UK house prices finally fall, global stocks end their worst year for over a decade, and what to expect from crypto in 2023. Newsletter #4
UK house prices finally fall, global stocks end their worst year for over a decade, and what to expect from crypto in 2023. Newsletter #4
02/01/2023
In This Issue:
UK house prices fall
Global stocks end their worst year since 2008
Dollar ends its best year since 2015
What to expect from the crypto world in 2023
Falling UK House Prices
According to Nationwide, UK House fell for the fourth consecutive month in December as rising interest rates deterred potential buyers. They’ve now fallen for the longest period since 2008 although the fall between November and December was just 0.1%.
The price of the average home was £273,000 in August but has since fallen to £262,000 as of December 2022, although as you can see below, this varies a lot by region.
Thankfully for first-time buyers, most economists expect global house prices to continue to fall throughout 2023. Although this would be great news for prospective buyers, it’s terrible news for those who have just bought a home; they could be left paying back more than the value of the mortgage they took out.
The International Monetary Fund (IMF) forecasts that in a “worst-case” scenario, house prices could fall by as much as 25% over the next 3 years. Whether this is “worst case” depends on your position. If you’re thinking of buying a home soon then this is great news, and after their meteoric rise since 2020, it’s nice to see house prices are at last starting to fall a bit.
Global Stocks Post their Worst Year Since 2008
Stocks ended their worst year since 2008 on Friday Since the start of the year, they’ve fallen nearly 20% on average, with many US tech companies falling by over 50%. The primary reason for the selloff has been rising interest rates around the world, stocks generally fall as interest rates rise.
Other reasons include the Russia/Ukraine war, supply chain hangovers from the pandemic, and the strict Chinese lockdowns (which have now been lifted). 2022 was one of just 3 years in the last 100 in which stocks and bonds have both had a negative return.
The US Fed raised interest rates in an attempt to stave off the worst period of inflation in decades. The increases primarily hit the high-growth tech companies that prospered during the lockdowns of 2020 when we were all stuck indoors and which also tend to benefit the most when interest rates are low, but suffer the most as they rise.
The fall in the value of the S&P 500 marks the end of a 3 year boom that saw an 84% rise from the 1st of 2019 to the 1st of 2022. The fall also led to huge losses for wealth managers and to what the Financial Times called “one of their worst years in a century”.
The MSCI World Index which tracks global stock markets fell 19.5% last year and a typical wealth management client in the UK has seen their portfolio fall more than 20%.
Hopefully, after the awful year that was 2022, 2023 will be much better. The P/E ratio of the S&P 500 sits at around 19.5, leaving it with some room for growth and much closer to its historical norm than the ~38 it was at, at the end of 2020.
The US Dollar’s Best Year Since 2015 Comes to an End
Part of the reason for the decline in stocks this year is the strong dollar. It’s had its biggest increase in a single year since 2015, having risen around 10% - 15% against most other major world currencies.
The US Dollar is often seen as a safe haven during times of crisis and it jumped after Russia invaded Ukraine early in 2022. It’s also been helped by the increasing interest rates in the US and by fears around slowing global growth. It now sits at its highest level since 2002.
A strong dollar makes it harder for US companies who export their goods. It means that foreign buyers have to pay more of their local currency to buy a US made good in dollars and puts US companies at a pricing disadvantage against foreign competitors.
Towards the end of the year, the dollar did see a decline in its value as investors became more optimistic that the Federal Reserve would end its cycle of raising rates in 2023. I think as we go further into 2023 the dollar will continue to fall although it’s unclear by how much.
What Should We Expect From The Crypto World in 2023?
2022 was a terrible year for the Web3 world. There were hacks, increasing interest rates, and the FTX fraud to end the year. It was arguably the crypto world’s worst year since Bitcoin’s creation in 2008.
The market cap of almost all cryptocurrencies declined, with just a few exceptions. These included two stablecoins (BUSD and USDC) and a metaverse-linked coin called ApeCoin.
Stablecoins also saw a surge in popularity in the second half of the year as markets sought refuge from volatility in dollar-pegged cryptocurrencies such as Tether (USDT) and Binance’s BUSD. Bitcoin and Ethereum fell 65.4% and 68.3% respectively during 20022.
So what can we expect for 2023?
It’s very unlikely 2023 will be as bad as 2022 for crypto in my opinion. The industry has grown tremendously in the past few years, perhaps not in terms of prices, but in terms of user numbers and applications. Interest rates will likely start to come down at some point next year, and although this could happen slowly, it should provide a boost to the overall crypto market cap.
Rules around Web3 regulation should also become clearer which should boost adoption of NFTs and crypto projects. I’m also hoping 2023 will see the development of more use cases for crypto and maybe news about further upgrades to the Ethereum network.
There’s no getting away from the fact that 2022 was an awful year for crypto but as with any new technology, there are always going to be ups and downs throughout its development.
I think 2023 will be much better and put Web3 technologies back on the path toward mainstream adoption. Hopefully, the industry can be “reborn” in some sense and go back to its roots of decentralization and giving power back to the people.
Articles/Videos:
The biggest NFT stories of 2022 - https://decrypt.co/116588/biggest-nft-stories-2022
Crypto predictions for 2023 - https://www.publish0x.com/johnwege/crypto-predictions-for-2023-xvmdwon
How China is building a parallel AI universe - https://techcrunch.com/2022/12/31/how-china-is-building-a-parallel-generative-ai-universe/
How to survive the AI revolution -
https://www.gsb.stanford.edu/insights/how-survive-artificial-intelligence-revolutionGoldman Sachs on the outlook for 2023 -