Written by 12:30 pm Bitcoin

Crypto Markets 2023 Will Be ‘About Differentiate Or Die’ For Investors

Crypto investors took it on the chin this year. Will next year be any better? What are market participants and new blockchain startups excited about for 2023, especially after the lessons learned from the Terra Luna and FTX disasters?

Forbes senior contributor Clem Chambers, who regularly writes about the cryptocurrency markets, said 2022 was bitcoin’s Wile E. Coyote moment — likening it to the cartoon character with a penchant for falling off cliffs.

“In general, I think the first half of 2023 will be the best time to enter the market,” says Alex Andryunin, CEO of Gotbit in Portugal. “We are actively investing in a wide sector of cryptocurrencies and have over 700 coins in our hedge fund portfolio, but none exceeds 2% of the total capital. For 2023, you differentiate, or you die,” he says.

Gotbit manages the markets of some 280 tokens from across sectors. Decentralized finance projects are seeing inflows because investors think DeFi is the answer to centralized exchanges, which FTX was one of the biggest in the U.S. Other sectors aren’t doing so hot.

“GameFi is doing badly, trust me,” Andryunin says. “Startups that haven’t released any product are in the best position. They have been able to raise capital and are preparing to expand in the second half of the year. But most of the existing GameFi projects in our portfolio have suffered massive losses. They don’t have a working model for their token,” he says.

Gotbit’s preferred crypto portfolio looks like this: 15% bitcoin, 15% Ethereum
ETH
, 10% Binance, 10% Polygon
MATIC
, 5% each for Chainlink, Cardano
ADA
, the NEAR
NEAR
Protocol, Polkadot
DOT
, Filecoin
FIL
, Uniswap, Cosmos
ATOM
, Cronos
CRO
and Aptos
APTOS
. They also like the new permissionless layer 1 blockchain Sui, but it’s not available to investors yet.

They are bearish on Litecoin
LTC
, Stella Lumens, Eos and Monero
XMR
. “I wouldn’t recommend investing more than 1% of your crypto portfolio to them,” Andryunin warns from his Lisbon office a few days before Christmas.

Daniela Pérez, CMO of Moonland, a multi-chain, social multi-player metaverse game run by a company called Meta Studios out of Miramar, Florida thinks GameFi survives 2203. Blockchain company Qtum chose Moornland in November to be its foray into the metaverse space.

“I think a lot of projects gave (blockchain-based) gaming a bad name because of taking advantage when the market was hot and not delivering what they promised,” she says, without naming names.

Axie Infinity, a GameFi darling at one point, is trading at around $7 as 2022 grinds to a close. It started the year at $93.

“There are tons of projects that are creating amazing products and thinking long-term and how they can impact the industry and not just be a quick cash grab,” Perez says. “For us, we know how long it takes to create a good gaming experience. You can’t be surprised when tons of gaming projects fail to deliver, especially when they promise to build the ‘best game’ in six months.”

Add that to the fact that only a sliver of gamers are playing games on a blockchain. Most gamers are still playing on PlayStations and X Box consoles that have been popular since the 1980s.

Perez said her company thinks GameFi tokens will see a turnaround in 2023. In fact, if some of them do not, they will be down 100% in a period of little over 12 months.

“Gaming is just gaming, even if the new games are on a blockchain,” Perez says. “This is a rising industry. Just invest what you can afford to lose.”

MORE FROM FORBESThe Richest Crypto And Blockchain Billionaires In The World 2022

2022: It was a Terrible Year

This year was a mess for crypto investors. Those who bought new coins in January 2022 have lost almost everything. This is especially true for the alt-coins. Bitcoin
BTC
is down over 60%. Cardano is down 80%. The Sandbox, a GameFi token, is down 92%.

The November collapse of FTX is still a headwind for cryptocurrency investors. Sentiment is pretty bad, with the government breathing down bitcoin’s neck. In a world where anything goes now, anything also goes with crypto. Consensus has been that the government will never be successful at punishing bitcoin in particular, but is Tether
USDT
the next disaster that will tick off governments just enough to go after bitcoin ownership and exchanges — who knows? Investors would be wise to assume the continuation of the crypto winter to start 2023.

