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This week on The Market Report, the resident experts at Cointelegraph discuss what investors can expect from the cryptocurrency market in 2023. Will this bear market carry on, or will we see the beginning of the bull market? Also up for discussion is what projects have the potential to make a splash in 2023.

We start off this week’s show with the latest news in the markets:

4 ‘emerging narratives’ in crypto to watch for: Trading firm

Despite an eventful year fraught with crypto collapses and price drops, Steven Goulden, a senior research analyst at crypto trading firm Cumberland, has pointed to several “green shoots” to break the surface in crypto in 2023. Make sure to listen as our experts go over which industries have the potential to break out in 2023.

Crypto community expresses Christmas market sentiments: ‘No Santa rally’

The word volatility is typically received as a negative by financial circles just the same way the name Lionel Messi is received in Brazilian favelas, yet volatility historically presents some of the greatest opportunities for gains, especially in the crypto markets. 

The crypto market experiences much greater price oscillations on average when compared to traditional markets, such as equities, bonds and Treasury bills. In 2021, the benefits of volatility were on full display:

Market proxies like the S&P 500 exchange-traded fund trust (SPY) climbed 27%, while Bitcoin (BTC) rose a whopping 140%!

Of course, the story is darker in 2022, but veteran Bitcoin investors did not find Bitcoin’s unceremonious drop from its high to be a surprise; in fact, crypto winters have historically seen Bitcoin’s value drop by over 60% at least three different times in the past, before rising again to see new highs.

The nature of volatility is that the highs are very high, and the lows are very low. However, in many financial circles, they only focus on half the sentence — the latter part is highlighted, and the former is tucked under a blanket and hidden in the back of a dusty cabinet.

Cointelegraph looks back on the best and worst-performing cryptocurrencies of 2022 among the top 100 assets by market capitalization. We used the highest and the lowest year-to-date (YTD) returns through the close of Dec. 25, 2022.

Overall, Cryptoindex.com 100 (CIX100), an index that tracks the 100 best-performing cryptocurrencies, fell nearly 68% YTD, suggesting most top coins underperformed in 2022.

Stablecoins are naturalomitted from the list below. Similarly, coins tracking the value of gold and similar mainstream assets have also been ignored.

Instead, the coins mentioned below include decentralized currencies, smart contract tokens, exchange tokens, and others.

Top five crypto of 2022

1. GMX (GMX)

GMX acts as a utility and a governance token within the GMX decentralized exchange (DEX) ecosystem and is the best-performing digital asset among the top 100 coins (excluding stablecoins).

Nonfungible token (NFT) firm Dust Labs is migrating its two top-performing Solana NFT projects — DeGods and y00ts — onto Ethereum and Polygon in a bid to expand their adoption. 

The news was announced on DeGods and y00ts Twitter page on Dec. 25, with both NFT projects expected to be officially bridged onto Ethereum and Polygon respectively in the first quarter of 2023.

Rohun Vora — the creator of DeGods and y00ts who is known by the alias Frank III — said the decision was made to “explore new opportunities” and to allow for the continued growth of the collection. The move will also see the DUST token — used to buy, sell and mint NFTs on the DeGods ecosystem — also be bridged onto Ethereum and Polygon.

Vora confirmed that two NFT projects will still remain on Solana for the time being, and in a separate post responding to a Twitter user, confirmed that the bridge/migration will be owner "opt-in."

During a Dec. 26 Twitter spaces, Vora explained to 66,000 listeners that it was simply a matter of getting the NFT projects on the platforms that he sees will drive the next wave of NFT adoption.

Kabosu, the Shiba Inu dog behind the face of Dogecoin (DOGE) and the “doge” meme is in a “dangerous position” healthwise, according to her owner.

In a Dec. 26 Instagram post that was then shared on Twitter, Atsuko Satō, a Japanese kindergarten teacher and Kabosu’s owner said the rescue dog was in a "dangerous" state, but assured her followers that she will “absolutely fine” and is “getting power from all over the world” (translated) from supporters.

