3 Cryptocurrency Risks to Brace for 2023

Cryptocurrency prices have been in a strong bearish trend in the past few days as their correlation with American stocks continued. Bitcoin plunged below $17,000 while the total market cap of all cryptocurrencies dropped to $830 billion. Here are the three main risks facing cryptos in 2023.

Federal Reserve risks

The first main risk that cryptocurrency prices face in 2023 is the Federal Reserve. To a large extent, the Fed was the main driver for most assets in 2022. As inflation surged, the Federal Reserve hiked interest rates by 450 basis points. The most recent rate hike was a 0.50% in December which pushed the headline rate to the highest level in decades. 

Actions of the Fed in 2023 will have a role to play in crypto prices. A hawkish Fed, as the officials hinted in this meeting, will lead to more pain for digital currency prices. Still, there are reasons why the Fed will be dovish. For one, inflation has started easing in the past few months. In November, consumer prices dropped to 7.7%. 

Another factor is that recession risks are at an elevated level considering that the yield curve has inverted to the lowest level in decades. In the past, an inverted yield curve has been one of the best predictors of a recession.

Stablecoin risks

Stablecoins are important cryptocurrencies that are useful in the blockchain market. They are widely used in both centralized and decentralized exchange platforms. In 2022, the first major news was the collapse of Terra USD. 

With the role of stablecoins rising, another collapse will lead to more problems for cryptocurrency prices. I expect that regulators will propose several new regulations for stablecoins. An important rule could be on disclosure and full-regulated audits for assets backing the coins. As such, there will be a challenge for algorithmic stablecoins.

Exchange risks

The other important risk that could affect crypto prices in 2023 will be exchanges. In 2022, the collapse of FTX was the biggest story in the crypto industry. Recent data shows that investors are either dumping their tokens or moving them to self-custody.

Therefore, there is an inherent risk that some big exchanges like Binance or Crypto.com will explode. If this happens, we could see cryptocurrency prices slip or accelerate the transition to decentralized exchanges like Uniswap and GMX.