Digital assets outlook for 2023 following a turbulent 2022

You can also listen to this podcast on iono.fm here.

CIARAN RYAN: The 2022 crypto market was one for the record books, and not in a good way. It had scandals, fraud, bankruptcies, greed and everything in between.

The fall of Terra triggered the collapse of several powerful centralised crypto players. Six major players – Three Arrows Capital, Voyager, Celsius, FTX, [its] sister company Alameda Research, and BlockFi – all went down. These companies were intricately entwined and in some cases appeared to earn enormous returns during the crypto bull market, but they were all wiped out spectacularly as the market turned bearish. The reverberation continues to impact other players such as Gemini and Digital Currency Group, which are in an ongoing credit crisis.

Now, through it all, we’ve seen the power of DeFi or decentralised finance and how it allows transactions to take place without middlemen and how it mitigates counterparty risk. We’ve seen how cryptocurrency is moving towards a greener, less energy-intensive future, and how crypto payments are solving the problems of high banking fees and long settlement times.

The crypto market has felt like a balloon that has been held underwater by bad news and bad actors. But when does the bad news end and what does 2023 hold in store for crypto?

Well, joining us to discuss this is no stranger to Moneyweb, Sean Sanders, founder and CEO of Revix. First of all, a happy New Year to you, Sean. Give us your assessment of the crypto market in 2022, and what 2023 holds in store for us.

SEAN SANDERS: Hey Ciaran, thanks very much for having me on and a happy New Year to you too. So 2022, it’s a year that I think a lot of crypto investors want to forget. [It] started in January with a $2.2 trillion market cap, and that fell to $820 billion by December. So the crypto market was down roughly around 63%. If you compare that to the likes of the S&P 500 Index, that was down just less than 20%. So it was a horrible year for investors across the risk spectrum. I think it was actually one of the first years on record – or certainly within the last couple of decades – where you had both bonds and equities below 10% over the year. So yes, not exactly the best investing year.

But then you had all the idiosyncratic events that occurred in the crypto space. You mentioned some of them, the likes of FTX blowing up – and this isn’t really sort of blockchain- or cryptocurrency-specific. This is more sort of platform-specific based on centralised exchanges that operate within the crypto space. You had the likes of Voyager and Three Arrows Capital – so many different players – that blew up.

So it was a year that you had a whole bunch of bad players blow up and it hopefully has cleared out a lot of the industry.

There needs to be clearer regulation. I think that’s the big takeaway [from] 2022. So when you look at 2023, there needs to be more regulation put in place. That is the first thing. We are actively speaking with South African regulators; we are looking offshore and that’s something that I think will come into play at an aggressive pace over the coming weeks and months.

That’s going to be a good thing for the entire industry. So that’s the first big development.

Secondly, if you compare this last period, and I’ll say pretty much the whole of 2022, to the prior bear market which was 2018, you’ve kind of got a market now.

You’ve got four key-use cases within the crypto space.

Firstly, you have stablecoins and stablecoins have really grown in popularity. If you look at the top 10 cryptocurrencies, four of the top 10 at one point in time were stablecoins. So that’s sort of the big first use case of blockchain technology, really.

The second is DeFi. We’ve spoken a bit about that. The decentralised finance base, sure, was hit really hard in 2022. But among all of the centralised players collapsing you’ve seen the growth of this industry. You’ve seen a lot of protocols continue to work without any hiccups, and this is an industry that’s likely to grow going forward. You’ve seen the emergence of NFTs [non-fungible tokens] and sure, again, it was a challenging year in 2022. But the idea of a digital certificate of ownership is incredibly exciting and has ramifications for far more than just digital artwork. I think there’s a lot more to come in that space.

Bitcoin is essentially now its own sort of asset class. Of course it falls within the asset class of cryptocurrencies, but Bitcoin is analogous to sort of digital gold, and a lot of people are viewing it that way.

CIARAN RYAN: I want to come back to this thing about regulations in a minute, but before we get there – the Bitcoin price in November 2021 hit $67 000, slightly above $67 000, and then it fell all the way down to where it was this last week, $16 700, $16 800; down about 60%, between 65% and 75%.

Is now a good time for people to be looking to get back into crypto? There is an element of apathy around, but we saw this too in 2018 when the price went all the way to $3 000. People were so apathetic and a lot of people missed this great buying opportunity.

So is this a good time for people to be logging onto the Revix platform and buying?

SEAN SANDERS: Yes. Our approach from day one back in 2019 has been [that] if you’re going to enter the crypto space, rather enter with a diversified product of some kind. So we offer crypto bundles, essentially index-fund-like products that you can invest in, and this allows you to get diversified exposure to the crypto space. That would be my recommendation again. This isn’t just me talking my own book. I personally invest this way.

