Bitcoin and Ethereum: What could boost cryptocurrencies in 2023, according to Hashdex

The backdrop of inflation, war and escalating interest rates has not been promising for this year's leading crypto-currencies, bitcoin and Ethereum. However, according to Hashdex, these factors have created the perfect test for bitcoin's most important investment thesis today, the emerging digital store of value. For Hashdex, while the year has seen the fundamentals of BTC strengthen, ETH should benefit from the development of new second-tier solutions. The information is taken from the Crypto Investment Outlook, a report shared with clients and the market.

Bitcoin
Bitcoin, the crypto-currency with the highest market value currently, followed the fall during this year's crypto winter in "a clear demonstration that it is not currently behaving as an inflation hedge," according to Lucas Santana, analyst at Hashdex.

"Instead, like other risky assets, bitcoin is benefiting from the monetary expansion of fiat currencies and suffering from the difficulties faced in a hawkish environment," he adds.

Nevertheless, the analyst believes that the year has strengthened the fundamentals of the asset, with milestones achieved in the adoption of the Lightning Network, as well as the launch of Lightning payments via CashApp, which has enabled some 40 million users to switch to the crypto-currency as a medium of exchange.

"In the past year, bitcoin's hash rate and mining difficulty have reached new all-time highs, and the network is currently more secure than ever, despite the reduction in miner revenue," Santana points out.

In addition, there is an expansion of institutional adoption. "Fidelity began allowing retirement plans to invest in bitcoin in April; BlackRock (NYSE:BLK) launched the first private bitcoin cash fund for institutional clients in August; and Google (NASDAQ:GOOGL) has partnered with Coinbase (NASDAQ:COIN) to enable cryptocurrency payments in cloud services," he adds.

Hashdex says it is confident that bitcoin's increased regulatory clarity compared to other crypto-currencies should further increase its adoption by institutional investors.

Ethereum
Ethereum has also suffered from the free fall in crypto-currency prices. However, the Hashdex analyst believes that this year has been one of the biggest in the asset's history.

"After seven years of development, the transition to Proof-of-Stake occurred seamlessly at one of the most anticipated events in the crypto ecosystem, The Merge. This transition represents a significant achievement, as it holds the key to a new security mechanism that has significantly reduced network power consumption," he says.

According to Santana, the first signs of change began to be seen soon after the merger and the future of Ethereum over the next year is promising.

Moreover, the Shanghai hard fork is one of the most anticipated Ethereum updates in 2023. "Precisely because it allows stakers to migrate their ether holdings between validators or make profits from staking rewards," which could make the network much more decentralised, he assesses.

The market has yet to see how demand for ETH can be stimulated by the development of new second-layer solutions and 2023 should be the year the first sharding features are launched, "increasing the overall capacity of its base layer and further democratising access to network validation", he adds.