Ways to approach crypto investing in 2023

2022 was brutal for cryptocurrency and nonfungible token (NFT) investors. Bitcoin (BTC) hit its yearly low on Nov. 21, almost exactly a year after it reached its all-time high price of $69,044. After such a tumultuous year, how should crypto investors plan for 2023?

Firstly, this space has critical risks worth considering before investing.

Macroeconomic risks

Investors must recognize the macro and systemic risks impacting the crypto industry as 2023 draws near. The war in Ukraine has led to an energy crisis caused by sanctions on Russian energy. The United States Federal Reserve’s monetary policy response to inflation continues to unsettle markets. The crypto contagion from recent bankruptcies continues injecting volatility into the market, with increasing regulatory pressure and miner capitulation likely to continue into the new year.

Ukraine war, inflation and rising interest rates

The economic fallout from the war in Ukraine has impacted the global economy. Russia is one of the largest energy sources in the world — particularly for Europe — and sanctions on Russian energy have led to a crisis in several European countries, with prices skyrocketing and supplies dwindling.

Economic shutdown policies implemented by governments in response to the COVID-19 pandemic — accompanied by massive expansions in the money supply — have led to soaring inflation in the United States, Europe and around the world.

Central banks have tried to address inflation by increasing interest rates, putting downward pressure on equity markets and crypto prices throughout 2022. A possible escalation of the war in Ukraine, with stubbornly high inflation and interest rates, could bring more pain for investors in 2023.

The Crypto Contagion

The contagion effect caused by the collapse of Terra in May still haunts the crypto markets. The failure of FTX in November saw Bitcoin hit another new cycle bottom. The ripples caused by these major events haven’t settled yet.

Many firms have declared bankruptcy, and as they look to pay back creditors, they may liquidate their crypto assets, which could trigger fresh sell-offs in the crypto market. Investors should be mindful of this as they enter the new year.

Regulatory pressures

Crypto regulations have been coming to the U.S. for some time. The dramatic events of 2022 have only increased the probability that regulations will advance in 2023.

Regulatory clarity could help the crypto space in the long run by attracting institutional capital….