Coinbase Expects A Greater Demand For Permissioned DeFi

Key Points:

• Permissioned networks would be able to address issues like undercollateralized credit with price permissioned liquidity pools.
• The market conditions may drive bitcoin miners to shut down or be acquired by more well-capitalized players if other companies don’t buck the trend.

In its 2023 Crypto Market Outlook, Coinbase, whose stock has been on the verge of a record low, expressed its expectation regarding a greater demand for permissioned DeFi and a more consolidated bitcoin mining industry.

According to the statement, higher-quality cryptocurrencies like BTC and ETH are projected to be driven by elements including sustainable tokenomics, ecosystem maturity, and relative market liquidity, which may lead to the creation of key value opportunities.

In terms of Silver linings, the firm said that many traditional risk assets still seem rich, and the investment theses for cryptocurrencies like BTC and ETH have not fundamentally changed in their view. However, in the first quarter of 2023, digital currencies will need a differentiated catalyst in order to be decoupled from conventional risk assets.

Coinbase said that the demand for permissioned or enhanced DeFi that combines institutional-grade compliance rules with code-enforced transparency may increase in the future. Such permissioned networks would be able to address issues like undercollateralized credit with price permissioned liquidity pools that comply with anti-money laundering regulations

When it comes to crypto lending practices, Coinbase wrote that borrowing in the cryptocurrency realm has grown to be quite difficult in 2022 due to all of the credit that has been removed from the system. However, the fact that lender impairment from the collapse of Celsius and 3AC is still there suggests that consolidation is still taking place rather than that there is renewed pressure on these entities as a result of the failure of FTX.

Instead of coming from a retail basis, institutional investors will now be the source of future loan inventories. Even if it could take some time for institutional credit activity to return to previous levels.

Borrowing will likely not be a challenge for credit-worthy, responsible borrowers.

As for bitcoin miners, precarious economic conditions show no improvement, with mining companies selling nearly 135% of coins mined per day, and this means that miners are liquidating the entirety of their newly mined coins as well as portions of their BTC reserves, according to the report.

Challenging conditions (such as higher input costs and lower output value), combined with elevated energy prices, have resulted in a highly stressed economic environment for bitcoin miners for the past several quarters.

However, market conditions may drive businesses to shut down or “be acquired by more well-capitalized players” if other mining companies don’t buck the trend. For that reason, the firm expects the bitcoin mining industry to consolidate even further in 2023.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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