16Jan 2023

2023 Predictions

by Henrik Andersson

Every year, in January, I look at the next 12 months and think of the significant milestones that could take place. It is incredibly hard to make predictions for the ever-changing crypto markets. Nevertheless, here are my five big predictions for 2023!


I see the overall crypto market (the total market cap) bottoming in the first half of 2023. There are a few reasons to believe this. Firstly, as already noted above, we have had a lot of unexpected failures in 2022 that washed out excess leverage and bad business practices from the market. There is an argument to be made that only the strongest hands remain invested through volatile times; those that are here for the long-term like Apollo Crypto and our investors. When we compare the current Bear Market’s length and severity to previous ones, it also tells us that we should be close to forming a bottom, or that we already have! Crypto markets have historically followed a four-year cycle with three bullish years followed by one bearish year. One possible reason for this repeating pattern is the Bitcoin halving that occurs every four years. The next halving is scheduled for March 2024. I personally believe future halvings will have gradually less impact as the relative Bitcoin inflation reduction decreases at each halving. Nevertheless, it could become a bullish narrative in the second half of this year.


On the Macro front, the US Federal Reserve has indicated we will reach a peak in interest rates this year with another 75 basis points increase from current levels. A pause in interest rate hikes should support the overall Macro picture. So, what is the market still worried about that prevents us from going ‘all-in’? The biggest worry is the Digital Currency Group/Genesis/Gemini situation. We should see some clarity early in the year, even though it might mean a bankruptcy filing or reorganization for one or more of the parties. Other worries are potentially insolvent Bitcoin miners and the Mt. Gox Bitcoins being distributed to the market. These uncertainties should resolve in the first half of 2023. With the above in mind, we are currently looking to position the funds for a more bullish market, and we aim to be close to fully allocated in the next two quarters. 


The following two predictions will focus on the second largest crypto asset, Ethereum. Significant takeaways from the current Bear Market include: 1) Ethereum outperformed Bitcoin, at least for certain periods. This is highly unusual as Bitcoin, the largest and oldest crypto asset, typically suffers much less in a Bear Market. We expect that Ethereum will outperform Bitcoin in the next Bull Market. 2) Ethereum successfully moved to a Proof-of-Stake consensus mechanism from Proof-of-Work in 2022 (“the Merge”). This was the single most significant event since the launch of Bitcoin in 2009. With that out of the way, my first Ethereum-related prediction is that Layer 2 Networks (L2s) will continue to scale exponentially, resulting in the majority of transactions on Ethereum originating from L2s. A single L2 will become the second largest DeFi chain as measured by TVL (Total Value Locked), behind only Ethereum itself, and the total TVL of L2s will come close to Ethereum’s. This prediction is based on our increasingly bullish view on L2/Rollups like Optimism, Arbtitrum, zkSync, StarkNet and others. My second Ethereum prediction is that it will be a deflationary asset in 2023. Since the Merge, the overall supply of ETH has been reduced, and Ethereum will be deflationary with increased activity. We saw a brief period of deflation during the collapse of FTX. The next time we see deflation in Ethereum will hopefully be in a more bullish market.


My next prediction relates to the next big crypto market narrative. Narratives have historically driven crypto market cycles. In 2020, we saw the ‘DeFi Summer’ leading to a Cambrian explosion of activity and, in 2021, we saw the NFT market develop very fast. Both DeFi and NFTs are here to stay. I predict we will see a narrative around ‘NFT Financialisation’ in 2023. That’s the combination of DeFi markets and the NFT markets, two prominent use cases for crypto. One criticism of DeFi, is that it is quite circular in that you can use DeFi to borrow, lend, and speculate on other crypto assets, but not much else. With the rise of NFTs, DeFi has found another digital native asset (art, gaming assets, digital land, music, etc.) to price, speculate, and hedge. We have actively invested in this emerging infrastructure in projects like Solv Protocol, Insert Finance, NFT Perp, and others.


My final prediction for 2023 is that Twitter will fully embrace crypto payments. With its new owner Elon Musk, Twitter wants to create the ‘Everything App’, perhaps under the domain. I’m mainly basing this prediction on three observations: 1) We know that Elon has publicly praised WeChat, which has become the de-facto payment app for many Chinese people. I believe he will try to create something similar for the Western market. 2) A successful and ubiquitous payment app would fully realise the PayPal vision from two decades earlier. With the rise of stablecoins, crypto will be an integral part of that realisation. 3) We know that Binance participated as an equity investor in taking Twitter private. Binance has a non-custodial crypto wallet, TrustWallet, under its umbrella. Twitter could benefit by leveraging the market share and IP of Binance.


We look forward to an exciting 2023!

Henrik Andersson

Henrik is the Chief Investment Officer at Apollo Crypto and is the fund manager for the Apollo Crypto Fund. He also acts as the fund advisor for the offshore Apollo Crypto investments funds, the Apollo Crypto Frontier Fund and the Apollo Crypto Market Neutral Fund. Henrik's expertise in traditional financial markets comes from spending a decade on Wall Street as a vice president in institutional equity sales. His exceptional understanding of DeFi comes from co-founding two successful DeFi protocols, mStable and dHEDGE.