During 2022 crypto industry faced multiple setbacks and challenges, which adversely affected the sentiments of crypto investors and believers. In the wake of the fallout of big industry players, rising geopolitical tensions and financial crisis with a crippling global economy, the beliefs of many crypto enthusiasts have been shattered. Numerous stakeholders of the crypto industry, whether traders, investors, or startup ventures, have faced problems and failures. And with the end of 2022, the dominant cryptocurrency, Bitcoin, was crawling to find a stable position in the market. But regardless of the challenges it faced, we can anticipate that the crypto industry will continue to flourish and rise in the coming years with cycles of boom and bust.
If we go down memory lane, the crypto market has experienced a downfall several times, especially Bitcoin. In June 2011, BTC plummeted to 0.01 USD from 32 USD, a -99% drop, in December 2018, BTC fell from 20,000 USD to 12,000 USD and in May 2021, when BTC nosedived from 58,000 USD to 36,000 USD resulting in a -53% price crash and yet BTC continues to stay alive in the crypto market. Because every time BTC tumbled, it picked up its threads and started to gain momentum again and again.
Therefore, this year is no different for the crypto world, it has faced these uncertain scenarios several times and will persevere to overcome these circumstances. Moreover, the existing external factors have brutally impacted the performance of the crypto market as well as the industry as a whole. The crypto market has come a long way since its inception in 2008, which is now marching towards the end of its beginning and unfolding another chapter in the history of the Cryptocurrency Industry.
Macroeconomic factors affecting the crypto market
The year 2022 showed us numerous shortcomings in the crypto space that raised questions about cryptocurrency. But the setbacks that the crypto world experienced this year were also corroborated by macroeconomic factors.
The soaring inflation rate made U.S. Federal Reserve and other countries’ central banks increase the interest rate to control the circulation of money. This measure had a profound impact on the economy’s liquidity, and assets like cryptocurrencies that are on a high-risk spectrum took a severe blow.
Another external factor that stimulated the cryptocurrency downturn is the geopolitical impact of the Russia-Ukraine war. The war crisis grabbed investors’ attention, and they responded to it by seeking liquidity resulting in big sell-offs by large holders.
Moreover, the global lack of clarity among governments regarding the regulatory clearance on cryptocurrency has been overwhelming on investors’ sentiments and various crypto companies’ operations.
The crypto market kicked off 2022 with bearish tendencies as Bitcoin (BTC) and Ethereum (ETH) dropped around 20% and 31%, respectively. Then came the infamous Terra-luna fiasco, where the algorithmic stablecoin TerraUSD (UST) depegged with USD and tumbled to as low as $0.30. Along with UST, its sister token LUNA, which once came under the list of top-10 crypto projects by market capitalization, plummeted over 98% to $0.84. It led to the collapse of Singapore-based hedge fund Three Arrows Capital (3AC), which reported $10 billion in cryptocurrency in early 2022.
The Terra-luna debacle hit the market like a storm and created a significant cascading impact on the industry, leading to further failures. The collapse of prominent crypto-based companies such as Voyager Digital, Celsius and Vauld further created turmoil which affected whales’ speculations triggering FUD among the investors. The twisted speculations affected the performance of the crypto market, including BTC and ETH.
And at the end of this year, if this wasn’t enough, the leading Bahamas-based exchange FTX, with a $32 billion valuation, imploded and went bankrupt. Although the reason for the failure of FTX is not the crypto market but their own flaws in the system, it had grievous repercussions on the industry. As a consequence of these various unfavourable events, BTC prices crashed below $20000, and it is still struggling.
Amidst the chaos, the industry is still forward-looking
Despite these troublesome circumstances, the crypto industry is still managing to attract new investors. Institutional adoption kept rising in 2022, and investments fueled in the crypto industry in various dimensions, such as metaverse, NFTs, new crypto projects, and even governments of several countries shared their interests in cryptocurrencies.
Here are a few prime positive stories of crypto adoption:
- United Nations High Commissioner for Refugees (UNHCR) announced to use of cryptocurrency for humanitarian purposes. The UN body announced its partnership with Stellar Development Foundation to offer USD Coin (USDC) as a form of cash to assist the Ukrainian refugees amidst the impaired banking infrastructure.
- Indian eCommerce giant Flipkart partnered with Polygon-incubated to launch a metaverse shopping space, “Flipverse,” enabling consumers to create avatars & shop for products from a wide range of brands.
- The French Olympic Committee recommended using a blockchain-based ticketing system for the 2024 Paris Olympic games.
- In its Fifth Annual Blockchain Week, South Korea focused on decentralized finance, NFTs, gaming, Metaverse, Web3, and crypto.
As per the Crypto Adoption Index 2022 released by Chainalysis, global crypto adoption slowed down during the bear market in 2022. However, it still remained higher than pre-bull market levels, with emerging markets leading the way. Therefore, we shouldn’t focus only on the unfortunate developments of this industry, but we must have a holistic perception of the industry. It only indicates that even though the industry’s growth debilitated this year, it has great potential for future growth, which can pivot the way we operate today. The crypto industry has entered 2023 with maturity and experience, giving rise to innovation and fresh investment opportunities.
