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4 ‘emerging narratives’ in crypto to watch for: Trading firm

The crypto trading firm sees NFTs becoming more intertwined with brand IP, while Web3 apps with “real world utility” gain traction.

Despite an eventful year fraught with crypto collapses and price drops, Steven Goulden, a senior research analyst at crypto trading firm Cumberland has pointed to several “green shoots” to break the surface in crypto in 2023.

In a 14-page “Year in Review” report released on Dec. 24, Goulden said he saw four “emerging narratives” in 2023 that will lead to “significant progress” for crypto over the next six to 24 months.

These include nonfungible tokens (NFTs) becoming a “go-to method” of tokenizing a brand’s intellectual property (IP), Web3 apps and games becoming “genuinely popular,” while Bitcoin (BTC) and Ether (ETH) could become more commonly used as a nation’s reserve asset.

In 2023, we anticipate that we’ll see meaningful green shoots break the surface in several key areas, which will pave the way for significant progress in the next 6-24 months. Hear from a senior research analyst on emerging narratives for 2023: https://t.co/8E0cZOp6Ta pic.twitter.com/rO1KKvxIdA

— Cumberland (@CumberlandSays) December 23, 2022

Goulden argued that while NFTs have until this point, “largely been confined to the art space,” he believes the next step for NFTs will lie in the marrying of NFTs and a brand’s intellectual property.

The analyst noted that many non-Web3 companies are already making “significant progress” to monetize IP and improve customer engagement using NFTs.

Among those include a Starbucks partnership with Polygon to generate NFTs for Starbucks customers, and Nike’s launch of Swoosh, which enables users to design customized sneaker NFTs.

“Listening to these companies talk about Web3 initiatives, it’s clear they see digital engagement with customers and fans as a new aspect of the retail experience,” said Goulden.

He also noted that “selling NFTs to retail users has the potential to generate material, high-margin revenue.” Nike is a textbook example of that, having generated $200 million from digital sneakers alone. The analyst expects Polygon (MATIC), LooksRare (LOOK) and 0xmon (XMON) to lead the way on this front.

*CryptoKicks digital shoes from Nike and RTFKT. Source: Nike.*

The Cumberland analyst also said that NFTs will become a “go-to method of tokenizing IP,” sharing that there are around $80 trillion of intangible assets that exist on corporate balance sheets today.

Real-world utility apps to gain traction

Goulden also sees the adoption of Web3 platforms providing “real world utility” starting to gain traction in 2023, acknowledging it has been “extremely challenging” to disrupt Web2 monopolies thus far:

“The reality is that it takes time to build and bootstrap projects like these, and so we anticipate material traction is probably 12+ months out, with serious user adoption probably 2-5 years away.”

Some “genuinely useful real world” platforms that Goulden highlighted included IT recruitment platform Braintrust, Internet of Things protocol Helium, GPU rendering service Render, global mapping project Hivemapper and ride sharing app Teleport.

Web3 games to attract “serious” gamers

The analyst was also optimistic about the Web3 gaming market, noting that there are around three billion gamers in the world, 200 million of which are “serious” — representing $200-300 billion in total addressable market.

“[…] yet these users usually don’t own in-game items and have little control or governance over these gaming ecosystems,” said Goulden.

Goulden says the play-to-earn aspects of blockchain-based gaming will lead to significant profitability for developers but added that because it takes “around 2-3 years to build a triple A (highest-quality blockbuster) game,” we probably won’t see a “Web3 game that becomes a star” until 2023 or 2024.

*Web3 Gaming Market Figures. Source: Fungies.*

BTC and ETH as reserve asset

Finally, the research analyst suggested that close attention should be placed on BTC and ETH’s potential role as a reserve asset, particularly for nations focused on exports.

Goulden said many high-export nations around the world may choose to stock up their reserves with alternative assets such as cryptocurrency instead of United States treasury bills as a means to depress their own currencies against the U.S. dollar:

“Even a small central bank allocation to BTC or ETH would be material and would likely lead to other exporting states following suit.”

BTC to outperform ‘most major assets’ in H2 2022 — Bloomberg analyst

Global rate hikes are putting downward pressure on asset prices, but Bitcoin is starting to outperform commodities and tech stocks.

Mike McGlone, senior commodity strategist at Bloomberg Intelligence, stated that October has historically been the best month for Bitcoin (BTC) since 2014, averaging gains of about 20% for the month, and that commodities appearing to peak could imply that Bitcoin has reached its bottom.

In an Oct. 5 Bloomberg Crypto Outlook report, McGlone says that while the rise of interest rates globally is putting downward pressure on most assets, Bitcoin is gaining the upper hand when compared with commodities and tech stocks like Tesla, with the report noting:

“When the ebbing economic tide turns, we see the propensity resuming for Bitcoin, Ethereum, and the Bloomberg Galaxy Crypto Index to outperform most major assets.”

McGlone notes that Bitcoin has its lowest-ever volatility against the Bloomberg Commodity Index, which tracks the price movements of global commodities such as gold and crude oil. He suggests that historically, Bitcoin volatility is more likely to recover when compared with commodities when the crypto heads to new highs.

Bitcoin vs BCOM and Bitcoin 260 day volatility vs BCOM 260 day volatility. Source: Bloomberg Crypto Outlook

McGlone suggested the second half of 2022 could see Bitcoin “shift toward becoming a risk-off asset, like gold and US Treasury’s,” following low volatility throughout September and a potential peak in commodity prices.

In the past, Bitcoin has been highly correlated with tech stocks, with its volatility making it a risky asset that traders are likely to sell in an environment where investors are looking to reduce risk.

Kaiko Research data released on Oct. 4 supports the notion that Bitcoin may be transitioning to acting more like “digital gold,” with Bitcoin’s correlation to gold hitting its highest level in more than a year at +0.4 following a strengthening of the United States dollar as interest rates rise.

Bitcoin’s correlation with gold over the last 12 months. Source: Kaiko

A correlation of +1.0 means that the movement between two different assets is synonymous. For example, a 10% increase in gold would be matched by a 10% increase in Bitcoin should the two assets have a correlation of +1.0.