What is the future of crypto in 2023?

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Is it in 2023 that crypto will die?

After a near-apocalyptic 2022 that saw the collapse of one of crypto’s biggest players, questions about the future of the fledgling industry swirled at tornado speeds.

The rapid and sudden collapse of FTX, formerly the world’s third-largest cryptocurrency exchange, has handed scrutiny to the digital industry, with US lawmakers increasingly keen this week to implement regulations. to curb bad actors, reduce fraud, and reduce risk for investors large and small.

It comes as former FTX CEO Sam Bankman-Fried was arrested in the Bahamas on Monday, facing a series of fraud charges from US prosecutors in connection with the stock market crash last month. .

Will Crypto Survive the Latest Scandal? As the US eyes a potential recession, will investors start pulling out of crypto like they did with big tech companies? What would this mean for the global economy?

Mark Hooker, an economics professor at Northeastern and a longtime crypto-skeptic, says cryptocurrency transactions represent a trivial albeit growing part of overall transactions in the economy. With such minimal economic footing, an industry-wide crypto meltdown is entirely possible, he says. And, he says, it would have virtually no impact on the economy.

Some cryptocurrencies have disappeared, which certainly happens, says Hooker. Whether it’s the biggest Bitcoin, Ethereum, for example, is another story. It’s entirely plausible, though.

Hooker says that while there are many historical examples of the stopping and devaluation of banknotes, or paper money, there are few precedents for the use and non-use of financial instruments. as obscure as cryptocurrency. There aren’t many historical parallels, he says.

As software objects, cryptocurrencies sometimes behave like money, usually in the form of digital tokens, and other times like assets somewhat akin to a security or commodity, on which investors speculate in order to make a profit. Despite the supposed social benefits of cryptocurrencies touted by proponents of the decentralized finance movement, Hooker says that ultimately digital coins have been used as instruments of crime, fraud, and speculation.

When you value most assets, there is some kind of cash flow associated with them. Cryptocurrencies don’t have that, they’re entirely speculative, he says.

William Dickens, Distinguished Professor of Economics and Public Policy at Northeastern, says he doesn’t believe the crypto losses suffered this year and in the future will be large enough to derail the US economy.

There are two ways it could, he says. If there were banks or other major financial institutions invested in crypto that became insolvent due to their losses, that could be bad. But I haven’t heard of any systemically important institutions being affected by this. In the past, I would have said they were too sophisticated to be caught off guard like that, but there was the real estate bubble in 2007.

The other way a crypto crash would harm the economy is by diminishing wealth to such a degree that it would reduce consumption, Dickens says. But Hooker says that’s also unlikely, given the profile of your average crypto holder.

I believe people who hold cryptocurrencies are disproportionately wealthy people who have put discretionary wealth that they can afford to lose into this space, Hooker says.

With the Federal Reserve forecasting interest rate hikes to extend into 2023, talk of the death of the perennial cryptoa theme is no doubt sure to continue fueling panic among investors.

I thought early on that crypto would implode, says Dickens. I saw it as having all the hallmarks of the tulip bubble or, to put it another way, a Ponzi scheme. The biggest advocates of crypto, who don’t make money with it, are people who don’t understand that our current financial system is as good as it will get and that central banks play an important role. In short, either they don’t understand economics, or they are victims of a sort of quasi-libertarian ideological absurdity.

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