2023 predictions for crypto VCs, Bitcoin mining, and stablecoins – Tearsheet

From entire stablecoin ecosystems collapsing to multiple centralized exchanges declaring bankruptcy, 2022 was Armageddon for the crypto industry. The DOJ and SEC took no prisoners in enforcing regulations, except for SBF.

As the crypto clean-up phase ensues in 2023, it’s worthwhile looking to crypto insiders, the battle-hardened survivors, for predictions: where to from here? One such crypto veteran is Ryan Selkis, CEO of Messaris, a crypto research and data analytics firm.

In the sixth edition of Crypto Theses for 2023, Selkis highlights the key trends, people, projects, and companies to look out for this year. We discuss his predictions for the state of VC investments, the future of Bitcoin mining, and the case for more stablecoins.

VC investments in H1 vs H2 2022

Similar to traditional fintechs (TradFi), crypto investments took a hit in 2022. On the back of a hot market in 2021, the first half of the year received $29 billion in investments. The bulk of the investments went to centralized finance (CeFi) projects — think Celsius, BlockFi, and centralized crypto exchanges. No Bueno.

After the total eclipse of Terra Luna in May, funding investments fell off a cliff in the second half of 2022. The crypto sector only received $6.6 billion in investments – nearly an 80% reduction from the first half of the year.

For obvious reasons, the biggest loser was CeFi. Investment in the second half dropped by 95%, and the number of funding rounds decreased from 186 to a mere 50.

VC funding 2023 predictions

According to the report, 2023 will likely bring forth the following scenarios:

• Companies that demonstrate usage and long-term protocol economic models will drive the next cycle and attract the most investment. 
• Startups that have survived the bear market, demonstrating robust business models, might be able to take advantage of some epic M&A opportunities.
• The “heydays” of 2021 are behind us, and incompetent projects will be acquired at massive discounts or go out of business altogether. 
• Selkis argues that generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) for digital assets are long overdue.

Bitcoin mining and the energy crisis

As the price of bitcoin has tumbled, bitcoin miners are struggling to keep their operations running profitably. The average mining costs sit at around $17,000, while the price per bitcoin is currently around $20,000.

However, the report shifts our focus to the energy crisis, a big issue in 2022. Bitcoin mining produces tons of e-waste, and only 17% of this waste is recycled. Nearly 60% of all Bitcoin mining uses coal and gas, and only 39% of mining operators use renewable energy sources. 

Bitcoin mining predictions for 2023

In the report, Selkis predicts the following for Bitcoin mining:

• The trend toward leveraging wasted and stranded energy sources will continue. He writes, “Bitcoin miners have been increasingly co-locating to capture flared methane, stranded geothermal energy, coal refuse, and even recycled waste tires.”
• He also predicts that Bitcoin miners will be prime targets for load shedding because they are “centralized and easy to spot.”
• And finally, he boldly predicts that Bitcoin will very soon be an ESG asset. Though he acknowledges that the narrative is against cryptocurrency, the drive and innovation to use renewable energy is strong and will persist so that 100% of Bitcoin mining uses renewable energy sources.

The case for more stablecoins

When the price of bitcoin took a plunge, crypto traders parked their funds into stablecoins. Another factor leading to the stablecoin trend has been the rise of inflation. Many people in developing countries preferred to store their wealth in US dollars – and stablecoins provided the easiest access.

But no, 2022 did not let any crypto sector sail through unscathed. Stablecoin wars ensued. Binance auto-converted their users’ stablecoins into BUSD. And later on, Coinbase encouraged users to switch their USDT to USDC, enticing them with zero fees.

But of course, the worst was the collapse of UST, Terra Luna’s algorithmic stablecoin. 

Stablecoin 2023 predictions

• As the inflation problem continues to persist, we will likely see more stablecoins being built that help preserve the user’s purchasing power.
• Selkis also predicts that we’ll see inflation-resistant stablecoins or CPI Tokens. The concept stems from minting tokens whose price changes at the same rate as the Consumer Price Index.
• Finally, he paints a dystopian picture of CBDCs and the central bank’s intentions of “banking the unbanked.” His argument is based on Circle’s Head of Policy, Dante Disparte’s paper titled The Case Against Central Bank Digital Currencies. In a nutshell, Disparte argues that issuing CBDCs would force central banks to compete with retail banks instead of regulating monetary policies. In his own words, “A CBDC would be tantamount to the Federal Aviation Administration flying planes and building jet engines, rather than defining competitive, rules-based safe passage in the skies.”