What’s Coming in 2023… 🥶

This has been one of the most brutal years ever for the markets. It isn’t just the crypto markets, but the broader financial markets as well. People thought the Fed’s free money party would continue forever and now they are suffering from serious withdrawal symptoms. This

begs the question: how will things look in 2023?

Well, there are many potential scenarios that could play out and these were recently broken down in a report by the folks over at BlackRock. It was their annual global outlook which was produced by some of the most senior analysts at the firm.

There was a lot of juicy info in the report. Not just around how BlackRock views the markets moving next year, but also how to consider broader asset allocation and dynamic portfolio adjustment.

Today, I am going to break this report down for you guys and give you some of my personal thoughts on its predictions.I hope it will help you prepare for what could be another really uncertain year.

You can watch that video here.

📊 My Personal Portfolio 📊

Last week, I closed out some of my smaller altcoin positions and moved it into USDC. I may decide to move this into BTC and/or ETH in the new year depending on how the macro picture plays out. Having a large stack in stables allows me to start the new year with a clean slate from a broader allocation perspective.

USDC 43.20% | ETH 26.31% | BTC 25.42% | ATOM 3.66% | DOT 1.38%

📈 Guy’s Forward Guidance 📈

If you’ve been watching BTC’s weekly price action, you might have noticed that it’s on the cusp of a death cross. The TLDR is that when that 50 week moving average crosses the 200 week moving average from above, there’s a high chance that BTC’s price will crash. For context, BTC experienced a death cross in January on the daily chart, and the crypto market has been crashing ever since. This wouldn’t mean much were it not for the other factors.

For starters there’s the Federal Reserve which will likely continue raising interest rates well into 2023. If you watched our video about the Fed’s latest press conference, you’ll know that investors were expecting a pause in the first quarter of next year. Although Jerome said that the Fed will adjust based on incoming data, its favourite inflation gauge came in higher than expected on Friday. This could embolden the Fed to continue hiking.

What’s interesting is that this possibility hasn’t been reflected in the crypto market or the stock market. The former has been moving sideways, and the latter has seen a slight rally. Not only that, but the futures markets aren’t very sure about how much the Fed will hike at its next meeting. I suspect that all of this uncertainty has to do with the speculation that we will either see a recession, or something in the financial system will start to break early next year.

Regarding the r-word, a majority of economists reportedly agree that a recession of some kind will occur around the world next year. The only point of contention is how deep said recession will be. If it’s sufficiently deep, then it will force the Fed to stop raising interest rates and possibly even drop them. This possibility is probably why the markets are rallying. Paradoxically, a deep recession could be good for markets.

When it comes to something breaking in the financial system, there’s speculation that the markets for long term US government debt could seize up the same way the UK gilt markets did. This is because of a recent decision by the Bank of Japan to basically raise interest rates. It’s a lot more complicated than that, but the main takeaway is that it could cause money to move out of government debt markets in the US and EU, causing liquidity issues.

As for crypto specific factors, the primary one is of course FTX and Alameda Research, specifically the response to the whole situation. As you may have seen, the SEC labelled FTX’s FTT token a security in its complaints against Sam Bankman-Fried’s accomplices. This potentially sets a stage for a crackdown on other exchange tokens. Luckily most exchange tokens are not available to US investors, so the effects should be limited.

As reported by Decrypt however, the collapse of FTX has the SEC looking at crypto exchanges with more scrutiny than ever before. The SEC had already sent warnings to crypto exchanges in the past, namely Coinbase with its Earn product last year. What I am concerned about is how regulators will perceive the other crypto projects that have been aggressively lobbying them over the last couple of years, such as Cardano.

As a cherry on top, it looks like countries are slowly but surely starting to crack down on crypto mining, which is something I’ve been warning about for weeks. Last week, the Canadian province of British Columbia announced that it would stop providing energy to crypto mining companies (for 18 months). Meanwhile in Europe, energy costs are meaning that crypto mining is quickly becoming unprofitable in the few countries where it is still happening.

This all suggests that the crypto bear market bottom is still ahead of us. Brace for impact.

🇺🇸 Why The Financial System is a Mess 🇺🇸

Over the last few weeks I’ve been thinking a lot about things like inflation, interest rates, and economic growth. This is probably because I’ve been listening to lots of macro podcasts while doing chores around the house here in the UK. In any case, I want to build on an idea that I talked about in last week’s newsletter, specifically that the inflation we’re seeing is intentional to devalue debts. Let’s start with a question: why does inflation exist at all?

The short answer is because of deflation. The economy is inherently deflationary because of innovation, which makes goods and services cheaper over time. However, the price of goods and services has only been going up, and this has been the case for decades, if not longer. As far as I can tell, this is because central banks and governments around the world have ultimately been fighting a battle against innovation-driven deflation, not inflation.

This sounds confusing at first, but it makes sense when you realise that people are incentivised to save rather than spend in a deflationary economy. This can become a problem, because if people don’t spend enough, the entire economy can slow down, leading to something called a deflationary death spiral. More importantly, a deflationary economy makes debts ever more expensive. Newsflash, the people in power have lots of debt.

