Decentral Block Post

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.

Cryptocurrency markets lack any signs of volatility going into the year-end holiday season. This suggests that both the bulls and the bears are playing it safe and are not waging large bets due to the uncertainty regarding the next directional move. This indecisive phase is unlikely to continue for long because periods of low volatility are generally followed by an increase in volatility.

Willy Woo, creator of on-chain analytics resource Woobull, anticipates that the duration of the current bear market may “be longer than 2018 but shorter than 2015.”

The crypto winter has resulted in a loss of more than $116 billion to the personal equity of 17 investors and founders in the cryptocurrency space, according to estimates by Forbes. The carnage has been so severe that the names of 10 investors were removed from the crypto billionaire list.

Could the bear market deepen further or is it showing signs of starting a relief rally? Let’s look at the charts of Bitcoin (BTC) and select altcoins to find out.

BTC/USDT

Bitcoin has been trading in a tight range near the 20-day exponential moving average ($16,929) for the past few days. This indicates that the bears are defending the level but the bulls have not given up yet.

Cryptocurrency markets lack any signs of volatility going into the year-end holiday season. This suggests that both the bulls and the bears are playing it safe and are not waging large bets due to the uncertainty regarding the next directional move. This indecisive phase is unlikely to continue for long because periods of low volatility are generally followed by an increase in volatility.

Willy Woo, creator of on-chain analytics resource Woobull, anticipates that the duration of the current bear market may “be longer than 2018 but shorter than 2015.”

The crypto winter has resulted in a loss of more than $116 billion to the personal equity of 17 investors and founders in the cryptocurrency space, according to estimates by Forbes. The carnage has been so severe that the names of 10 investors were removed from the crypto billionaire list.

Could the bear market deepen further or is it showing signs of starting a relief rally? Let’s look at the charts of Bitcoin (BTC) and select altcoins to find out.

BTC/USDT

Bitcoin has been trading in a tight range near the 20-day exponential moving average ($16,929) for the past few days. This indicates that the bears are defending the level but the bulls have not given up yet.

Bitcoin (BTC) failed to deliver a Santa rally for Christmas 2023 as Dec. 25 offered even more sideways BTC price action.

Bitcoin volatility index plumbs lowest ever levels

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD clinging to a tight trading range around $16,800.

The pair had stubbornly refused to offer any form of volatility through much of the week, with an absence of a macro trigger reinforcing lackluster performance.

“Bitcoin's volatility is at an all-time low,” William Clemente, founder of crypto research firm Reflexivity, noted alongside a chart of the Bitcoin historical volatility index.

He added that the total crypto market cap had retraced the entirety of its gains from its 2017 highs and was now testing those highs as support.

Yield farming, liquidity mining, and staking have become common practices in the crypto market due to the remarkable growth the DeFi ecosystem has witnessed in recent years. These features enable users to earn interest on their crypto holdings by locking them as deposits for specific periods.

The concepts sound appealing but there's one big risk: the potential decline in the valuation of the locked assets. In other words, users will see losses in U.S. dollar terms if the asset's value drops during the lock-in period.

These shortcomings have raised "reflection tokens" as a viable alternative. In theory, reflection tokenomics remove the necessity of locking tokens while still offering staking-like benefits. 

What are reflection tokens?

The projects backing the reflection tokens charge a penalty tax (calculated in percentages) on each transaction. In turn, they give out the fee to all token holders depending on the percentage of assets they hold.

As a result, reflection tokens' holders do not need to lock their assets for a certain period to earn rewards. They earn their income almost instantly in most cases when a transaction is made, with the functions governed by a smart contract.

Yield farming, liquidity mining, and staking have become common practices in the crypto market due to the remarkable growth the DeFi ecosystem has witnessed in recent years. These features enable users to earn interest on their crypto holdings by locking them as deposits for specific periods.

The concepts sound appealing but there's one big risk: the potential decline in the valuation of the locked assets. In other words, users will see losses in U.S. dollar terms if the asset's value drops during the lock-in period.

These shortcomings have raised "reflection tokens" as a viable alternative. In theory, reflection tokenomics remove the necessity of locking tokens while still offering staking-like benefits. 

What are reflection tokens?

The projects backing the reflection tokens charge a penalty tax (calculated in percentages) on each transaction. In turn, they give out the fee to all token holders depending on the percentage of assets they hold.

As a result, reflection tokens' holders do not need to lock their assets for a certain period to earn rewards. They earn their income almost instantly in most cases when a transaction is made, with the functions governed by a smart contract.