Out With Speculators, In With Builders.

Dec 29, 2022

A Short 2023 Look Ahead

As we approach the final days of 2022, it felt appropriate to reflect on this turbulent year and make a few predictions for the year ahead.

On the heels of over two taxing years of COVID extremes, we started 2022 full of hope for a return to a pre-pandemic world. In the West, we regained most of our freedoms, our kids went back to school, but just as we were starting to get our head out of the water to take a — maskless — deep breath, the war in Ukraine erupted, inflation skyrocketed, our supply chain broke down, and the global economy started wavering. For those of us in tech, we saw the COVID fueled growth years erased with a return to 2019 revenue levels, and with that, trillions of dollars of market capitalization evaporated.

For crypto, it was an even more challenging year. We saw all the ugliness of the earlier years of Wall Street’s greed repeat itself with the rapid house-of-cards style collapse of many firms, the most egregious and shocking one being FTX capping the year with an additional and very unnecessary dose of drama. Meanwhile, Elon Musk’s takeover of Twitter has fueled an almost unprecedented level of debate and noise across the tech, media, and political spectrum.

Through a global lens, 2022 was also an unusual year. Amidst the raging war in Ukraine, Europe showed signs of structural weakness with their dependence on Russia for their energy needs after years of labeling nuclear energy as not environmental friendly, China has been severely weakened by its failed zero-Covid policy, UK citizens had to live through the churn of three prime ministers and lost a beloved long-serving monarch, Iran saw a real challenge to the regime with the uprising of its population following the barbaric Mahsa Amini killing, and on the home front, the U.S. is still incredibly divided and polarized, with no end in sight of that downward spiral.

So, how does one remain optimistic about the future when we’re slapped with such a year after the challenging Covid-era we just went through?

As far as I’m concerned, I focus on the unstoppable force guiding human progress, and a few silver linings that come in times of crisis. On climate, for years, many had assumed that the only way out was through emissions reduction, but this year, through a combination of two disconnected events, we can have a glimpse into how innovation will once again likely save the day. The first is the energy crisis driving renewed enthusiasm for nuclear power, a change of heart driven by necessity over ideology. The second is a breakthrough in fusion, which shows there might be a realistic path to a non-linear change in energy production in a few decades. At a smaller scale, Bitcoin Mining — one of the technologies most vilified and instrumentalized by ESG activists and disingenuous adversaries — is proving to not only be effective at regulating demand across our power grids, but also at capturing methane effectively to transform something inherently bad for the world into something undeniably good — secure digital money — and enabling faster adoption of renewable energy plants by being a buyer of produced energy before a facility can be connected to the grid. The theme here is that innovation and progress will always find solutions to humanity’s biggest challenges.

So what will 2023 have in store for us? I’ll attempt to make some predictions:

  • Interest rates will continue rising into the first half of the year, and we will have to relearn how to live with mortgage rate levels we haven’t seen for two decades, rising borrowing costs, expensive car leases, and much higher rates for personal and credit card debt. Companies that had the ability to borrow money virtually for free will see increasing debt servicing costs in an already tough market with the compounding effects of slowing demand. Illiquid investments will be less attractive in this volatile, uncertain, higher yield market. While there are large venture capital funds with a lot of dry powder, raising capital will continue to be tougher for companies that either don’t have a clear path to revenue and profitability, or aren’t working on non-linear step changes with real world impact.
  • Inflation will recede, but the risks of a full-on recession will be very high. This unprecedented velocity of raising rates will tame inflation and demand, but will most likely result in a recession. How deep, and for how long will be the key question.
  • The war in Ukraine will enter a protracted phase, and is unlikely to end in 2023.
  • The years of excesses in tech have ended, 2023 will redefine how much can be done with fewer people. We will see more headcount cuts in 2023 as large tech companies come to terms with their ability to run their companies and do so much more with fewer people. New startups that take a principled approach to hiring during this period, and have access to capital, will make for one of the most successful vintages of recent times.
  • We will see the beginning of a Cambrian explosion of innovation in AI. New companies will be formed to automate many aspects of work typically performed by information workers across many industries. As such, demand for hardware (GPUs) that powers these applications will increase dramatically.
  • Different “factions” will continue to wage war on one another on the definition of free speech. Tensions will reach new heights between groups wanting to define what is free speech and what content should or shouldn’t be moderated.
  • We won’t exit this “crypto winter” in 2023, and probably not in 2024 either. It’ll take a couple of years for the market to recover from the abuse of unscrupulous players, and for responsible regulation to come through. Consumer trust is also going to take a few years to rebuild, but ultimately I believe this will prove to be a beneficial reset for legitimate industry players over the long run.
  • In crypto, years of greed will make room for real-world applications. The years of creating a token out of thin air and making millions are over. The music has stopped. We’re back to our regular programming of having to create real value and solving real world problems. I expect to see key innovations in the areas of payments, asset securitization, DeFi, zero-knowledge applications including proof of reserves and layer 1 scaling solutions, and a renewed development energy and interest on the Bitcoin network.
  • Maybe self-serving, but I also believe it to be true: the Lightning Network will start to show promise as the world’s most effective open, interoperable, cheap, real-time payments protocol.

One continued overarching theme will be our ability in the U.S. to remain the home for the world’s greatest innovators while protecting consumers, including by doing a better job of regulating innovative industries. We need clarity and new regulation for digital assets / crypto, guidelines for social media companies when it comes to content moderation, and guardrails for AI innovation. Sadly, I’ve become increasingly skeptical of our ability to reach consensus on legislative or regulatory approaches that achieve the right balance in these areas. I think we will therefore see more of the same in 2023 with increased responsibility on leaders of industries to do what they believe is right in the vacuum left by our deadlocked legislative system.

2023 will be a year for builders. A lot of value, trust, and stability was destroyed in 2022 — but with destruction comes an opportunity to rebuild anew — and rebuild anew we will with breakthrough technologies to solve humanity’s biggest problems. We will come out of this era stronger and better, but it’ll take patience and resolve. There’s little doubt in my mind that the next few years will continue to be challenging, but for those who find the will to press on, these will be incredibly rewarding and fulfilling years.

On the personal front, I will do everything in my power alongside the mighty team at Lightspark to do our part to drive progress, solve problems that remain unsolved and have a lasting impact in the world. There’s literally nothing else I enjoy more than being deep in the engine room with an incredibly talented group of like-minded humans going after an ambitious and inspiring mission.

That’s what I’m going to be focused on in 2023, and I wish the same to all of you. Finding deep purpose and amazing people to go pursue it with. It fills your life with meaning and passion, and there’s truly nothing like it — regardless of what life and world events throw our way.

Here’s to a year of inspired building!

David Marcus