Cryptocurrencies had their worst year to date in 2022, with the crypto market cap dropping 63%—from $2.1 trillion on January 1, 2022, to $820 billion on January 4, 2023. This landslide is attributable to the Terra Luna crash, the demise of almost the entire crypto lending industry, and, most notably, the collapse of the world’s second-largest centralized crypto exchange, FTX, says GlobalData, a leading data and analytics company.

Suneet Muru, Analyst in the Thematic Intelligence Team at GlobalData, predicts what lies ahead in 2023:

Securities and Exchange Commission (SEC) vs. Ripple outcome will have widespread ramifications for the troubled crypto industry

“The SEC vs. Ripple verdict will reach its long-awaited conclusion early in 2023 and will be the most important event for the crypto industry this year. A settlement is the most likely outcome, but its impact will depend on how the settlement is reached.”

The US will continue to push for comprehensive regulation

“While the future of the Digital Commodities Consumer Protection Act (DCCPA) is uncertain, it isn’t doomed, as some people have claimed. Even in light of Sam Bankman Fried’s input and support for the bill, it will likely see another iteration in 2023 to ensure there are no gaps and potentially address the highly unfavorable environment it currently creates for decentralized finance (DeFi). In any case, the bill will still lean towards the Commodity Futures Trading Commission (CFTC) having more regulatory purview in the future.

“We will not see regulatory clarity in the US in 2023 unless the SEC lays out clear rules for what crypto exchanges can do, but we will see progress. The EU’s Markets in Crypto-Assets (MiCA) regulations are due to come into effect in 2024, putting more pressure on the US to pick up the pace. Some key areas where we can expect legislative progress are stablecoins and liquidity risk management. The narrow split in congress following the midterm elections will inevitably make it harder for bills to get passed in such a short time frame. Still, almost everyone will agree that regulating these areas will be crucial to prevent future collapses.”

Use case dynamic will impact cryptocurrency adoption and innovation

“The imminent metaverse winter will slow the adoption of tokens such as MANA and SAND. The same will happen with Web3 tokens if the platforms fail to demonstrate superiority over their Web2 counterparts. The DeFi protocols utilized in these platforms need to massively improve their user experience to preserve their user bases, especially in light of scrutiny from the proposed regulations in the US.

“The temporary slump in adoption for these platforms will be a blessing in disguise. One of the biggest issues in the crypto industry is platforms’ inability to put the correct measures in place quickly enough to keep up with the rapid growth in adoption. A cold period will give them a chance to close the gap.”

Information based on GlobalData’s latest thematic report: Tech, Media, & Telecom (TMT) Predictions 2023