Hello 2023
Today is the last trading day of 2022 and for many, it could have come soon enough. Needless to say, it’s been a turbulent year, but not just in crypto, broader markets were upended as well as US inflation rose to levels not seen since the 1970s. This prompted central banks globally to respond with unprecedented Quantitative Tightening.
No matter where you look across markets, there were few places to hide. Oddly enough (given soaring inflation), the Dollar reigned king across markets this year.
Looking at 2023, we’re setup for more uncertainty as economies start to feel the effects of quantitative tightening. Markets will be very much focused on the health of the labor market and Core Inflation.
The good news? We have seen signs of inflation peaking, driven largely by deteriorating consumer confidence and economic activity as well as continued normalization of supply chains. The bad news? We remain at the beginning of this economic slowdown.
While it appears we are nearing the peak of the tightening cycle (per market pricing), any sustainable relief won’t be in play until markets can see past the trough of the cycle. Economic data, earnings reports, and bond yields will be key in identifying the bottom for risk assets.
In the meantime, investors will continue to take a prudent approach, focused on quality and cash flows that will mitigate risks of rising rates and deteriorating credit markets.
In the crypto markets, we’re facing a reset from multiple fronts. Much of the “fluff” has been wiped, SOL -95% being the prime example of a fall from grace. The big question for 2023 will be whether we’ve seen the worst of the fallout, with eyes on two of the largest players in the market, Binance and Tether.
Then ultimately comes the evolution of narrative. Bitcoin offered an alternative to our monetary system addicted to money printing in 2020 and 2021. In 2022, we saw the complete opposite, and interest was steered away from growth-focused investments to far more traditional opportunities. How will that evolve in 2023 is yet to be determined.
So is it all over for crypto? We don’t believe so. The technological advancement and transformative potential of crypto still firmly remain in place. That said, the iteration of excess and fraud of this cycle will likely not return, and will make for a more mature market come the next cycle.
What will drive the next cycle? Well, all we can say is that in 2018, we could have never imagined a global pandemic leading to a 50% increase in our monetary base with unprecedented monetary easing.
Hello 2023, here we come.
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