Most cryptocurrencies are still in a bear market, with valuations crashing significantly from the peaks that were reached in late 2021. In 2022, we saw numerous scandals that shook investors’ confidence in crypto and painted a negative picture for the sector as a whole.
However, bear markets are often a period of great opportunity. If there will be another bull run in the crypto markets, buying high-quality cryptocurrencies at current valuations could prove to be a good idea.
So, should you invest in cryptocurrency in 2023? In this article, we’ll be tackling the question of whether crypto is a good investment in 2023 or not and highlight the main pros and cons of investing in crypto right now.
Reasons for investing in crypto in 2023
Let’s begin by taking a look at the main reasons in favor of investing in crypto in 2023.
- Crypto assets are trading at significant discounts compared to their ATHs
- Technical development is still going strong for the top crypto projects
- The next Bitcoin halving is coming in 2024
An opportunity to buy the dip
The total cryptocurrency market cap peaked at around $3.01 trillion in November of 2021, and hit a low of $830 billion in December of 2022. At the time of writing, the total crypto market cap is at roughly $1.03 trillion. So, while there has been a moderate recovery, the valuation of the market as a whole is still down about 65% from its peak.
While it’s certainly not clear if the cryptocurrency market has reached its bottom yet, the current prices of the top digital assets certainly represent a solid entry price if you’re looking to buy the dip.
For example, both Bitcoin and Ethereum are trading about 67% below their all-time highs, and other top coins like Cardano, XRP and Dogecoin are down almost 90% from their ATHs. If you’re looking to accumulate a long-term position for these cryptocurrencies, these prices are hard to argue with.
The top crypto projects are still seeing exciting developments
Even though the crypto space is still squarely in a bear market, we’re still seeing exciting developments related to major cryptocurrency projects. If we will see a bull market again, there will be plenty of tools projects will be able to use to deliver exciting products to a new wave of crypto users and investors.
On the Bitcoin front, we’re seeing the continuing improvement of the Lightning Network protocol and its infrastructure, which will make it possible for BTC to be used for payments on a much larger scale. BTC payments via the Lightning Network are being integrated into most implementations of Nostr, a decentralized social media protocol that’s looking to provide an alternative to platforms like Twitter and Instagram.
Bitcoin is now also being used for Ordinal Inscriptions, which are similar to NFTs in many ways. While some Bitcoiners are opposing this use for the Bitcoin blockchain, Ordinals are gaining quite a lot of popularity and even the prominent NFT company Yuga Labs is launching a collection of Ordinals on the Bitcoin blockchain.
When it comes to the Ethereum ecosystem, there is a flourishing layer 2 sector with many teams developing solutions that will help Ethereum scale for mainstream adoption. Currently, the most popular Ethereum layer 2s such as Optimism and Arbitrum utilize optimistic rollups. However, we will soon also start seeing layer 2s based on zero-knowledge rollups, which promise to provide even better performance.
So, while the scalability limitations of Ethereum might have hampered ETH’s potential in the 2021 crypto bull run, Ethereum will likely be much better prepared for a large influx of users when the next bull run comes around.
The upcoming Bitcoin halving
The Bitcoin halving is a mechanism in the Bitcoin protocol that reduces the amount of BTC received by miners by half. The Bitcoin halving happens every 210,000 Bitcoin blocks, which translates to about four years. According to current estimate, the next Bitcoin halving will happen in March 2024.
Bitcoin is still by far the largest cryptocurrency by market capitalization, and tends to dictate the overall direction of the crypto markets. So far, Bitcoin halvings have marked turning points in the BTC markets, and it has been a good strategy to accumulate crypto in the lead-up to each Bitcoin halving.
The market generally sees Bitcoin halvings as bullish because they reduce the rate of new BTC coins entering the market. With each subsequent halving, miners have less BTC to sell, which reduces the selling pressure in the Bitcoin market and can have a positive impact on the price of Bitcoin.
Reasons against investing in crypto
Of course, there are also reasons why investing in crypto in 2023 might not be the best idea.
- Poor macroeconomic outlook
- Loss of confidence in the crypto industry
- Increased regulatory scrutiny
There will likely be a recession in 2023
While cryptocurrency as a whole commands a market capitalization of over $1 trillion, crypto as an asset class is still seen as high-risk and high-reward. This has often worked in favor of crypto during times of economic expansion and low interest rates, when investors are more comfortable in putting their money into speculative investments.
