2022 has been a tough year for cryptocurrency and non-fungible token (NFT) investors. Bitcoin (BTC) hit an annual low on November 21st. This comes almost a year after reaching an all-time high of $69,044. After such a turbulent year, how should a crypto investor plan for 2023?
First, there are significant risks in this space that are worth considering before investing.
macroeconomic risk
Investors should be aware of the macro and systemic risks affecting the cryptocurrency industry as 2023 approaches. The war in Ukraine has created an energy crisis caused by sanctions on Russian energy. The US Federal Reserve’s monetary policy response to inflation continues to unnerve markets. The crypto contagion from recent bankruptcies continues to inject volatility into the market, increasing regulatory pressure and miner capitulation likely to continue into the new year.
Ukraine War, Inflation, Rising Interest Rates
The economic impact of the war in Ukraine is affecting the global economy. Russia is one of the world’s largest sources of energy, especially important for Europe. Sanctions on Russian energy have sparked crises in several European countries, with prices skyrocketing and supplies dwindling.
Government-imposed economic shutdowns in response to the COVID-19 pandemic have led to a sharp rise in inflation in the United States, Europe, and around the world, accompanied by a significant expansion of the money supply.
Central banks are trying to combat inflation by raising interest rates, putting downward pressure on stock markets and cryptocurrency prices throughout 2022. War could escalate in Ukraine, and stubbornly high inflation and interest rates could bring more pain to investors in his 2023.
Crypto-contagion
The contagion effect caused by May’s Terra crash is still plaguing the crypto market, with Bitcoin hitting a new cycle bottom after the FTX failure in November. The ripples caused by these major events have yet to subside.
Many companies have declared bankruptcy and may liquidate their crypto assets to pay back their creditors, which could trigger new selling in the crypto market. Investors should keep this in mind as they enter the new year.
regulatory pressure
Crypto regulation has been coming to the US for some time. The dramatic events of 2022 only increased the likelihood of regulatory progress in 2023.
Regulatory clarification could help the crypto space in the long term by attracting institutional capital. may come to an end. If popular stablecoins like Tether (USDT) and US Dollar Coin (USDC) come under regulatory scrutiny, they could cause market turmoil.
minor surrender
If the price of Bitcoin continues to fall, the pressure on miners will increase. Bitcoin mining is a capital intensive business and falling prices would make these businesses unsustainable to function. As a result, miners are forced to sell bitcoin to cover their costs, putting downward pressure on prices.
A minor capitulation has been a hallmark of previous bear markets and may mark the low point of a bear phase.
Aside from these risks, the crypto market is sure to introduce surprises such as Terra and FTX. It’s good to keep that in mind when thinking about investing.
Smart investments in 2023
This section is not pumping cryptocurrencies or projects. We offer common strategies for wise investment that can reduce risk and limit losses.
As some say, cash is king. Black Swan events are difficult to predict and can help you maintain cash reserves in bear markets. These events can be great opportunities to buy discounted cryptocurrencies and NFTs.
Allocate a portion of your portfolio to good cryptocurrencies
Investment is the preservation of capital. Investing in good cryptocurrencies such as Bitcoin and Ether (ETH) is a smart choice.
Layer 1 and Layer 2 Blockchain
The next step towards investing in riskier assets is to explore Layer 1 and Layer 2 blockchains, excluding Bitcoin and Ethereum. It may be worth broadening your exposure across blockchains that have survived at least one bear market before considering new ones that look promising.
Layer 1 worth mentioning include Solana, Avalanche, Polkadot, Cardano, and Aptos. Some layer 2 are Polygon, Arbitrum and Immutable. Research and understand the pros and cons of each project before making an investment decision. Read white papers, evaluate roadmaps, and explore the community.
Investing in a layer 1 or layer 2 blockchain is generally less risky than investing in an application. For example, investing in Ethereum is less risky than investing in Ethereum-based decentralized finance (DeFi) applications like Uniswap. This is because Ethereum has thousands of decentralized apps and its price is resilient to the failure of a single application. However, if Uniswap fails, the application’s investors will lose their money.
This is not a criticism of Uniswap, but a general risk management point.
When choosing a layer 1 and layer 2 blockchain, it is wise to have backup investment options for each major option. For example, a Solana bull might want to hedge by investing a small amount in the so-called “Solana killer” Aptos.
In short, Aptos exists for Solana just like it did for Ethereum one cycle ago. Such shadow investments can help build robust and balanced portfolios.
air drop
We cannot forget the Ethereum Name Service (ENS) and ApeCoin (APE) airdrops in the last cycle, and more recently the Aptos (APT) airdrop. The Web3 space is filled with new and often credible projects. A project needs a large group of people to test the product. Investors can join the project early and qualify for the airdrop when the token launches.
Ethereum DeFi projects used airdrops extensively in the previous cycle. There is no reason to think otherwise this time. 2023 promises to be the year many new projects are tested.
historical rhyme
Many exponential gain patterns emerged in the last cycle. Note similar themes in this cycle. The ENS domain was a big hit last cycle. As distributed name services grow in popularity, it may be worth looking at your own development project.
DeFi had a great run in the previous cycle. GameFi and Metaverse Tokens also performed well. DeFi and GameFi could grow into the next big thing in the next few years.
SocialFi has taken off in recent months, with several promising projects emerging. This could be another opportunity like his ENS next cycle.
Memecoins had some luck last cycle, and Dogecoin (DOGE) remains an interesting project backed by Elon Musk. However, be careful before investing in memecoins.
follow smart money
This rule of thumb doesn’t always work, but with proper care it does. It’s worth noting the investment options of venture capital funds such as a16z, Sequoia Capital, Solana Ventures and Coinbase Ventures.
They don’t always make the right choices, but their portfolio is a great place to narrow down to some good investment candidates. However, investing in new names for application-layer projects is generally wise after the cryptocurrency market bottoms out and recovers in anticipation of the next bull market.
There are no secret sauces to making millions of dollars in the crypto space. A common approach is to buy low and sell high. So 2023 isn’t a bad time to start, as market prices are low.
Moreover, the time spent in the market is better than the timing of entering the market. The more an investor stays in the market and follows the basic principles as often as possible, the higher the investor’s return. Despite market cycles and volatility, cryptocurrencies and NFTs are generally linear markets and a diligent investment strategy should help generate positive returns.
This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making decisions.