The returns investors received from cryptocurrencies in 2022 were lackluster at best. The most prominent cryptocurrency, Bitcoin, declined by about 64% during 2022 (see chart), taking much of the wind out of the asset class. Investing in cryptocurrencies is one of the best ways to invest in new technology. Private companies engaged in a specific area might not allow private investors to take a portion of the equity where you might be able to gain exposure to a particular area of interest via a new cryptocurrency.
While there were plenty of issues, including the blowup of FTX, the cryptocurrency trading platform, several new cryptocurrencies were established in 2022. The focus of cryptocurrencies goes beyond investment in a coin that can be used as a payment mechanism like Bitcoin. The cryptocurrency movement in the blockchain space is moving toward driving engagement. Cryptocurrencies are Non-fungible tokens (NFT) and have even been linked to carbon offsets.
A few themes might be reserved in 2023 that could benefit some of the more prominent cryptocurrencies, such as Bitcoin and Ether. The peak in the U.S. dollar and the move to artificial intelligence could be some factors that led to a trend in Bitcoin and Ether. Ether is also considered a haven currency. Here are the cryptocurrencies that might be the best investment in 2023.
After dropping 64% in 2022, the price of the largest and most liquid cryptocurrency has rebounded (see chart). One of the reasons Bitcoin might have declined during 2022 is the significant increase in the U.S. dollar. Since Bitcoin is a cryptocurrency, its exchange rate is the rate at which you can exchange bitcoin for another cryptocurrency or fiat currency. Fiat money refers to a currency issued by a government that is not backed by a physical commodity such as gold or silver.
To purchase Bitcoin, you need to sell another currency or engage in cryptocurrency trading, which could include the U.S. dollar. The dollar provides a lot of liquidity and is driven by fundamental factors, including rising U.S. interest rates relative to other interest rates. The Federal Reserve in the United States increased interest rates by 4.25% in 2022, which drove up the dollar’s value relative to other fiat and cryptocurrencies. The Federal Reserve in the United States is expected to decelerate the magnitude of its interest rate hikes, which will turn the interest rate differential in favor of other fiat currencies such as Bitcoin. If the dollar declines, Bitcoin could benefit and provide a rally during 2023.
Another trend that could occur in 2023 is a flight to quality. While Bitcoin is the most widely known cryptocurrency, Ether, the cryptocurrency used on the Ethereum platform, is also considered a liquid cryptocurrency.
The concept of artificial intelligence will likely continue to progress in 2023 as all eyes focus on ChatBot and the ability of machines to learn more from full sentences. Artificial intelligence will be established on multiple platforms, including Web 3 and Ethereum.
The blockchain portion of Ethereum and the link to smart contracts will provide a new forum for contracts. Ethereum might be able to provide consumers with a legally binding contract through Ethereum that can be created with a ChatBot that understands the meaning of your smart contract.
The rise of artificial intelligence continues to gain traction. Microsoft, one of the world’s largest technology companies, invested $10 billion in ChatGPT, the maker of the product OpenAI.
Ether is also considered a save-haven when it comes to investing in cryptocurrency. Like Bitcoin, the liquidity available allows traders to enter and exit positions seamlessly. Ether will benefit as the cryptocurrency concept consolidates around larger cryptocurrencies and away from very risky cryptocurrency investments.
Several risky products built on the Ether platform as commerce-related cryptocurrency coin operations are risky. In some cases, you need to exchange Ether for these cryptocurrencies, and to unwind these positions; you need to sell those cryptocurrency coins and purchase Ether.
The carbon offset market is an old concept that has started to gain traction as cryptocurrency tokens. Carbon offsets or credit is equivalent to a reduction in emissions. It is used to compensate for emissions that occur and is transferable.
For example, a petroleum refiner might be compelled by a government to use a particular volume of non-carbon-producing products to reduce its carbon footprint. The refiner can refine this non-carbon-producing product to reduce the carbon footprint or purchase a carbon offset equivalent to the credit their government mandates. The concept is that offset credits describe the net climate benefit from one entity to another.
IMPT is a cryptocurrency coin that allows you to transfer carbon offset credits. The process is completed over a blockchain platform. According to the website, 36.3 billion tons of annual global carbon emissions and $700 million are the projected voluntary carbon offsets by 2027. More than 10,000 brands have already committed to joining the IMPT project. You can buy or sell or even retire credits through the IMPT project. When you buy an IMPT token with cryptocurrency, you have a choice of either selling it or burning your carbon credit token to compensate for the carbon footprint your operations creates.
Another benefit of IMPT is that it’s a social platform that fits into a green environment. As the move toward electricity and low-carbon products continues to perpetuate, the demand for a blockchain product that will allow you to retire carbon credits will accelerate.
A global theme is to reduce carbon emissions and move toward a greener environment. Electric cars are likely to continue to gain traction. There is an expectation that half the vehicles out on the road in the United States will be electric vehicles by 2030. The increase would be up from 10% today, which reflects accelerating adoption.
The carbon footprint relative to fossil fuels will likely change; instead, there could be a focus on mining. The main component of battery creation is Lithium Oxide. You can put more energy into Lithium than other batteries, such as acid batteries; therefore, this product is the metal of choice for transferring an electric charge. Unfortunately, to retrieve Lithium, you need to mine it. Some countries around the globe have access to Lithium, but the only way to retrieve it currently is to mine it from the ground. The mining activity will have its own set of carbon offsets, and smart contracts and blockchain ledgers that provide this service will likely gain traction.
The Bottom Line
The upshot is that despite a considerable decline in the exchange rate of Bitcoin, new solutions continue driving the demand for cryptocurrency. There are several reasons for some cryptocurrencies to be promising in 2023. The rise of artificial intelligence, in conjunction with the peak in the value of the U.S. dollar, might be a few, as well as the demand for a greener environment.
Engagement and the movements toward NFT purchases that include virtual products could become more promising.
As we discussed, the Federal Reserve in the United States decided to fend off inflation with rapid rate hikes that could cause a recession. The Fed increased interest rates by 4.25% in one year, which has made loans on houses, cars, and companies more expensive. With the Fed likely to reduce the acceleration in interest rate hikes, the dollar could peak. A weaker dollar could help buoy Bitcoin and continue the rally that started in 2023.
Ether is the currency used on Ethereum, which could gain from more smart contracts that AI drives. Additionally, Ether is used as a haven cryptocurrency. Many new coins created using the Ethereum platform might consolidate and eventually sell off and be converted back to Ether which is needed to buy these tokens in the first place.
Lastly, carbon credit offsets continue to be very popular. The volunteer effort to create a green environment is growing along with the non-voluntary portion of carbon offsets. A blockchain mechanism to keep track of carbon offsets continues to gain momentum.
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Written by: Coinpedia
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