The news brought an outpouring of support from followers. One Twitter user sending well wishes offered to fully cover “any expenses needed to make sure she gets the best treatment.”

The co-creator of Dogecoin, Billy Markus, in a Dec. 26 tweet asked his two million followers to send “[love] and [prayers] and good vibes” to Satō and Kabosu.

Satō didn’t disclose what health complications Kabosu is facing, but in an earlier post said that Kabosu has been sick since Christmas Eve, refusing to eat or drink.

The cryptocurrency markets are trading at record low volatility as investors have largely stayed away during the holiday season. That could be because investors are unsure about the cryptocurrencies that could lead the next bull run.

Cumberland senior research analyst Steven Goulden said in a “Year in Review” report that he expects four “emerging narratives” to lead the crypto space over the next six to 24 months. Goulden anticipates growth in nonfungible tokens, Web3 apps and games. He expects export-oriented nations to add Bitcoin (BTC) and Ether (ETH) as reserve assets and if that happens, it could be a huge positive.

Jared Gross, head of institutional portfolio strategy at JPMorgan Asset Management, holds a different view. While speaking to Bloomberg, Gross said that the bear market had broken the notion that Bitcoin could act as a form of digital gold or an inflation hedge. He added that large institutional investors have stayed away from the crypto sector and that approach was unlikely to change anytime soon.

Could the S&P 500 index (SPX) and the cryptocurrency sector witness a recovery in the next few days? Let’s study the charts to find out.

SPX

The S&P 500 index (SPX) turned down sharply from the downtrend line and tumbled below the 50-day simple moving average (3,885) on Dec. 16. Buyers tried to push the price back above the 50-day SMA on Dec. 21 but the bears held their ground.

Japanese regulators are reconsidering some major cryptocurrency restrictions related to the use of stablecoins like Tether (USDT) or USD Coin (USDC).

The Financial Services Agency (FSA) of Japan will lift the ban on the domestic distribution of foreign-issued stablecoins in 2023, local news agency Nikkei reported on Dec. 26.

The new stablecoin regulations in Japan will allow local exchanges to handle stablecoin trading under condition of asset preservation by deposits and an upper limit of remittance. “If payment using stablecoins spreads, international remittances may become faster and cheaper,” the report notes.

Allowing stablecoin distribution in Japan will also require more regulations related to Anti-Money Laundering controls, the FSA said. The authority on Monday started collecting feedback on proposals for lifting the stablecoin ban in Japan. As previously reported, Japan’s parliament passed a bill to ban stablecoin issuance by non-banking institutions in June 2022.

The latest measure will significantly impact cryptocurrency trading services offered in Japan as currently no local exchanges provide trading in stablecoins like USDT or USDC.

Despite an eventful year fraught with crypto collapses and price drops, Steven Goulden, a senior research analyst at crypto trading firm Cumberland has pointed to several “green shoots” to break the surface in crypto in 2023.

In a 14-page “Year in Review” report released on Dec. 24, Goulden said he saw four “emerging narratives” in 2023 that will lead to “significant progress” for crypto over the next six to 24 months.

These include non-fungible tokens (NFTs) becoming a “go-to method” of tokenizing a brand's intellectual property (IP), Web3 apps and games becoming “genuinely popular,” while Bitcoin (BTC) and Ether (ETH) could become more commonly used as a nation’s reserve asset.

Goulden argued that while NFTs have until this point, been “largely been confined to the art space,” he believes the next step for NFTs will lie in the marrying of NFTs and a brand’s intellectual property.

The analyst noted that many non-Web3 companies are already making “significant progress” to monetize IP and improve customer engagement using NFTs.

2022 was brutal for cryptocurrency and nonfungible token (NFT) investors. Bitcoin (BTC) hit its yearly low on Nov. 21, almost exactly a year after it reached its all-time high price of $69,044. After such a tumultuous year, how should crypto investors plan for 2023?