Another negative is that many crypto projects, venture funds like Sequoia Capital and some pure-play cryptocurrency investment companies kept treasury accounts on the FTX exchange. Now uncertainty awaits them all. People in the industry are expecting more digging through the FTX rubble early next year. The worse the headline, the lower crypto goes.

FTX’s collapse and the Terra network’s stable coin failure of 2022 are two sides of the same coin: liars, leverage and loans.

“I remember that Terra’s
LUNA3
economic model was vigorously criticized in the community far before it finally collapsed,” says Ruslan Sharov, founder of Cheelee, a new GameFi platform that rewards users for watching short video feeds.

“Many investors saw the suspiciously high growth rate of FTX, and this past summer, when FTX was actively investing in dubious crypto projects, a lot of people in the community predicted they’d go bankrupt and that the entire market would collapse.”

It did collapse and has not recovered from that early November sell-off. Bitcoin is down nearly 20% since bad FTX headlines began rolling in on Nov. 8.

FTX’s trading arm, Alameda Research, was suspected of market manipulation even before the Luna fiasco. A hedge fund or two called this out, bringing it to the mainstream on “fin twit” — financial Twitter. Critique of a potential FTX downfall was nowhere to be had on Bloomberg or CNBC until the whole thing fell apart. Now its founder, Sam Bankman Fried, awaits trial after freeing himself on $250 million bail, which isn’t to be confused with the amount he actually paid. (It was much less, one Coindesk writer has calculated.)

In April 2022, the Waves
WAVES
blockchain — created in Moscow — accused Alameda Research of deliberately dumping its coins. “The FTX and Luna’s crashes are a natural healing of the cryptocurrency market from scammers and unviable economic models,” says Sharov. “Experienced investors are taking advantage of this complex situation.”

For Sharov, if he had $10,000 to burn in crypto, “I would invest most of it in new Web3 projects,” he says, citing his own company, of course. “The rest I would put into bitcoin.”

Just HODL Bitcoin, Instead

From portfolio diversity to throwing all your eggs in one basket, Alex Reinhardt, a German entrepreneur and investor behind an Asian app called Elvn and new blockchain start-up PLC Ultima says he likes bitcoin in 2023.

“I would just invest in one coin,” he says. “Bitcoin. There are many coins and various blockchains in the crypto market. The industry is getting larger every year. But if we are talking about the future, bitcoin has it. I would invest $10,000 in bitcoin and just wait a few years for the next bull cycle.”

Most alt coins follow bitcoin. If bitcoin is down, the others are often down even more. But if bitcoin is gaining, there is a chance the riskier alternatives will outperform. This is where diversification comes in. For crypto, it works more on the upside. When holding a lot of different coins plus bitcoin, when bitcoin goes down, the rest of the portfolio will go even lower (barring highly sophisticated and costly hedging strategies).

“I think only a handful of coins have a future,” says Reinhardt. “It’s difficult to predict which will do well in the long term.”

This year ended with one notable trend. Due to the FTX debacle, bitcoin investors have been withdrawing crypto holdings from centralized exchanges like Coinbase and moving them into hard wallets.

According to a BanklessTimes.com report, 88% of all end-of-year bitcoin volume was off exchanges – a 3-year high. The move signals a potential shift in investor sentiment away from centralized exchanges and could indicate greater confidence in bitcoin — as investors keep holding instead of cashing in their chips.

Investors will be hard-pressed to find someone who has totally given up on crypto. There are not many of them. Still, investing in crypto is not like investing in stocks. These are not shares in Polkadot. It’s equivalent to a high-risk venture capital investment in a start-up, topped with a mix of Russian roulette, where the wheel is sometimes rigged. Investor protections don’t exist.

MORE FROM FORBESFTX Failure Reminds Investors: Crypto Investor Protection Does Not Exist

Like the term “hodl”, the phrase “bitcoin moon” is just that – a combination of cute words that define a community of techies and scoundrels, greed-is-good investors, and thrill seekers.

Bitcoin may have had its moon landing already and is spiraling down to earth, for better or for worse.

Alas, for the crypto investors (or gamblers, if you want to call them that), the New Year always has been a time for making wishes and setting goals. So at that, “to the moon” in 2023.

* The writer owns bitcoin, and has tokens of Cardano, Polkadot, and Stella lumens mentioned in this article.

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