A Crime as Old as Time … Isn’t Exclusive to Crypto

By Alex Benfield

While 2022 will certainly go down as a key year in crypto history, it’s unfortunately likely to be for all the wrong reasons.

And that’s not because it was the start of a bear market. If only that were the most defining feature.

No, the true theme of the year — and the reason it’ll live in crypto infamy — was the breakdown of centralized institutions … whether due to ineptitude, poor risk management or outright fraud.

The failures of those CeFi platforms caused massive losses in value, both in terms of fiat and crypto. And those losses pushed the prices of the crypto market down further than originally anticipated.

But just because last year was rough doesn’t mean this year will be.

This year will be the time to pick up the pieces, rebuild and regrow.

First, we need to finish cleaning out the trash. Have we seen the full extent of the contagion caused by FTX? Perhaps not, but we’ve seen most of it.

There may be a few more bankruptcies and closures of centralized institutions. But the market should absorb any additional losses before it climbs its way out from here. Once it does, the crypto industry will continue to build for the better … hopefully with a stronger acceptance of the need for and benefits of decentralizing.

In fact, the main reason centralized platforms existed after the debut of DeFi projects was to onboard money from the fiat system and make crypto more accessible.

Remember, DeFi in its early days wasn’t as user-friendly as it is today or will be in the future.

While the industry recognized this as a weak point in the system, it was considered a fair price to pay in exchange for opening the doors of adoption to more users … and their funds.

But we didn’t truly understand the extent of the danger.

Despite working with decentralized cryptos and offering services that appeared better and more favorable than traditional finance, CeFi platforms were still subject to traditional finance’s Achilles’ heel: human error.

The starkest example of this was the latest fiasco à la FTX. It was human arrogance and error that led to its collapse.

And here is where talking heads decry the death of crypto. But they forget that crypto is slowly moving awayfrom tolerating human error. In fact, DeFi relies solely on a trustless system via smart contracts.

Chris Coney, editor of Crypto Yield Hunter, recently wrote about how smart contracts rule as the kings of accountability, preventing human error and misuse.

And as my colleague Beth Canova pointed out at the close of 2022, DeFi experienced a wave of new users as traders and investors sought refuge from the CeFi chaos.

TradFi, however, is still subject to human error. And those of you who’ve watched the new Bernie Madoff documentary on Netflix would know fraud isn’t unique to crypto.

It’s a crime as old as time. And fraud will continue to exist for as long as we allow our financial systems to remain centralized and subject to the human element.

That’s why DeFi is the future of finance.

But that’s the long-term outlook. Where do we stand here at the beginning of 2023 … and where will we stand in a few short months?

While our market leaders have made a valiant start all things considered, it’s too early to get excited.

We expect an eventful first half of the year in the crypto market… and we doubt it’ll contain the up-only type of environment that many became accustomed to during the market’s good times in 2020–21.

Inflation isn’t under control yet, and the Fed appears to be operating while looking in the rearview mirror. The rate hikes could come back to bite the Fed if they aren’t careful, and there’s still a real risk of recession in the U.S. and across the globe.

Still, there have been some reports out of the Federal Reserve lately reframing the question from “How high will the Fed raise rates?” to “How long will the Fed keep rates high?”

This might be the main story line of 2023. However, we would like to speculate that the trend of raising rates will likely end sometime in the first quarter of this year.

That could mean one or two more rate hikes; we can’t say for sure. But we do expect the Fed to stop hiking rates by the end of this quarter.

The market is likely to celebrate the end to the hikes, and we expect asset prices of all kinds to increase after this shift.

Rising interest rates were the most important market factor pushing down crypto prices in 2022, and this change should bring a welcome boost to crypto prices.

While we are looking for a potential rally in asset prices at some point this year, we anticipate 2023 will be a difficult year to navigate financially.

This is exactly the kind of time to set ego aside and allow hard data to guide you.

It’s also a good idea to take as many steps as possible to reduce your risk exposure, such as making sure your wallets are squared away.

Mark my words, there will be opportunities in 2023 if you’re patient enough.

Best,

Alex