Firstly, this space has critical risks worth considering before investing.

Macroeconomic risks

Investors must recognize the macro and systemic risks impacting the crypto industry as 2023 draws near. The war in Ukraine has led to an energy crisis caused by sanctions on Russian energy. The United States Federal Reserve’s monetary policy response to inflation continues to unsettle markets. The crypto contagion from recent bankruptcies continues injecting volatility into the market, with increasing regulatory pressure and miner capitulation likely to continue into the new year.

Ukraine war, inflation and rising interest rates

The economic fallout from the war in Ukraine has impacted the global economy. Russia is one of the largest energy sources in the world — particularly for Europe — and sanctions on Russian energy have led to a crisis in several European countries, with prices skyrocketing and supplies dwindling.

Economic shutdown policies implemented by governments in response to the COVID-19 pandemic — accompanied by massive expansions in the money supply — have led to soaring inflation in the United States, Europe and around the world.

Cryptocurrency markets lack any signs of volatility going into the year-end holiday season. This suggests that both the bulls and the bears are playing it safe and are not waging large bets due to the uncertainty regarding the next directional move. This indecisive phase is unlikely to continue for long because periods of low volatility are generally followed by an increase in volatility.

Willy Woo, creator of on-chain analytics resource Woobull, anticipates that the duration of the current bear market may “be longer than 2018 but shorter than 2015.”

The crypto winter has resulted in a loss of more than $116 billion to the personal equity of 17 investors and founders in the cryptocurrency space, according to estimates by Forbes. The carnage has been so severe that the names of 10 investors were removed from the crypto billionaire list.

Could the bear market deepen further or is it showing signs of starting a relief rally? Let’s look at the charts of Bitcoin (BTC) and select altcoins to find out.

BTC/USDT

Bitcoin has been trading in a tight range near the 20-day exponential moving average ($16,929) for the past few days. This indicates that the bears are defending the level but the bulls have not given up yet.

Yield farming, liquidity mining, and staking have become common practices in the crypto market due to the remarkable growth the DeFi ecosystem has witnessed in recent years. These features enable users to earn interest on their crypto holdings by locking them as deposits for specific periods.

The concepts sound appealing but there's one big risk: the potential decline in the valuation of the locked assets. In other words, users will see losses in U.S. dollar terms if the asset's value drops during the lock-in period.

These shortcomings have raised "reflection tokens" as a viable alternative. In theory, reflection tokenomics remove the necessity of locking tokens while still offering staking-like benefits. 

What are reflection tokens?

The projects backing the reflection tokens charge a penalty tax (calculated in percentages) on each transaction. In turn, they give out the fee to all token holders depending on the percentage of assets they hold.

As a result, reflection tokens' holders do not need to lock their assets for a certain period to earn rewards. They earn their income almost instantly in most cases when a transaction is made, with the functions governed by a smart contract.

Bitcoin (BTC) is on track to end the year with a loss of about 65%. This would mark the third negative year for Bitcoin with the other two being 2014 and 2018. In comparison, the S&P 500 has fared much better but that is also down close to 20% in 2022.

Although cryptocurrency prices have seen deep cuts this year, traders have continued to plow money into the space. An online survey conducted by Blockchain.com shows that 41% of the respondents bought crypto this year and 40% plan to purchase crypto in the next year.

However, a sustained recovery in risk-assets may happen only after inflation shows signs of cooling. That would raise expectations of a pivot by the United States Federal Reserve from its aggressive monetary tightening to an expansionary policy.

In the short term, markets may remain volatile as the volumes are likely to remain thin during the holiday season. Could Bitcoin and altcoins start a recovery? Let’s study the charts of the top-10 cryptocurrencies to find out.

BTC/USDT

Bitcoin is trying to cling to the 20-day exponential moving average ($16,955). The bears tried to pull the price lower on Dec. 22 but the long tail on the candlestick shows strong buying on dips.

