It’s the calm before the storm, but what kind of storm? I can’t predict that yet. As a ‘finance’ graduate, I mainly foresee a ‘perfect storm’: severe economic weather with all kinds of knock-on effects on the economy. On the other hand, there are numerous predictions and expectations surrounding cryptocurrencies, pointing to a stormy growth of the market in the coming months. In this article, I will therefore discuss the latest trends and my expectations.

The crypto industry is largely defined by extremes. From the frenzied DeFi summer to the lingering cold of the crypto winter. And from simple Dogecoin investors to builders of a super-advanced Dutch algorithmic stablecoin. But also the prices of the cryptocurrency. Earlier I wrote about consumers, businesses, and investors around the world who lost nearly $2 trillion in the cryptocurrency market last year after it reached $3 trillion in total value at its peak.

The cryptocurrency sector is now growing rapidly again after this difficult year. There are now more than 350 million users. They traded more than $100 billion in the past month. The largest investors worldwide announce that they will invest in the sector or that they will enable this for customers. Microsoft is working on its own crypto wallet in Edge and it was recently discovered that a copy of Bitcoin’s “whitepaper” (business plan) is hidden on every Macbook.

Cryptocurrency: the practical use

Something I often see passing by with new technologies: a solution that is looking for a problem. Something that should of course be the other way around. Nice, this technology, but is it the best solution for an existing problem? That is a question that has long been asked about cryptocurrencies. What is the practical use?

In 2023, I don’t see that practical use so quickly in Western countries. Our financial system is too good for that with almost free banking services, IDeal and Tikkie. But in Ukraine, for example, they think differently, because hundreds of millions of euros in donations have already entered the country via cryptocurrency. Easy and very fast, from all over the world. From helmets to medicines; everything necessary for the war is bought with it.

Financial structure worldwide

I see that real impact emerging in more and more developing countries. For example, last year I was allowed to implement cryptocurrency in the Central African Republic. A country where 5% of the adult population has a bank account and the rest have to make do with cash or other forms of money. Because the government is going to give everyone a mobile phone with a cryptowallet, everyone will soon be able to store, send and trade their own landcoin in it. In addition, you can also vote with the same crypto wallet and, for example, store your land rights (which we have centrally located at the Kadaster in the Netherlands).

With the recent (near) collapse of banks and the pain that has not yet been resolved after the previous financial crisis around 2008/2009, it is also about restoring confidence. Confidence in perhaps the most important (infra)structure we have in the world, namely the financial one. And there’s a lot wrong with that. Coinbase research shows that 80% of Americans think the current financial system is mostly good for the top 1%, and 67% think the entire system needs to be overhauled.

In addition to El Salvador and the Central African Republic, news came out last week that Bitcoin will become legal tender in the Principality of Liechtenstein.

Central exchange or own wallet?

Cryptocurrency originated with a decentralized thought. You are in charge of your own money and have control over your own virtual wallet. This is therefore not with a central party, for example, a bank. Yet 80% of cryptocurrency owners have their coins on a central exchange. Often because they find this easier, because having your own wallet can be technically complex, and if you forget the access key, you will really lose your cryptocurrency. Not your keys, not your coins.

But given last year’s events, many owners have lost faith in central exchanges and are taking back control of their crypto by storing everything in their own wallets. That exodus from central exchanges to decentralized wallets went by hundreds of thousands of Bitcoins per month in the past quarter. A trend that will certainly continue in the coming years.

Fraud and mistrust

It was grist to the mill for many legislators, but above all, it was also a reason to come up with suitable legislation for cryptocurrencies even more quickly. The fall of one of the largest cryptocurrency exchanges, FTX. Billions of dollars were missing and the temporary receiver, who had also handled the bankruptcy of the largest accounting fraud in American history (Enron), were clear:

Because of its scale, this fraud even exceeded Enron’s and the largest in American history. Just like with Enron, the same thing is happening now in terms of reactions: the industry is waking up and regulators are accelerating with the right laws and regulations.

Crusade Against Cryptocurrency

Two camps have arisen here worldwide, namely the American and European. In America, the Biden administration focused extensively on cryptocurrencies in its annual Economic Report of the President. The report included an entire chapter on “digital assets,” describing how the crypto industry is causing problems for consumers, the financial system, and the environment.

In recent weeks it has also become clear that the American regulator SEC (the AFM in the Netherlands) has started a crusade against everything that has to do with cryptocurrencies. Several major trade exchanges have been sued, as have influencers, business people, and companies inside and outside the industry. The head of the SEC, Gary Gensler, wrote earlier that the rules he has for all these individuals and organizations are crystal clear, but unfortunately, they are not. Something that was made painfully clear even during a hearing in the US parliament during an interrogation of Gensler.

Operation Choke Point

But an even worse development is “Operation Chokepoint 2.0”. An apparent follow-up to an Operation Chokepoint campaign launched by President Obama. This is to deny legal, but politically undesirable companies, such as arms manufacturers and payday loan providers, access to banking services. Something that is necessary to run a normal business.