I think a lot of people are familiar with investing with the JSE Top 40 or the S&P 500, and investing in various ETFs [exchange-traded funds] or funds that provide exposure to those. That’s our take on the crypto space.

We really believe in that diversified approach. The reason for that is this market is incredibly unpredictable. It is still a novel asset class. There is so much going on. It’s been something that’s been said so many times over, but we really are in the early stages of this market’s growth.

So, trying to pick individual winners – whether it’s the likes of Ethereum, Cardano, Solana, Polkadot – there are just all these different names. We saw the spectacular collapse of Luna, the cryptocurrency, earlier this year, along with its stablecoin UST. And holding a Top 10 bundle, sure, you are without a little bit of exposure to that for a period of time, but it means that you only have, say, a 10% allocation to that, or a very small allocation to that. So that’s our approach when looking at the crypto space.

Now, is this a good time to buy? That is the million-dollar – or in some cases billion-dollar – question right there.

I wouldn’t necessarily go out right now and throw my life savings into crypto. I don’t think that’s a good idea, ever.

But if you are going to allocate, say 1% or 5% of your wealth to crypto – and you want to look at getting back into the market, gosh, the market is 73%, 74%-odd down from its all-time highs – why not start adding right now?

This is kind of boring advice. I know a lot of people want to get told hey, listen, this is the time to jump in. But you are looking at the market at a significant discount. If you’re looking out over the next three to five years, maybe this is the time you make your first investment, but with the idea that you’d be making another three to four investments before you fully committed to the crypto space.

CIARAN RYAN: You mentioned the Bitcoin price being down about 75%, 74% over the last year. But it is dominant in the crypto space. It remains stable at about 40% – in other words, Bitcoin as a percentage of total crypto market cap is 40%. Is this likely to be the case going forward, or are we going to see some competitors to Bitcoin come and gobble up some of that market share?

SEAN SANDERS: Over the last few years – and I say last few years being the last five to seven years – you’ve seen Bitcoin lose its dominance within the crypto space. It went from about a 78% market dominance all the way down to the low 30s and now it has bounced back up to about 40%-odd. And, as you said, it was sort of stable over this last year. So that’s Bitcoin’s percentage or how dominant it is, really, within the entire crypto market.

If I look at the other cryptocurrencies, the likes of Ethereum, the likes of Cardano, the likes of Polkadot, there are a lot of applications, or there is a lot of developed activity that is then resulting in applications being built on these other blockchains.

Ethereum actually in 2022 was a more active blockchain. There were more transactions that took place on the Ethereum blockchain than on the Bitcoin blockchain.

And then you’re seeing sort of growing trends with some other blockchain networks. I’ve mentioned some of them – Cardano, Polkadot there as well. So in my opinion, and this is solely in my opinion, [with] the emergence of the smart contract-based cryptocurrencies, they’re likely to challenge Bitcoin’s dominance. I don’t know if they’re going to – or if any single project really will – overtake Bitcoin’s market dominance over the next two to three years, but I do think they will gain relative to Bitcoin.

What we did at Revix is we put together a smart contract bundle. So if you want to invest in the sector – these are blockchains that allow you to build applications on top of them, the likes of Ethereum, the likes of Polkadot, Cardano, I’ve mentioned their names now a few times – we’ve got a bundle that provides sort of niche exposure to this particular sector. You don’t have to know exactly what’s going on, and you get broader sector exposure if that’s something you’re interested in.

CIARAN RYAN: It is interesting. I mentioned in the beginning the collapse of these companies – Three Arrows Capital, Voyager, Celsius, FTX and so on. Now these were centralised players. So maybe a little bit of distinction needs to happen here between a centralised player and a decentralised player. What is the outlook for decentralised finance? That’s where you really don’t have any single individual or group that controls the entity, correct?

SEAN SANDERS: That is correct. Essentially there are programmes. If you had to imagine the JSE, the Johannesburg Stock Exchange, this is a company and this company has software, which is its exchange. That’s the exchange that various brokerages interact with, where you can list securities and you can do a whole bunch of other things.

Now, there’s the equivalent of the JSE in a digital programme form that sits on top of a blockchain, and this is called Uniswap.

There’s another very similar sort of play out there called PancakeSwap. These decentralised platforms in particular are, as I said, sort of peer-to-peer trading or peer-to-peer transfers of assets.

This is just one very small sphere within the broader decentralised finance universe. You’ve so many other players that are emerging.

If you had to just think about any sort of centralised financial player, whether it be insurance, whether it be brokerage, whether it be wealth management, there are players emerging within the DeFi space that are essentially looking to create decentralised versions of decentralised players that are, I guess, less reliant on any individual or less reliant on companies and more reliant on code.