Unique addresses on the Build and Build (BNB) Chain have now surpassed Ethereum, according to a Dec. 22 statement from the developer.

The developer claims that this makes BNB Chain “the largest layer 1 blockchain in the world.” However, blockchain data shows that the Bitcoin network is still larger than both BNB Chain and Ethereum.

According to Etherscan, Ethereum currently has over 217 million unique addresses. By contrast, BNB Chain has over 233 million unique addresses according to BscScan. This implies that BNB Chain is larger than Ethereum as judged by this metric.

On the other hand, the Bitcoin network has over 1 billion unique addresses, making it larger than both of these networks combined.

The statement was made as part of BNB Chain’s “Year in Review.” The post also highlighted other significant milestones that the BNB network has reached over the past year. The network capped out at 9.8 million transactions per day in May and reached 2.2 million daily active users (DAUs) in October, with DAUs being defined as the number of unique addresses per day that interact with a smart contract.

It has been a tumultuous year for the crypto investors who have witnessed the total crypto market capitalization tumble from about $2.2 trillion at the beginning of 2022 to about $850 billion in December. The sharp erosion in valuation was caused due to several high-profile bankruptcies in 2022.

The entire Terra ecosystem imploded with the collapse of its LUNA token and TerraUSD (UST) stablecoin. The failure of Three Arrows Capital followed this black swan event, and the final blow came as FTX underwent a bank run and imploded. These back-to-back events triggered a liquidity and credit crunch and appear to have caused the most damage to the crypto industry.

A prolonged bear market tends to test investors’ patience, but it offers one of the best opportunities to buy fundamentally sound cryptocurrencies at lower levels. Smart investors who can go against the herd and invest during periods of panic tend to benefit the most when the trend eventually turns.

While a bear market is a great time to build a portfolio, traders tend to make the mistake of buying the coins that have fallen the most in the hope that they will recover to their previous glory. Most times that does not happen because every bull market has a new set of leaders. Generally, the ones that are resilient during the fall or recover quickly from the bottom tend to lead on the way up.

Let’s look at five cryptocurrencies that are showing promise for 2023.

As the year comes to an end, investors will be keenly watching for a Santa Claus rally on Wall Street as many believe that if the rally does not happen, the next year may either remain flat or turn negative. 

Jurrien Timmer, director of global macro at asset management giant Fidelity Investments, tweeted on Dec. 19 that the United States equities markets may remain “sideways” and choppy in 2023. He expects “one or more retests of the 2022 low, but not necessarily much worse than that.”

The cryptocurrency market has been largely correlated with the S&P 500 in 2022. Unless both markets decouple, the sideways or negative action in the equities markets may not bode well for the cryptocurrency market.

Analysts remain divided on the future price action for Bitcoin (BTC). While some expect a recovery, others anticipate another leg lower. Let’s study the charts of the top-10 cryptocurrencies to determine the path of least resistance in the short term.

BTC/USDT

Although Bitcoin has been trading below the 20-day exponential moving average ($16,985) since Dec. 16, the bears have not been able to capitalize on this situation. This suggests that lower levels are attracting buyers.

Sasha Ivanov, founder and CEO of the Waves blockchain platform, is planning to launch a new stablecoin amid the ongoing crisis of the Waves-backed stablecoin, Neutrino USD (USDN).

Ivanov took to Twitter on Dec. 20 to announce the USDN situation resolution plan alongside a new stablecoin project.

“I will launch a new stablecoin,” Waves founder wrote, adding that there is going to be a “USDN situation resolution plan set in motion before.” He stressed that nothing new will be launched or announced until the USDC plan resolution is set in motion.

Without specifying the details on the nature of the upcoming stablecoin, Ivanov promised that the stablecoin will be “undepeggable.” 

“The most important thing is to make people whole eventually, let's focus on that.”