2023 Tradfi / Defi Outlook

As we look out from under the huge pile of 2023 outlook reports from the major finance houses, here at Novum we thought it might be useful to consolidate these and give you a quick summary of the consensus as well as some outliers. We have also reviewed the 2023 Defi/Crypto reports from the major investors/observers and included these to give an holistic view of the expected climate in 2023 for investors. We looked at the top 10 TradFi outlook reports and Top 15 Defi/Crypto reports published recently.

In TradFi the view for 2023 is very much ‘risk-off’ with complete agreement on a very positive outlook for the least exciting Fixed Income and Investment Grade Bonds. Going to the other end of the spectrum with equities and High-Yield Bonds there is no consensus with a full range of negative to positive on these for 2023.

There is an almost unanimous view that the US will experience a mild recession with only Goldman thinking this may be narrowly avoided. Turning to Europe, the view is almost completely pessimistic reflecting the impact of conflict and energy challenges. The area with the most divergent views is perhaps unsurprisingly, China. 

The opening of the borders and the end of zero-covid policy means that things could either bounce back fiercely or stumble backwards with the impact of a surge in Covid cases. This may be the key factor for the rest of the markets as the inter-dependence of the western economies means that Chinese supply-chain performance could make or break the year for many western corporations and thus the value of the equity markets. This may be reflected in the wide range of the predictions for Equities.

Turning to Crypto and Defi where risk and return expectations are higher there is little interest in Stablecoins and low return assets. There is however uniform positivity with respect to NFTs and Web3 in general for 2023. The perceived wisdom is that both areas are still early and that innovation and proliferation will continue. 

According to Huobi Research, the number of wallets holding NFTs continues to increase. Delphi Digital points out major themes for NFTs in 2023. Delphi Digital expects Cambrian Explosion for NFT Finance such as NFT AMM and NFT Lending. Big brands including Adidas and Gucci have already adopted NFTs to offer unique customer experiences. Identity continues to be an area of high interest, with ‘soul-bound’ tokens being tipped to take off, being a form of non-transferable NFTs which can never be moved, exchanged or sold as a means of proving identity. Pantera Capital sees an increased adoption and use cases of Zero-knowledge technology particularly in identity verification.

Integration of physical assets with the digital world will continue to increase as Web2 companies and artists explore ways of enhancing the customer experience as well as strengthening the bond and emotional attachment with products and creations. 

Looking at the major assets in crypto, being BTC & ETH these assets were of little interest to most crypto investors. BTC's 200-week SMA indicator suggests that the current bear market is unprecedented in its intensity. Forbes is negative on both BTC & ETH, and Bloomberg showed a positive view on BTC and a neutral view on ETH.

It will be interesting to see whether expanding use cases of crypto, beyond token price appreciation, such as NFTs, zero-knowledge proof and DeFi can provide meaningful diversification to investors going on.