So a lot of these are sort of automated in nature. It’s such an interesting space, such an exciting space to be part of. I think the DeFi market has incredible potential. It almost definitely will be part of the future of finance. It’s just really how long will this take to be implemented?

CIARAN RYAN: I was looking at your website in the last day or two, and I noticed you’ve got an inflation shield. It’s a way for investors to hedge themselves against inflation. This may be particularly interesting for people who are concerned about the state of the financial markets. Maybe there’s further to go, but they do want to protect themselves. Talk about that and how you came to this idea of forming an inflation shield.

SEAN SANDERS: It was actually quite interesting. We had a lot of investors who came to us and said, listen, I want to invest in gold and I want to invest in Bitcoin.

They were then trading out of gold and moving into Bitcoin and vice versa. We said, well, why don’t we look to build a bundle that contains both gold and Bitcoin. And that’s exactly what we did.

So we built the inflation-shield bundle and essentially this is an optimised bundle based on the Treynor ratio. What it does is it looks to get the most upside return for the least amount of downside risk.

In very simplistic terms, it’s a bundle that is interesting – it outperforms both Bitcoin and gold over a longer-term basis, and it’s got less drawdown risk.

What we’re trying to do is ultimately to give you the upside exposure to Bitcoin while protecting you utilising gold.

So at the moment the bundle’s about 75% in gold through Pax Gold [PaxG], which is a gold-backed token [one token represents one fine troy ounce of a gold bar stored in professional vault facilities under the custody of Paxos Trust Company].

That’s a physical gold-backed token, and 25% is sitting then in Bitcoin – an absolutely fascinating product, and one of the products that has outperformed all the markets over the last year.

CIARAN RYAN: And interesting, of course, you also have got Pax Gold as a standalone, so anybody who wants to buy gold but in digital form can do that through Revix as well.

SEAN SANDERS: This is one of the most interesting products. I spoke now about our inflation-shield bundle, which then contains Paxos Gold.

This really is a fascinating product. You’ve got a physical gold bar sitting in a London Brink’s Vault. One gold bar is broken up into 400 ounces. An ounce of a gold bar with a unique serial number is then essentially issued publicly on a blockchain, which is then a token that you can go and buy.

We offer these tokens on the Revix platform. So you go and you buy a Pax Gold token with us; your token that you purchase has a unique serial number, and that links to a physical gold bar.

This is just one of the use cases of blockchain technology.

You can imagine properties going on the blockchain and all of a sudden when you buy a home, you don’t have to worry about all the paperwork.

Because essentially you could have the transfer of ownership go directly to the next party that’s purchasing the house, again utilising this token sort of structure. It’s absolutely incredible.

And that’s why I say I think that there’s a big part of what we are seeing today in the crypto space that’s going to be the future of more sort of traditional finance.

CIARAN RYAN: Right. And of course, you don’t have to buy a full ounce of Pax Gold. You can buy a R100 worth of Pax Gold, if I understand it correctly.

SEAN SANDERS: Oh yeah. You can get started with Revix [with] R100. You can of course go in and spend I think it’s R33 000-odd right now to buy an ounce of gold. It’s at R33 000 also for one Paxos Gold token. But yeah, with us you can get started with just R100.

CIARAN RYAN: Okay, final question. Regulation is on the way for cryptos, you mentioned in the beginning of this conversation. So crypto companies like Revix will have to be licensed as financial services providers. Talk very briefly about that. What does it mean for Revix specifically [and] on the crypto market in general?

SEAN SANDERS: This is specifically focused on South Africa. In South Africa the FSCA [Financial Sector Conduct Authority] has come out and deemed cryptocurrencies to be financial products. So cryptocurrencies will be treated the same as stocks, or the same as bonds.

That is, I think, an overall positive for the South African market because all of a sudden you have players like Revix that have to acquire – and I mean previously you could never acquire a [financial services provider] licence because cryptocurrencies weren’t defined as financial products.

So for the first time we are finally able to say, hey, listen, look at us. We are regulated. We have the stamp of approval from the FSCA – and that, oh my gosh, opens so many doors for us as a platform, because all of a sudden we can market on more traditional platforms.

And then the most important thing in all of this is that everyday consumers are protected because there is a regulatory body that is providing licences to the likes of Revix. So end consumers get protected.

And I think if you look at the major issues in the South African market over the last few years, you had the Cajee Brothers [of Africrypt bitcoin scam infamy], you had MTI [Mirror Trading International], you had all these massive scams.

And if there was a regulatory framework in place that protected investors that were getting involved with those scams, perhaps those scams wouldn’t have existed or would’ve been a lot smaller. So I think overall this is a big net positive for the market.

CIARAN RYAN: Sean Saunders, CEO and founder of Revix, thanks very much for joining us.

SEAN SANDERS: Thanks, Ciaran. Always a pleasure.

Brought to you by Revix. 

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