Coinbase Institutional predicts that BTC and ETH could surge in 2023.
The exchange is also optimistic about the future of DeFi and self-custody wallets.
Coinbase Institutional has released a series of predictions on Bitcoin, altcoins, DeFi, and crypto mining in its 2023 Crypto Market Outlook report. The exchange predicts significant growth in major cryptocurrencies, particularly BTC and ETH, next year. Not so for the non-bitcoin cryptocurrencies besides Ethereum. The research predicts an extended crypto winter in the segment.
The report said, “We expect digital asset selection will transition towards higher-quality names like bitcoin and ether based on factors (of) sustainable token economics, the maturity of respective ecosystems, and relevant market liquidity.”
Coinbase attributed the selection to macroeconomic factors, including high inflation rates, rising borrowing costs, and low equity earnings. According to the research firm, the bearish outlook comes despite relief from the earlier-feared economic recession in the US. Elevated job numbers and government-backed stimulus is boosting the economy, and riskier assets could see a steady recovery next year.
Regarding risk assets, the platform noted that the correlations between cryptocurrencies and traditional risk assets remain. “We assign a low probability to the chances that crypto performance will decouple from traditional risk assets in the first few months of 2023, particularly without a differentiated catalyst.”
Ethereum’s dominance could be challenged in 2023
The 57-page report foresees that the dominance of the second-largest blockchain, Ethereum, could change next year. Furthermore, it raised concerns about the blockchain’s reliance on layer-2 solutions, citing fraud and a lack of interoperability.
Overall, Coinbase believes that altcoins could take a long time to recover in 2023 due to the impact of deleveraging – referring to attempts by corporations to reduce their debt – following the recent events in the sector. Specifically, with the collapse of FTX, DeFi platforms that had loaned their assets to market makers on the exchange were affected and may have to wait longer before receiving funds.
Coinbase Institutional believes we could see notable expansion in DeFi and self-custody wallets. The report praised DeFi for its on-chain and auditable properties, which could attract investors moving away from the not-so-transparent centralized exchanges. That does not mean that DeFi is free from drawbacks. The report shows rising cases of smart contracts exploits, price volatility, and the demand-supply imbalance.