We’re in the Wild West of cryptocurrency today. If you’re interested in investing in these digital assets in 2023, you need to do your homework.
Cryptocurrency is a virtual currency that, like cash, is a source of purchasing power. It’s also an avenue for investment and, like other investment assets, can be bought with the objective of financial return.
2022 was a difficult year for cryptocurrency. In fact, it was disastrous for many. Approximately $1.3 trillion was wiped off the value of the market and bitcoin suffered a price decrease of more than 60%. Many investors were caught off guard by the collapse of crypto in 2022, but what does this mean for 2023?
What to Consider First
Diversification is an important investment concept, helping to reduce a portfolio’s risk by getting exposure to multiple assets.
When it comes to crypto investing, the practice of spreading your investments across multiple digital currencies makes sense, as it can help to reduce the volatility of your portfolio.
Like all investments, the goal of crypto asset allocation is to balance the risk/reward ratio by adjusting the percentage of each crypto asset in the portfolio based on your medium-term or long-term goals and risk tolerance.
Understanding the Basics
While the word cryptocurrency itself is a generic term for virtual currencies using blockchain technology, there are many different types: nearly 22,000 as of January 2023.
Despite the overwhelming volatility that comes with digital assets, it’s not without reason that many popular investors and companies are beginning to apportion a greater part of their portfolio to cryptocurrencies. The crypto market may be an unpredictable one, but in the long run, it has proven to be attractive to many individuals.
As of January 2023, the top ten cryptocurrencies by USD market cap include:
- USDC (US Dollar Coin)
- Binance Coin
What’s in Store for 2023?
2023 is shaping up to be an interesting year for the crypto market. On one hand, there is uncertainty about where the market is going and on the other, how much longer the FTX fallout will persist. There are several predictions for cryptocurrency investors and analysts ahead of 2023.
Here’s a look at some new year crypto predictions:
- Etherum will Surpass Bitcoin
The first crypto prediction for 2023 is that Ethereum (ETH -0.09%) will do the impossible, even if only for a very short time, and surpass the market value of Bitcoin (BTC 0.22%).
Bitcoin and Ethereum tend to be highly correlated. Meaning, when one rises or falls, the other usually follows. With stocks in a bear market and the U.S. economy headed for a recession, we may get our first taste of individualization sprouting up in the cryptocurrency space.
There are many reasons why this could happen:
- Scarcity has lured investors into supporting other tokens besides bitcoin.
- Ethereum transactions have consistently been above one million per day for the past two years.
- Ethereum is tangible which could be seen as more valuable compared to bitcoin.
- Meme Coins Will Lose Value
As we look back on the past year and ahead to the next, it’s important to remember that the crypto space is a great deal more than just Bitcoin. But if you want to see where things are headed in 2022 and 2023, you need to look at other coins that have real functionality beyond simple payment functions.
Meme tokens like Shiba Inu (SHIB 4.07%) and Dogecoin (DOGE 0.22%) were the hottest coins in the crypto space. Dogecoin gained well in excess of 20,000% in a six-month stretch leading up to Elon Musk’s appearance on Saturday Night Live.
Shiba Inu and Dogecoin are nothing more than payment coins. There are thousands of digital currencies that can be used to pay for goods and services, assuming merchants would allow for that. These tokens grew rapidly due to social media, but at the end of the day there’s nothing tangible about them that make them stand out significantly. Both currencies look destined to lose 50% or more of their value in 2023.
- FTX Repercussions
There’s a lot of speculation about the future of cryptocurrency exchanges. In November, one of the largest digital currency exchanges in the world, FTX, filed for bankruptcy protection after it was revealed that founder Sam Bankman-Fried and his associates had orchestrated one of the largest financial frauds in history. The company’s assets were liquidated, and its tokens (FTT) became worthless and useless.
The culprit? A lack of auditing and record-keeping practices by FTX. It turns out that as a result of these failures, there was no way for FTX to prove that it had adequate reserves for its users’ accounts—a major red flag for anyone who trades on crypto exchanges.
Even though companies are required to have regular auditing especially if they’re a publicly traded company, proving that reserves for digital currency exchanges are adequate has been next to impossible. That’s a major red flag, and all the more reason to believe FTX won’t be an isolated incident.
Always Factor in Risk
If there’s ever an investment that’s considered high risk, cryptocurrencies are sure to top the list.
Despite the changes predicted to occur in the crypto market space in 2023, analysts urge investors to prepare for anything as no forecast is certain. Many risks and uncertainties can occur based on federal regulations, cryptocurrency trade policies, market volatility, and other factors. Therefore, it’s best to prepare for various cryptocurrency possibilities in 2023.
Building a well-balanced crypto portfolio can help you reduce volatility risks and enjoy more predictability.
If you’re planning on investing in crypto, it’s in your best interest to do some research before investing. The crypto world is highly volatile and nothing is guaranteed. If you are looking for guidance on investing in cryptocurrency, APO Financial is here to help.
We have trusted Fiduciary wealth managers that will work with you every step of the way from research to execution. Our team has worked with clients from all over the world to help them make intelligent decisions about their finances. We value our clients’ time and want them to feel confident in their investments.
Looking to get started? Contact us today.
© 2023 APO Financial. All rights reserved. Disclosure: Communications such as this are not impartial and are provided in connection with advertising and marketing. This material is not suggesting a specific course of action or any action at all.. Prior to making any investment, insurance, financial or legal decision, you should always seek individualized advice from a financial, insurance, legal or tax professional that takes into account all of the particular facts and circumstances of your individual own situation Investment advice is offered through APO Financial Services, LLC (“APO") 10155 Westmoor Drive, Suite 175, Westminster, Colorado 80021-2627, an investment adviser registered with the Securities and Exchange Commission. Registration with the SEC should not be construed to imply that the SEC has approved or endorsed qualifications or the services offered or that its personnel possess a particular level of skill, expertise or training. Important information and disclosures related to APO are available at https://apofinancial1.wpengine.com. Additional information pertaining to APO’s registration status, its business operations, services and fees, and its current written disclosure statement is available on the SEC’s investment adviser public website at https://www.adviserinfo.sec.gov. Information relating to annuities is intended for educational purposes only and should not be construed as comprehensive or all-inclusive. Therefore, it should not be regarded as a complete analysis of the subjects discussed and should not be used to make an investment decision. Annuities can be an important part of an overall portfolio but may not be appropriate for everyone. Before purchasing an annuity, it is important to understand the details of the product. Certain products may not be available in your state. The terms of each indexed annuity varies. It is always important to speak to a financial professional. about an annuity’s features, benefits and fees, and whether an annuity is appropriate for you, based on your financial situation and objectives. Participation rates, cap rates and/or index spreads may be subject to change by the insurance company according to the annuity contract provisions. If the insurance company makes such changes, this could adversely affect the return. Guarantees of an indexed annuity are backed by the claims-paying ability of the underwriting insurance company. The surrender charge period for a product may be longer, and the surrender charges may be higher than other annuity products. Indexed annuities are long-term investments. If the annuity contract is surrendered early, there is the possibility of a surrender charge being imposed and/or the funds may be subject to income taxes. The IRS may also impose a 10% penalty on withdrawals prior to age 59 ½, depending on the circumstances. With indexed annuities, there is the potential to lose money, depending on the product charges and minimum guarantee contract provisions. For additional information on annuities, reference the following websites: The FINRA (www.FINRA.org), the Securities and Exchange Commission (www.SEC.gov), Insured Retirement Institute (www.irionline.org), the National Association of Insurance Commissioners (www.NAIC.org) or your state's insurance department.