• Sendi Young, Managing Director at Ripple


• 08.02.2023 01:15 pm
#crypto

For many in the crypto industry, much of  2022 would be best forgotten. Thanks to the collapse of Terra and FTX - for different reasons - as well as a looming recession which left many companies little choice but to reduce their workforces, the market was gloomy to say the least. Yet while many companies suffered, it is equally important to recognise that others have come through the downturn relatively unscathed, particularly those focussed on developing solutions to real problems. As we look forward towards hopefully less turbulent times, there remains plenty of opportunity for innovation and growth as the industry restores trust this year.

With that in mind, here are my predictions on what to expect from the industry in the year ahead.

1. Institutional crypto strategies will continue accelerating

Despite the market downturn, institutional adoption of blockchain and digital assets will accelerate as corporations launch pilots and continue to investigate the technology. Banks are no longer questioning whether they require a crypto strategy but are instead asking themselves what their crypto strategy should be. There is a recognition from traditional financial institutions that the technology is here to stay, creating opportunities to bring greater efficiencies, transparency and speed to existing financial infrastructure.

While many legacy financial services companies continue to exercise caution around incorporating digital assets across their businesses, particularly in light of recent market turmoil. A significant number of traditional finance and payments institutions such as Barclays, Goldman Sachs, JP Morgan, Mastercard, Morgan Stanley, SBI Holdings and Visa are already pursuing blockchain-related projects ranging from cryptocurrency custody and trading, to data processing, to payments and trade execution. The investment horizon of banks and other large financial institutions is measured not in days and weeks, but in years, so we see the embrace of digital assets and blockchain continuing throughout 2023 and beyond.

2. Increased opportunities for acquisitions will drive industry maturity

2023 will see increased consolidation in the industry as healthier companies look to acquire those that are struggling to plug gaps in their own capabilities following the collapse of FTX, as well as casualties from earlier in 2022 like Celsius, Voyager and Three Arrows Capital. Valuations across the industry have declined significantly since the highs of late 2021 and early 2022, creating appealing opportunities to acquire capabilities and expertise that would otherwise require significant time and resources to build in-house. We will also see an increasing trend for crypto/blockchain firms to be acquired by traditional financial services players, as well as established companies from other sectors.

3. Europe will prioritise sustainable crypto projects

The sustainability credentials of crypto and blockchain will continue to be scrutinised, driven by pressure from consumers and policymakers. This trend will be particularly pronounced in Europe where the shift toward a green economy is a significant economic and political aspiration. The drive towards greater sustainability will manifest both in projects gravitating towards less energy-intensive blockchains and an increased focus on providing blockchain-enabled solutions to the challenges we face as a society, for instance through the tokenisation of carbon credits and the establishing of sustainable value chains.

4. Central Bank Digital Currency projects will be elevated

A number of non-eurozone nations in Europe will announce their intentions to pilot a Central Bank Digital Currency (CBDC). Several non-European nations have already publicly committed to launching CBDC pilots, with India and Brazil amongst the most notable, however European nations are also realising the benefits that a CBDC can bring. These include the preservation of the local central bank's role and the ability to boost financial inclusion. What’s more, the collapse of FTX has further highlighted the need for nations to have in place a dependable, risk-free digital settlement asset as a more secure alternative to other crypto solutions.

5. A lack of market confidence will drive stablecoin adoption

During 2020 and 2021, $165 billion entered the crypto market via stablecoin creation. Thanks to the collapse of Terra, 2022 proved to be difficult year for stablecoins, however, this forced the market to differentiate between fiat-backed stablecoins and algorithmic stablecoins, and drove value towards more transparently managed stablecoins, such as USDC whose market cap is currently above the level it was at in late 2021. We’ve also seen new fiat-backed stablecoins issued, such as EURS in Europe and AUDC in Australia.

Given market volatility, and the loss of confidence in tokens such as FTT created by the collapse of FTX, 2023 will witness a greater adoption of fiat-backed stablecoins as institutions look to realise the benefits of blockchain technology such as real-time merchant settlement. The creation of new non-USD fiat currencies will also drive this trend.

6. We will witness a first-of-its-kind UK crypto regulation

In early 2023, we have already seen a landmark moment for UK crypto regulation. At the beginning of February, the Government published its crypto consultation – a big step towards putting an appropriate regulatory framework in place for the industry. Not only will this facilitate greater collaboration with the private sector, but credible, comprehensive frameworks will see growth and innovation agendas supported in the year ahead– as well as place the UK back on the map as it works towards its ambition of becoming a ‘global crypto hub’.

Meanwhile, in the EU, Markets in Crypto-Assets (MiCA) will finally be passed by the European Parliament in February. While it won’t come into force until 2024, as soon as MiCA is ratified, the ‘Level 2’ European Supervisory Agencies will immediately start developing detailed rules and standards to make the law work in practice.

Despite last year’s challenges which have continued into 2022, there is much to be optimistic about in the year ahead. As the industry doubles down on real utility and prioritises the development of new use cases, we will see trust and growth restored. Alongside this, moves by the UK government to develop a clear regulatory framework for crypto will benefit the wider industry, and put the UK on the right track to achieve its aim of becoming a ‘global crypto superpower’. By this time next year, we hope to be looking back on February’s crypto consultation as the starting point for measurable industry change.