I remember a year ago when all sorts of people trying to predict the great 2022. (Remember that infamous 200 Twitter threads?)

I was one of them too, valiantly composed my “2022 is a year of self-discovery for the industry” thesis. Silly me. But hey, it was kind of on point I’d argue (in general, although no precise forecast of the black swans that would happen — no one has that prediction. FTX collapse? Unthinkable.)

For 2023, I had no motivation to churn out forecasts at first. It’s not about I have no prediction. I’m kinda like just feeling like going with the flow. Whatever happened may happen. If the market crashes further, I’d just buy. If it pumped, well, I will also… buy?

Que sera sera.

But recently, as I waiting for my food prepared in a restaurant, something hits me. An insight. Maybe… just maybe. There might be some hints and I got to tell you. Let’s explore.

The weakening of the US dollar is bullish for crypto

2022 was a good year for the reserve currency (not for long) of the world — The US dollar. The FED quantitative tightening apparently worked to increase the value of the greenback relative to other assets. But there’s a caveat, as the following DXY index chart shows.

USD was strengthening all year until the trend reversed starting from November. What’s the cause?

My theory would be: The reason why the USD performed well prior was that the FED did QT much earlier than other central banks. In other words, it’s not that US$ is underlyingly strong (that the US economy is unstoppable), merely because the USD supply was just pulled from circulation sooner than its peers.

As a result, as European Central Bank started following the FED’s policy in rising interest rates, gone is your chance to travel to Europe during a cheap Euro period.

The tipping point was a week before the 2023 new year when the Central Bank of Japan BOJ signaled a change to their ultra-loose monetary policy.

For so long BOJ managed a very low-interest rate to prop up the economy. As a result, the Yen rate has sunk sharply over the US dollar. But they started to change course by allowing the rate to go over 0.5% from the previous 0.25% fluctuation. It isn’t exactly QT yet, but it shows how the last bastion of easy money policy is beginning to crack.

It’s a sudden announcement that shot the value of the Yen up against US dollars. Crypto pumped too that day (but not SP500.)

What’s the meaning of that?

The devaluation of the US dollar is always bullish for crypto. If BOJ (and other countries) decided to unload its US foreign reserves to get the cash to prop up their own currency, that won’t be good for the US and USD. Remember that Japan and China are the largest holders of US debt or what we call the Treasury bill.

A sudden supply flood of bonds would supposedly pressure the FED to pivot. Or else the price of bonds goes lower while yield remains high—due to high-interest rates. This is not good as you don’t want people to buy your debt IOU too cheaply on the open market but get high interest.

Funnily enough, this is what people have been frustrated about. Data point out the bond market needs interest rate lowering yet JPowell is stubborn and stated that the FED will remain hawkish throughout 2023.

It’s okay, though. the FED’s bad decision could be good for us. If it ended up with a significant devaluation of USD, here’s crypto would swoop in.

When #1 fiat is weakened, crypto will fulfill its destiny as the currency of the future. And finally, the hedge against inflation. I have a feeling that it will start happening this year.

Lack of liquidity, though

Must remember that the mood all over the world right now is still somber. The QTs force people to hold onto their cash tight instead of investing it in a more volatile asset.

It’s not until there are no other choices.

Recently I watched how people deal with inflation in Argentina. Hopefully, we won’t experience something that extreme, but it gives us a peek at what people do to survive. Literally, one person chose to buy 5kg of peanuts rather than keep the cash.

The trigger would be the wreck central banks going to do to their respective country's economies. Each warrior will compete in a competition of turning on and off the faucet and see whose turning on/off skill is the most efficient. Perhaps Arthur Hayes was right. At some point, the small folks and the system itself would be tired of being the pawn in the economy, and bam, Bitcoin to 1 million. Spare me that TradFi currency bs.

Ultimately cash is no longer the king.

Hopium here, but just remember that BTC has been stable for the past few months against traditional stocks. US stocks do not benefit from currency weaknesses if the USD is weak in the global market. Because at this time, a weak USD equals a weak economy (not something caused by intentional money printing.)

Enough from the macro. Let’s see predictions from within the crypto industry itself…

The main characters of tomorrow

2023 crypto is propping up our industry’s next leaders.

Some of them we can see already, such as Wintermute. The market-making players just announced the possibility of creating their own exchange, filling the gap left by FTX and other bankrupts centralized entities.

Meanwhile, surviving incumbents further plan to strengthen its root — I.e. Binance acquiring Voyager and Tokocrypto.

On the Layer 1 race, Cosmos will fill the gap Solana left being the next Ethereum killer. It’s on par with the modularity thesis as one of the crypto future. The main hindrance would be adoption tho. The bear market is not exactly attractive for newcomers to dip in.

Crypto 2023 is about survival. It’s about who is manage to hang it there longer. My concern lies in smaller projects. I’m afraid we’re going to see some protocols sunsetting. Either gracefully, or using blatant self-rugs.

My hope is through public funding. Aside from Gitcoin, the Binance recovery fund also is a good idea — although the selection process would be less democratic.

Damn, Sam!

Crypto has been fighting regulation for as long as its existence. However, during the bull market, we can afford to fight tooth and nail against it. Not only that we have the financial means, but also the spirit and confidence.

I don’t think it would be the same when resources are more scarce. Even worse with the FTX collapse effect, which is an embarrassment to the entire space. FTX will only give reasons for regulators to be unfavorable toward crypto. We’re going to see the effect of regulations more because of them.

Thanks, Sam.

The rise of the ultimate monolithic chains

The future may be modularity, where Layer 1 is composed of several independent elements differing in roles.

But that doesn’t mean there’s no room for monolithic. They are a hedge, and they solve modularity weaknesses (domino-creating failures, difficult adoptions.)

Before, I wrote about my frustrations related to Polygon partnerships, on why these companies picked a sidechain instead of Layer 2 Ethereum, for example. I began to see why. At least Polygon isn’t on perpetual training wheels mode like Optimism and Arbitrum (You can argue, these two are less decentralized than Polygon.)

For that dream do-it-all monolithic chain, I’m hopeful the comeback of chains like Fantom will materialize into something concrete this year. Fantom aims to solve all the trilemma points. Trilemma, the classic blockchain problem, you can only pick two but not all three. Some builders don’t accept this rule. Like Fantom, that’s what they're trying to develop with parallel executions. Solving trilemma is not only possible but aiming to knock all three is an endgame that makes sense. Simpler and more straightforward system for both developers and users. It’s a battle worth fighting.

In conclusion, 2023 will be a transitionary year. A turning point. The seed for the next bull market will be planted, but not in another year we will harvest the bounty.

I’d advise relaxing, at least what I’m planning to do. (To quote my words earlier, if it goes up I’ll buy so will I if it goes down).

A lot of time to accumulate. And a lot of time to see the wreck that is Traditional Finance and its puppet masters. At some point, crypto must decouple with them. Fingers crossed, it’s this year.

Do you know what’s lacking from this forecast? Technical predictions. I know I need more.

Perhaps this is why I was reluctant to write a new-year outlook initially because it’s mostly about macro. Perhaps with time, I can see more tech trends coming up in the near future. Stay tuned for more predictions.

Lastly, we are waiting for this post-2017 moment ☹️.

It will get worse before it gets better