Dimensions of crypto growth in 2023
1. Decentralized Finance (DeFi)
DeFi is the fastest-growing sector in the digital asset world. This past year has shown various banks experimenting with DeFi, including banks like HSBC, J.P. Morgan, BNY Mellon and others. Even after the FTX fallout, DeFi transactions climbed to 68% volumes (approx. $97 billion) from October to November. According to the BNY Mellon’s Survey of Global Institutional Clients, there’s heightened demand from institutional investors seeking access to digital assets through esteemed custodians. The survey reported that around 91% of the total institutional investors are looking to invest in tokenized assets. This report indicates that traditional banks will soon shift towards DeFi in order to fulfil customer demands which will drive growth in the DeFi sector.
Source: BNY Mellon
The year 2023 is expected to witness the growing involvement of traditional finance in the DeFi sector despite the market conditions. The underlying foundational infrastructure of DeFi is paving the way for banks to transform their operations. However, the macroeconomic factors should be considered, if the global economy witnesses signs of recovery in 2023, the DeFi projects may see a boom in investments with more use cases and users.
2. The Gaming World
The global gaming industry is moving from traditional games to blockchain-based games. The sector is predicted to grow at a compound annual growth rate (CAGR) of 70.3%, reaching USD 65.7 billion by 2027 from USD 4.6 billion in 2022, as per the Blockchain Gaming Market Report 2022 published on Globe Newswire. With the rising number of game types such as Role Playing Games, Open World Games, Play-to-earn games, Free-to-own and Collectible games, the industry continues to mature and level up, wherein the competition is no longer based on how much investments companies garner, it depends on the most captivating and engaging content a blockchain gaming studio can produce.
Source: Globe Newswire
Pioneer platforms in the gaming industry are warming up to enter the blockchain gaming market. Epic Games, Inc., known for Fortnite, hosted Blankos Blockchain Party on their Epic Games Store, highlighting their interest in the blockchain gaming market. In addition, the rise in popularity of Play-to-earn NFT games on Ethereum sidechains has significantly contributed to the GameFi growth. Besides, blockchain games raised around USD 2.5 billion of funding in Q1 of 2022 during the ongoing bear market, showing a glimpse of its untapped potential.
These developments have triggered users’ migration from conventional games to blockchain games. Although this migration is slow, it is expected to gain momentum in years to come while generating more curiosity about its potential future. The blockchain gaming industry could be a crucial catalyst for driving mass adoption.
3. Metaverse, NFT and Web3.0
This past year, we witnessed a thriving and vibrant culture across a broad spectrum of blockchain-based applications, including Non-fungible Tokens (NFTs), Metaverse and Web 3.0. The rising popularity of NFTs among the tech community and reputed brands revealed various advantages for businesses and their marketing strategies. By 2027, the global non-fungible token market is projected to reach USD 9,845.00 million, up from USD 3,184.78 million in 2021. According to Businesswire’s Global Non-fungible Token Market Forecast Report 2022-2027, the market size was USD 3,184.78 in 2021 and USD 3,835.76 in 2022, which is expected to shoot up at a Compound Annual Growth Rate (CAGR) of 20.69%.
Source: Business Wire
The widespread use of NFTs in different tech spaces puts light on the emerging Metaverse market, which is considered to trigger the next wave of digital disruption with real-life benefits for users and companies. Numerous large technology companies, venture capitalists, private equity, start-ups and well-established brands are seeking opportunities to take advantage of the metaverse market.
Source: McKinsey & Co.
According to McKinsey & Co.’s new research, Value creation in the Metaverse shows that the Metaverse could grow to USD 5 trillion by 2030. The research states that although the emergence of the Metaverse will have varied impacts on different industries, it is estimated that the metaverse market may influence the e-commerce industry between USD 2 trillion and USD 2.6 trillion by 2030. Likewise, it will have a similar impact on the academic virtual learning market (approx. USD 180 billion to USD 270 billion), advertising market (approx. USD 144 billion to USD 206 billion) and gaming market (approx. USD 108 billion to USD 125 billion).
Source: McKinsey & Co.
Therefore, prominent brands from different industry verticals, such as Nike, Facebook, W Motors, Delmonte, Flipkart, and Hermès, have already initiated early adoption of Metaverse. Moreover, Dubai aiming to transform itself into a global tech capital, has already begun implementing its Metaverse Strategy and plans to generate approximately 40,000 jobs.
And with the rise of NFTs and Metaverse, the third iteration of the internet as a decentralized web has been making noise all over the world. Web 3.0 is expected to drive rapid innovation in the tech space offering significant advantages to end-users and businesses. As mentioned in the report published by Vantage Market Research on Globe Newswire, the Global Web 3.0 blockchain market revenue is expected to grow to a value of USD 23.3 billion by the year 2028, which was valued at USD 2.9 Billion in 2021. The report exhibited a Compound Annual Growth Rate (CAGR) of 41.6% for the forecast period. Web 3.0 is expected to promote commercial expansion as the technology standards keep on rising.
Moving ahead in the future
With the potential of the industry and growing interest among a variety of business sectors, we have seen an increase in tech enthusiasts’ educational efforts for users. Numerous educational initiatives have been launched in the crypto space and across the entire blockchain landscape to raise awareness among the public. These educational initiatives have been playing a crucial role in navigating the industry in the direction of mainstream adoption.
In 2023, we expect these trends to grow even further, focusing on overcoming the existing challenges of security and implementation to propel this industry towards success and scalability. Ultimately, we can only assume that the crypto industry will continue to move forward where lies the unexplored path filled with greater challenges and innovations.