However, we’re currently in a period where rising interest rates are the norm in the world’s largest economies as central banks are working to reign in inflation. This has contributed to the decline of risk assets like tech stocks and cryptocurrency.
It looks like the poor macroeconomic outlook will persist for a while. In a World Economic Forum survey of economists published in January 2023, around two thirds of the surveyed economists expected a global recession to happen in 2023. In a recession, we would probably see declining cryptocurrency prices, as investors would likely look to park their money in safer investments.
Loss of confidence in the crypto industry
In 2022, we saw numerous scandals in the crypto industry which brought a lot of negative press to the nascent sector. The most notable scandals were the collapse of the Terra ecosystem and the downfall of the FTX cryptocurrency exchange, which resulted in tens of billions of dollars in losses for investors.
Poor risk management practices (and in some cases also fraud) also resulted in the collapse of several cryptocurrency lending businesses, including leading players such as Celsius, BlockFi and Voyager. The users of these platforms, which marketed themselves as low-risk passive income opportunities, are now at the mercy of lengthy and complex bankruptcy proceedings before they can get at least some of their investment back.
Following these scandals, it will take time for the honest actors in the crypto industry to restore confidence and bolster the reputation of crypto and blockchain technology in the mainstream.
Increased regulatory scrutiny
In many key jurisdictions, there’s still a lot of uncertainty regarding the regulation of cryptocurrency. In particular, there is a lot of controversy in the United States regarding which cryptocurrencies and crypto products should be classified as securities.
For example, in February 2023, U.S. securities regulator SEC imposed a $30 million fine on major crypto exchange Kraken. According to the SEC, Kraken’s staking product constitutes a security, and the exchange isn’t allowed to offer it to U.S. customers without the proper registration.
There is also the ongoing legal battle between the SEC and Ripple regarding the XRP cryptocurrency, which the SEC claims is a security. If the court determines that XRP is a security, the decision could have a chilling effect on much of the crypto industry.
Looking to invest in crypto? Here’s how to get started
If you’ve decided to invest in crypto, we provide a number of resources to get you up to speed with everything you need to know.
- Our crash course for investing in crypto will help you learn the most important elements of investing in crypto and will introduce you to key concepts like cryptocurrency wallets, exchanges, and the most common misconceptions beginners have about cryptocurrencies.
- If you’re looking for a more comprehensive overview, our ultimate guide to investing in crypto will guide you through the process of buying cryptocurrency and safely storing it using a cryptocurrency wallet.
- If you’re not sure which cryptocurrencies to choose, our list of the best cryptocurrencies to buy in 2023 provides an overview of some of the best cryptocurrency projects to explore.
Please keep in mind that cryptocurrencies are a highly risky investment. Before making any investment, make sure to carefully consider your financial situation and conduct your own research using multiple sources. Never invest more than you are willing to lose.
The bottom line – Is cryptocurrency a good investment in 2023?
If you think that cryptocurrency is here to stay as a long-term investment, the current prices are fairly attractive and would represent a good entry point. However, there’s also reasons to be careful. The macroeconomic outlook is negative overall, and regulators have been putting more pressure on the crypto industry following the numerous scandals in 2022.
Overall, it might be wise to stick only to long-term cryptocurrencies like Bitcoin and Ethereum as they have the best chances of actually staying relevant regardless of the shifting trends in the crypto market. When it comes to smaller cryptocurrency projects, not all will survive the current bear market.
We’ve seen plenty of examples of cryptocurrency projects that reached all-time highs during the 2017 bull market and failed to reach the same heights in the 2021 bull market. Many of these projects will likely continue to decline before eventually becoming entirely irrelevant. So, the fact that a cryptocurrency is trading significantly below its all-time highs is by itself not a good enough argument to justify an investment.
The next time there is a bullish turn in the crypto markets, we’ll likely see a similar outcome. Some of the projects that rose to prominence in the 2021 bull market won’t be able to match those peaks again. It’s important not to blindly buy the dip, and evaluate each cryptocurrency individually to see whether it has a good chance of being relevant over the long term or not.
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