4 Cryptocurrency Predictions for 2023

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If you thought Wall Street had a bad year, take a closer look at how the cryptocurrency space fared. Based on data from CoinMarketCap.com, the total value of over 22,100 digital currencies fell from nearly $3 trillion in November 2021 to less than $795 billion in the early morning of December 29, 2022. This represents a drop of approximately 74% in less than 14 months.

But given the well-known volatility still present in the crypto space, even a 74% drop in a short period of time is not enough to sway the resolve of digital currency enthusiasts.

The big question is: what will happen next for cryptocurrencies in 2023? Here are four predictions for the new year.

Image source: Getty Images.

1. Ethereum will (briefly) overtake Bitcoin in market value

The first crypto prognosis for 2023 is that Ethereum (ETH -0.21%) will do the impossible, if only for a very short time, and surpass the market value of Bitcoin (BTC -0.19%).

The most difficult aspect of this prediction is that Bitcoin and Ethereum tend to be highly correlated. When one goes up or down, the other usually follows. Digital currencies have rarely diverged from Bitcoin and moved on their own news or hard data based on merit. But with stocks in a bear market and the US economy potentially heading into a recession, we might get our first glimpse of the individualization germinating in the cryptocurrency space.

For its part, Bitcoin has always been the king of cryptocurrencies. The perceived scarcity, given its cap of 21 million tokens, prompted investors to back a high value per token. But when we look at the usefulness of Bitcoin, it leaves a lot to be desired. The average number of Bitcoin transactions made daily is effectively unchanged over the past seven years, based on transaction data from BitInfoCharts.com.

Compare that to Ethereum, which averaged 40,000 transactions per day in 2016, around 700,000 transactions per day in 2019, and has consistently exceeded 1 million transactions per day for the past two years.

While the Ether token can, in theory, be used for payments, Ethereum’s true utility has been touted as support for developing decentralized applications (dApps). In terms of dApp protocol revenue, data from TokenTerminal.com shows that Ethereum dominates all other projects, with $3.8 billion in revenue over the past 12-month period.

In other words, a strong fundamental/tangible argument can be made that Ethereum is the more valuable cryptocurrency compared to Bitcoin.

2. The two most popular meme coins will lose another 50% of their value

Pardon the blatant pun, but on the other side of the coin, we may see the so-called “meme tokens” get blown up once again. Specifically, I’m talking about Shiba Inu (SHIB -0.80%) and Dogecoin (DOGE -1.03%).

At one point in 2021, Shiba Inu and Dogecoin were the hottest coins in the crypto space. Dogecoin gained well over 20,000% in a six-month period leading up to Elon Musk’s appearance on Saturday Night Live as “Dogefather.” Meanwhile, Shiba Inu produced a single gain of over 121,000,000% between the stroke of midnight on January 1, 2021 and its all-time high set on October 27, 2021.

However, both meme coins have lost around 90% since hitting their respective highs. This is a trend that I expect to continue into 2023 for several reasons.

For starters, Shiba Inu and Dogecoin are nothing more than cash coins – and there’s nothing special about cash coins. There are thousands of digital currencies that can be used to pay for goods and services, assuming merchants allow it.

More importantly, neither Shiba Inu nor Dogecoin offer anything resembling competitive advantages or differentiation. While they may have powerful social media presences, there is nothing tangible that sets these tokens apart from other projects that offer real-world utility.

Additionally, the story has been incredibly wicked with the payout coins skyrocketing in a short period of time. With the exception of Bitcoin, pretty much every payout coin that gained 20,000% or more in a short period of time then fell between 93% and 99%. With nothing to help SHIB and DOGE stand out, both seem destined to lose 50% or more of their value in 2023.

3. Another Major Cryptocurrency Exchange Will Fail

I am well aware that some of you will not like this third prediction, but I expect another major cryptocurrency exchange to fail in the new year.

Although the puzzle is still being pieced together and all parties remain innocent until proven guilty in court, it certainly appears that FTX founder Sam Bankman-Fried and his associates have orchestrated one of the biggest financial frauds in history.

FTX, which was one of the largest digital currency exchanges by trading volume, filed for bankruptcy protection in November, which effectively made the FTX token (FTT -2.08%) both worthless and useless. In the space of 48 hours, FTX went from tweeting about newly leased offices in Miami to seeking $9 billion in funding to avoid bankruptcy. Ultimately, FTX’s liquid assets were insufficient to cover its debts.

While I’m not naming any specific cryptocurrency exchanges that may fail in 2023, there are plenty of warning signs that FTX may not be a one-size-fits-all thing. For example, just two weeks ago, the accounting firm Mazars announced that it would suspend its collaboration with crypto companies. The list of crypto clients it has provided its services to includes Binance, Crypto.com (Cronosis the native token developed by Crypto.com) and KuCoin, which owns the native token KuCoin.

With the exception of Coinbase Global, which has to have regular audits performed as a publicly traded company, proving that reserves for digital currency exchanges are adequate has been nearly impossible. This is a major red flag, and one more reason to believe that FTX will not be an isolated incident.

Image source: Getty Images.

4. El Salvador will be forced to abandon its Bitcoin experiment

We started this list with an offbeat prediction, and we’ll end with an equally long projection: El Salvador will drop its Bitcoin push before the end of 2023.

September 2021 was supposed to be the shining moment in the existence of cryptocurrency. El Salvador has become the first country to legalize bitcoin as an exchange currency and require businesses to accept the token as currency. But less than 16 months after bitcoin was endorsed by enthusiastic Salvadoran President Nayib Bukele, it turned out to be a complete disaster.

For starters, most Salvadorans, many of whom don’t have access to traditional financial services, aren’t interested in using Bitcoin to pay for goods and services. A survey of 1,269 Salvadorans by Central American University Jose Simeon Canas found that only 24.4% had used Bitcoin to make a payment in 2022. Additionally, two-thirds of respondents believe the rollout of Bitcoin was a failure.

But the biggest problem for Bukele is that El Salvador appears to be on the verge of defaulting within the next two years. Thanks to the receipt of $450 million in recent loans, it will likely avoid what looked like an imminent default in January 2023 on its own sovereign debt just a few months ago. Nevertheless, this does not change the fact that El Salvador’s insistence on using public funds to buy Bitcoin effectively prevented the country from obtaining a $1.3 billion loan from the International Monetary Fund and raised fears among other lenders to lend to the country.

To make matters worse, Bitcoin has lost over 60% of its value since El Salvador started using public funds to make purchases. With the country’s asset reserves dwindling, a prolonged bear market for Bitcoin could force Salvadoran leaders to rethink their strategy if they want financial help.

Given that digital currencies have not been able to decouple from the stock market in recent years, a possible US or global recession could be catastrophic for Bitcoin and, therefore, for El Salvador’s financial situation. I don’t expect the country’s bitcoin experiment to survive the year.

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