investors take note of these mounting upward trends as a buying opportunity?

Any sustained market recovery will likely hinge on eliminating the barriers that institutional traders currently encounter when managing crypto portfolios. With a market that’s showing signs of life, and the long-awaited fourth Bitcoin halving event set to occur in early 2024, timing is of the essence in ensuring that institutions can enjoy a frictionless environment for trading. 

Breaking Down the Challenges Institutions Face

Unlike institutional trading within the traditional finance ecosystem, cryptocurrency trading on an institutional level presents many challenges for traders. 

Challenges such as regulatory compliance, counterparty risk and market liquidity can all impact the efficiency and scalability of institutions managing crypto assets. 

This is because the ever-changing regulatory landscape surrounding crypto can lead to widespread issues when it comes to auditing assets effectively, while the threat of exchanges defaulting on their commitments due to losses in liquidity is a risk for institutions that are managing the wealth of various clients. 

However, new unified terminals are beginning to emerge as a means of countering these challenges that institutions face, which can help to better manage counterparty risk and provide more scalability for the industry as a whole.

For instance, Skarb is an institutionally focused cryptocurrency trading terminal that enables change for institutions seeking to overcome these barriers.

Crucially, Skarb operates on a unified trading infrastructure which empowers institutions to access high volumes of liquidity venues and investing tools all within its own platform. 

With over 20 accessible liquidity venues and more than 6,000 trading instruments available on Skarb’s platform, institutions can benefit from widespread access to deeper pools of liquidity.

Skarb’s reach across all three legs of digital assets is also meaningful.  The platform supports spot, options and futures - allowing traders to access multiple liquidity venues across each to hedge their risk or trade multiple legs across instruments and venues.  

This can provide a solution to institutional traders by unifying an entire trading ecosystem within a single terminal. Through the Skarb engine, traders can manage counterparty risk more effectively by identifying the right market makers from a variety of integrated exchanges to benefit from greater liquidity and a far quicker process for executing trades. Furthermore, Skarb’s scalable back-end architecture helps to deliver an efficient level of performance even in the face of considerable market volatility.  

It’s technological innovations like these that can enable change in overcoming the challenges that institutional traders face on a daily basis when seeking efficiency within the crypto landscape. 

Is 2023 an Ideal Time for a Market Recovery?

While market commentators are unsure that 2023 will play host to the next cryptocurrency bull market, there’s more widespread optimism for 2024. This is due to Bitcoin’s upcoming halving event, which is a recurring pre-programmed instance where Bitcoin halves the volume of rewards provided to miners. 

Having occurred three times already in 2012, 2016 and 2020, Bitcoin halving events have historically preceded large-scale price rallies that lead to a new all-time high value for BTC/USD.

In Bitcoin’s stock-to-flow model, we can see the correlation between halving events and price rallies more clearly. But what does it mean for institutional investors? 

Because the supply of Bitcoin is fixed at 21 million, these four-year halving events are programmed to control the scarcity of BTC. This automatically makes Bitcoin more scarce in the wake of a halving even in relation to demand. 

Should this trend continue, it will be 2024, the year of the next halving event, that will herald the next cryptocurrency bull market. 

Of course, now is a good time to caveat this by noting that nothing is assured in crypto, and that Bitcoin’s most recent halving event in 2020 coincided with a period of widespread traditional market growth that saw the values of tech stocks soar in a way that invariably aided the rallies within the crypto market. 

However, this period of dormancy and cautious optimism for the future of the market may present itself as an excellent opportunity for institutions to optimize their approach to trading crypto assets.

Although the bulls may still be waiting for more signs of growth, it could be that the institutions buying into more efficient trading techniques today will be best positioned for the future. In a market as unpredictable as crypto, taking a more proactive approach can often bring the biggest rewards.

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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