So, what happens when innovation accelerates? Logically, it means that the economy becomes even more deflationary. This arguably began in 1971 when the first personal computer called the Kenbak-1 was sold. Coincidentally, the US dollar officially went off the gold standard later that same year. This allowed central banks and governments to create unlimited amounts of money. Put simply, it allowed them to create more inflation.

Since that time, central banks and governments around the world have created trillions of units of their national currencies to ensure that their economies do not turn deflationary due to innovation. This worked for a few decades in part because the population was still growing (at least in the Western world) and in part because innovation (and therefore deflation) was mostly linear. This meant that the growth in the money supply was likewise mostly linear.

Over the last decade or so however, two things have happened. The first thing is that the population has started shrinking (at least in the West). As we’ve seen in countries like Japan, a shrinking population is extremely deflationary. The second thing is more significant, and that’s that innovation has started going exponential. We appear to be at the start of what is often called the ‘Singularity’ where technology really takes off (ChatGPT is a great example).

So, what happens when innovation goes exponential? Logically, it means that the economy becomes exponentially deflationary. This means that the governments and central banks have to start printing exponential amounts of money to keep their economies growing.

I hope I’m wrong on this, but given how brazenly central bankers let inflation loose, one has to at least wonder as to whether that was the intention all along.

📲 Decentralisation Without Blockchain 📲

Over the past decade, we’ve seen decentralised systems and cryptography develop at an incredible pace. From the introduction of a decentralised financial system leveraging blockchain technology in 2008 (bitcoin) to the development of new consensus algorithms, decentralised applications, scaling solutions and privacy solutions. It would be an understatement to say that we’ve come a long way.

However, for some time now, the word ‘decentralisation’ has also been synonymous with the word ‘blockchain’, but does it really have to be so?

This despite the fact that we have seen other decentralised architectures come to the fore (DAGs, hashgraphs etc). However, I happen to think that a new cryptographic technique called “Nil Message Compute” (NMC) could finally change that perception.

To give you some background, NMC is a cryptographic technique developed by Dr. Miguel de Vega, the chief scientist of a project called “Nillion”. He has authored more than 30 patents in the fields of machine learning, data optimisation and mathematics.

And Nillion, a “blockchain-less decentralisation” platform that recently raised $20M+ in funding, claims that it can use NMC to create a decentralised computation network that effectively performs computations on a par with centralised service providers.

While it doesn’t use the chain architecture present in blockchain technology, Nillion also uses a permissionless, decentralised network of nodes to compute information in a secure way without having to send messages to one another.

And unlike the blockchain, network nodes using NMC are not primarily tasked with storing transaction data on an immutable ledger. Instead, the nodes’ purpose is to perform secure computations in a verifiable, fault-tolerant, and decentralised manner.

To give you a simple illustration, the manner in which nodes on a blockchain compute data is similar to a trail of ants exchanging messages on the location of food and working together to carry one huge biscuit together. While this ensures the biscuit reaches the colony safely and keeps all the ants in the colony informed of the quantity of food available - it expends a lot of energy and resources to do so.

Whereas the manner in which nodes using NMC compute data is similar to a group of ants working independently to bring small pieces of a large biscuit back to the colony. While this leaves each ant unaware of the size or quantity of food being cumulatively collected by the colony, it allows the group to collect and process the pieces of biscuit (information) in a much faster and more secure manner. Once the food is back at the colony, the queen ant then reconstructs the small pieces back into a large biscuit.

I fear I may have over-simplified the technology, but to summarise, NMC will allow decentralised systems (including blockchains) to handle far more use cases such as decentralised password storage, biometric document signing, KYC/AML, secure login, etc. It can also be used to enhance existing blockchains by acting as a meta layer that can be used as a private data enclave, additional processing power through decentralised off-chain processing, interoperability layer, etc.

It truly seems promising. There’s an entire book of additional capabilities that I can’t possibly cover in this newsletter. But I hope it’s sparked a bulb in your head just like it did in mine. I highly recommend reading Nillion’s whitepaper and FAQ document in your spare time. This is the bear market folks and it’s now more than ever that we learn about some of the most interesting technology being built in the space.

🔥 Deal of The Week 🔥

The most important words in crypto are your seed words. These are quite literally the keys to your crypto kingdom and they should therefore be protected at all costs.

But, how do you ensure that your seed words are protected not only from thieves, but also the elements? That’s possible with ultra robust metal seed cards.

And, the Coin Bureau has just dropped our new seed wallet design which are not only indestructible but also pretty stylish too.

👉 Check out our NEW seed wallet!

🔮 Video Pipeline 🔮

• Digital Dollar Project: What does it mean?
• Coin Bureau’s 2023 Crypto Predictions
• Central Bank Crypto Adoption 2025
• JP Morgan Crypto Holder Report: What you need to know!

🏆 What's New At CoinBureau.com This Week? 🏆

✅ Binance vs. OKX Review 2023: Battle of the Best Crypto Exchanges!
✅ Yoroi Wallet Review 2023: How to use the Yoroi Wallet

That’s all for this week’s newsletter. Everyone at Coin Bureau HQ would like to wish you all a very merry Cryptmas.

Guy your crypto guy

Disclosure: Authors may own cryptoassets named in this newsletter. These are unqualified opinions, and a Coin Bureau newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor.