Following a brutal year that saw bitcoin plunge roughly 75% from its all-time high in November of last year, the majority of big banks and investment managers anticipate a recovery in the cryptocurrency market in 2023.
The demise of cryptocurrency exchange FTX, the most recent in a string of liquidity crises and bankruptcy filings that have alarmed investors, has brought attention to the need for additional regulations in the highly speculative industry.
The next phase of growth is anticipated to be driven by Ethereum and projects with a real-world utility and functional focus.
While bitcoin may still test a potential low of $10,000–12,000, Matthew Sigel, head of digital assets research at VanEck, predicts a recovery to $30,000 in the second half of 2023. In November 2021, the price of bitcoin reached an all-time high of $69,000.
Banks and investment managers have the following comments to make:
DEUTSCHE BANK’S MARION LABOURE, A RESEARCH ANALYST:
Despite the sizeable losses suffered by investors, they think that this second crypto winter will end up being beneficial because the FTX collapse will bring the crypto ecosystem closer to the mainstream financial sector.
The FTX crash brought to light several well-known structural problems in the cryptocurrency ecosystem, including insufficient reserves, conflicts of interest, a lack of regulation and transparency, and inaccurate data.
Binance is the biggest winner, with market concentration (in crypto exchanges) being higher than ever.
Systemic contagion threats from cryptocurrency to traditional assets are not yet present.
J.P.MORGAN:
In an early December note, analysts stated, they believe that the Ethereum Merge and really the Ethereum Surge could be a big factor in terms of increasing the use-cases for blockchain into new areas, including financial services.
The Ethereum Merge was a significant software update to the Ethereum blockchain that went live in September and, according to developers, reduced its energy usage by 99.95%. Another anticipated upgrade, The Surge, is expected to lower costs while enhancing the security and speed of the Ethereum network.
They still believe that the Ethereum Surge will serve as a catalyst for growth in the cryptocurrency markets, which appears to be at least 6 to 12 months away.
BOFA:
A greater institutional commitment may be made possible by increased regulatory urgency, analysts wrote in a note. A shift in focus and funding from speculative trading to projects with real-world functionality and companies with roadmaps to profitability may also accelerate industry maturity.
In their opinion, they are still in the early stages of a significant change in applications that will occur over the next 30 years.
GOLDMAN SACHS:
Although the FTX crisis appears to be at its peak, economists noted in a note that mining prices have changed in such a way that they are now more sensitive to price increases than declines.
Crypto mining has shown a roughly 1:1 price-power relationship, from the China crackdown to the numerous price crashes in early 2022. This elasticity tends to contract on the negative side while expanding on the positive side, similar to the Ethereum Merge. Most recently, the early-September 6% price rebound was followed by an early-October 19% Bitcoin power demand rebound (more than 1-to-3).
It is still too early to confirm the change, but we could see some immunity to the current price crash in the midst of the FTX crisis, as well as potential stricter regulatory scrutiny in the coming months.
UBS:
Volumes and open interest for BTC and ETH futures… now appear to be stabilizing. This is related to implied volatilities returning to realized levels, strategists noted in a note.
The easing of outflows from centralized exchanges is evidence of normalization. The wrapped bitcoin (wBTC) discount, which had increased to as much as 1.5%, has largely returned.
UBS shares the pessimistic outlook of the majority of other banks for the near future.
Regulation looms so heavily that they are unable to foresee any immediate catalysts for a robust recovery.
Head of Digital Assets Research at Van Eck, Matthew SIGEL:
Given the recent increase in electricity prices and the decline in the price of bitcoin, they predict that many miners will restructure or merge as they look for new capital.
They added that if the conflict in Ukraine ended, some of the measures designed to reduce inflation might be reversed and Bitcoin mining might become more politically acceptable.
Blockchain technology will be used by institutions to streamline custody and settlement while lowering customer costs.
Ethereum, Polygon, Avalanche, Polkadot, and Cosmos are their predicted winners.
Latin America is experiencing the world’s fastest adoption of cryptocurrencies and stablecoins due to its young population and persistent inflation. Brazil might start the process of tokenizing sovereign debt first.
Twitter will expand its payment options by obtaining state money licenses, competing more directly with Venmo and Cash App, and possibly integrating cryptocurrency.
STANDARD CHARTERED ERIC ROBERTSEN, GLOBAL HEAD OF RESEARCH:
Standard Chartered forecasts Bitcoin falling to $5,000 in their “surprise” scenario for 2023 if the current collapse continues.
LOOP MARKETS CO-FOUNDER AND CEO TOM NORWOOD:
Demand for bitcoin should continue to rise regardless of market conditions because it is still superior to most currencies in that it has a good chance of going up eventually, whereas most currencies will simply depreciate over time.
Norwood anticipates a recovery in the cryptocurrency market in about six months.
He believes that will have to come from real world adoption by retail users who are not buying cryptocurrency to gamble on new tokens, but who need to exit their local Fiat currency, said the researcher.
