It’s December 27th – you’re spending time with your friends and family, and I’m doing the same, so rather than babble on about Binance’s proof-of-reserve audit like I did last time, I’ll wrap up the year with a special issue of Triple Entry.
I give you my Top Five Crypto Predictions for 2023.
And let me add the immediate caveat that these aren’t supposed to be taken (too) seriously. After all, my 2022 crypto bingo card got blown to bits early in the year. Who could’ve possibly predicted Terra crashing and wiping out $400 billion in crypto market cap? Or Gary Gensler going up against Kim Kardashian for touting an unregistered crypto security? And I would’ve thought you were crazy had you told me at the start of the year that FTX was a giant fraud and that SBF would end the year behind bars (well, sort of, not really).
Needless to say, 2022 was a wild ride for crypto. 2023 will be as well.
Let’s peer into the crystal ball.
Or should we say, “ponder the orb.”
Ethereum flips Bitcoin in market cap.
This is either an extremely bold prediction, me poking fun at Bitcoin Maxis, or a combination of both.
Either way, it looks like Bitcoin is in for a rough ride. It’s suffering from “pet rock” syndrome, where it’s not as attractive as more useful tokens and ecosystems. It’s also facing increased scrutiny over its environmental impact and failed to live up to its potential as a digital gold-like hedge. Not to mention, Core Scientific, one of the largest bitcoin miners by computing power (about 10% of the global hashrate), filed for bankruptcy this last week. All of this adds up to Bitcoin losing market share and not leading the next bull market.
Meanwhile, Ethereum is really coming into its own. In 2022, it transitioned consensus mechanisms from proof-of-work to proof-of-stake, resulting in a successful “Merge.” The switch to proof-of-stake reduced its environmental impact by 99%, cut new token issuance by 90%, and eliminated nearly $500 million in monthly sell pressure from miners. And with the fee burn mechanism introduced in EIP-1559, it’s become a net deflationary asset with real yield. Plus, with yields potentially ranging from 5-7% in 2023, it’s setting a sort of “risk-free rate” for Ethereum’s financial system. Some DeFi protocols are already building out yield curves for their investors. All in all, Ethereum is shaping up to be a pretty sustainable and lucrative investment.
We’ll get serious about crypto audits.
If we learned anything from the FTX scandal, it’s that you can steal $10 billion of customer funds, get the media to pity you, tell a sob story about losing everything, get arrested, get your rich parents to bail you out of jail, then fly home first-class to arrive just in time for the Holidays.
Oh, sorry, I meant to say that we learned you can’t simply trust that crypto custodians are solvent. Crypto tried to keep the accountants away for as long as possible (so as not to lower its coolness factor), but the industry is waking up to the fact that it needs bean counters (even if the beans are digital).
When I say we will get serious, I mean exchanges, accounting firms, and users. Exchanges will re-do their proof-of-reserve “audits” to go beyond handwavy agreed-upon procedures to include audited, customer-verifiable proof of assets and liabilities. Public accounting firms will scramble to figure out how to provide this service, and if they’re smart, will partner with crypto companies (like Chainlink and Nansen) and protocols (like zkSync) to leverage their tech. Users will continue to seek out self-custody solutions and gravitate towards DeFi but will demand transparency when dealing with centralized exchanges.
The IRS will crack down on tax compliance.
Despite the recent market collapse, the boom in 2021 made thousands of people millionaires and raised some red flags for tax authorities. The US government, in particular, is determined to get its cut, with 87,000 new IRS agents on the prowl and the ability to seize crypto assets without any criminal charges. Last year’s infamous infrastructure bill claimed that better tax collections from crypto investors would yield a $28 billion increase in receipts or 5% of the total bill’s expenditures.
And let’s not even get started on the headache of accurately reporting taxes on crypto transactions – it’s a nightmare of cost basis tracking, fees, slippage, and multiple wallets and exchange accounts. So, crypto investors, beware: the tax man cometh (armed and with the power of asset forfeiture on his side).
Oh, and If you want tips on handling your crypto tax headache, check out the recent live stream we did with CryptoTaxCalculator.
Gary Gensler and Elizabeth Warren will duke it out for the title “Most Hated Person in Crypto.”
In other words, 2023 will be the year of epic battles over crypto regulation. Notice that I don’t say this will be the year that we finally get clear, comprehensive crypto regulation because we won’t.
Following the midterm elections, Republican Representative Patrick McHenry of North Carolina, a strong crypto advocate, is set to lead the House Financial Services committee. He will likely have significant influence on cryptocurrency policy in the near future. The House Financial Services Committee oversees the Securities and Exchange Commission (SEC) but probably doesn’t have enough sway to shut down Gary Gensler’s anti-crypto antics.
Gary Gensler and the SEC will continue their regulation by enforcement approach. Gensler believes just about every digital asset is a security, and the SEC should oversee all of crypto. The CFTC is a more logical choice as regulator of most crypto spot markets but currently has limited authority over crypto assets. If all goes well in 2023, the CFTC will be granted oversight of “digital commodities like BTC and ETH.”
Until then, the SEC and CFTC will use clever enforcement actions to test the limits of their current powers. Politicians will be politicians and propose downright stupid laws like Elizabeth Warren’s “Digital Asset Anti-Money Laundering Act” that seeks to turn blockchains into permissioned ledgers surveilled by centralized gatekeepers. Looks like someone got jealous of Gary Gensler stealing the limelight.
We’ll issue 10,000 CPE certificates.
This last point is more of a New Year’s Resolution than a “prediction,” but we’re telling you so you can hold us accountable.
Last week, Ryan Selkis published his annual Crypto Theses for 2023 (read it!), in which he begins the impressive 168 pages with a section titled “Winter is Here: It’s Time to Build.” You best believe we’ll be building in 2023.
Since we started Multisig just over a year ago, our focus and passion has been educating accounting and finance professionals on blockchain and digital assets. After recently seeing more failed crypto audits, it’s clear that most of us still have no idea what we’re doing when it comes to crypto.
Well, we’ve got some surprises up our sleeves to help close that knowledge gap in 2023. It wouldn’t be a surprise if we just flat-out told you what it was, but let’s just say that getting your CPE credits knocked out is about to get a lot more interesting.
That’s all I got for now. See you in 2023!
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Big news! Multisig is joining forces with Bitwave, the leading crypto accounting software! The acquisition was announced live on stage at Enterprise Digital Asset Summit (EDAS) 2023. We’re excited to reinforce our shared commitment to empower, inform, and educate accounting and finance professionals everywhere!