These measures not only seem to circumvent due process of law but also seem to repeat violations for which previous US government agencies have already been severely punished by both legislators and the legal system. The collapse of Silvergate Bank, Silicon Valley Bank, and Signature Bank has led many to believe that the US government is closing access to crypto services simply by allowing crypto-friendly banks to collapse.

New York regulators and the Federal Deposit Insurance Corporation (FDIC) jumped on board to indicate that the shutdown had nothing to do with crypto. However, when Signature’s assets and bank branches were acquired, the new owner Flagstar Bank chose not to acquire Signature’s cryptocurrency business.

The Brussels Effect

The European Parliament does many things that do not make me happy. Still, I think it’s great that the institute is always positively in the news for setting up, developing, and launching groundbreaking legislation and regulations. The ‘Brussels effect’. This legislation often inspires other governments worldwide and is sometimes even literally copied. We saw this before with regard to privacy and in the coming year it will be the turn of cryptocurrencies around the ‘MICAR’ legislation.

Lawmakers in the European Union voted 517 to 38 in favor of the MICAR last week. This makes it the first major jurisdiction in the world to introduce a comprehensive crypto law. The legislation extensively addresses the obligation for all industry service providers to identify customers, as well as stablecoins and crypto trading exchange balances.

The Netherlands wants to be the best boy in the class again. The head of the AFM, Laura van Geest, wrote in the FD that she wants to maintain a “tough attitude” towards the Dutch cryptocurrency sector. Whether companies leave abroad because of this, the top woman leaves cold.

Dangers and success stories

Recently I spoke extensively with Bas Lemmens, the worldwide General Manager of Chainalysis. The analysis company for the cryptocurrency sector. The services of these are used by almost all investigative services worldwide, such as the Dutch Police and AIVD. He indicated that their analyzes showed that crime within the cryptocurrency sector has not decreased and will continue to grow in the coming years.

A new trend, for example, is the ‘pig butchering scams’. In this, the hacker slowly builds a relationship of trust with ignorant consumers, especially Western millennials and the elderly. The hackers create fake social media accounts via WhatsApp and even profiles on LinkedIn and dating sites. Here they show a lavish lifestyle and send random messages to get in touch with victims. After a brief but powerful relationship, they drain the victim’s cryptocurrency account in a flash.

Fortunately, there are also stories where the investigative authorities are successful in catching the crooks. The best recent example, which received worldwide attention, is that of the operation ‘Deadbolt’ by the Dutch Police.

The price of cryptocurrency

The price of Bitcoin has now doubled from its lowest price at the beginning of this year. Technology is developing rapidly and with it, major challenges are also being tackled, such as energy consumption. The second largest blockchain, Ethereum, already got an amazing upgrade last year and decreased its energy consumption by 99.98%. To maintain the largest blockchain, Bitcoin, more than half of the energy now comes from natural sources such as hydropower (24%) and wind (14%).

Challenges will continue to come. The Ethereum blockchain got completely stuck years ago due to the success of the first NFT; Cryptokitties. The same happened last week with the Bitcoin blockchain due to the new token standard BRC-20. This will add NFTs to this blockchain. As a result, even the largest cryptocurrency exchange (Binance) had to pause Bitcoin withdrawals twice. This is due to a crashing network. The transaction costs on the network even increased from $1 to $20.

Easy to make and buy

We also suddenly saw the meme coin Pepe rise by 5,000,000% last week. An investor who bought for $263 made a profit of $9 million. It caused unprecedented growth in the number of crypto investors in a short period of time. We will see this type of coin much more often because it is becoming easier to make them. So easy that you can make one yourself within 23 seconds.

It is also becoming easier to buy cryptocurrencies. For example, you can easily buy cryptocurrency via Twitter’s ‘Superapp’, which is still being developed. Also, the largest cryptowallet MetaMask now offers an option to do this, with ‘fiat’ (Euros / Dollars) money. Where China makes it very difficult and has also banned the purchase of cryptocurrencies, the floodgates will open in Hong Kong in June. Looser regulation will allow companies operating in the cryptocurrency sector to easily establish themselves there.

Final weather forecast

Whether we will see a giant leap in cryptocurrency prices in the coming months remains to be seen. As I wrote earlier, many technical analyzes show that this is very much possible. But it is also the first time that cryptocurrencies have experienced a recession whose effects are not yet clear.

Jan Scheele is active in the web3 (blockchain, crypto, NFTs, DeFi) industry since 2013. Besides (former) CEO of a web3 scaleup and founder of an advisory boutique (working for governments, family offices and several multinationals), he is Digital Leader at the World Economic Forum and Board Member at the Blockchain Netherlands Foundation (BCNL). He is writing, consulting, speaking and training regularly about everything web3, all over the world. Furthermore, he is currently finalizing his book about the rise and global impact of blockchain technology.