Crypto Assets Industry 2023 First Half Review and Future Outlook

In the first half of 2023, the Crypto Assets industry experienced a series of significant events, but from today's perspective, there are not many events that truly have a long-term impact.

Important Macroeconomic Events

In March, the closure of some digital banks in the United States caused a huge impact on the industry. This incident led to the disappearance of a major trading channel between Crypto Assets and fiat currency, which had accounted for over 70% of the market's traffic.

In April, Ethereum completed the Shanghai upgrade, which is a significant technical update. After the upgrade, the Ethereum ecosystem welcomed a secure and reliable underlying yield asset. Currently, nearly 20% of Ethereum has been locked in nodes. At the same time, many traditional enterprises have also begun to build new strategies based on this.

Some traditional institutions are starting to enhance returns by establishing funds, purchasing Ethereum, and staking, which could become an important source of native funding for Crypto Assets in the future. Over the past decade, the Crypto Assets space has primarily revolved around asset issuance and trading, and this transformation brings a new important approach to asset issuance.

In April, Hong Kong adjusted its Crypto Assets policy, triggering a wave of activity. However, whether Hong Kong can replace the United States as an important channel between the Crypto Assets and fiat currency world remains to be seen. On June 1, Hong Kong's new Crypto Assets policy came into effect, but its current impact is still not obvious.

In June, U.S. regulation tightened, with regulatory agencies filing lawsuits against multiple trading platforms, leading to severe market fluctuations. However, market sentiment quickly reversed as a large number of traditional financial companies began applying for Crypto Assets ETFs.

ETFs have always been an important narrative in the Crypto Assets market. As early as 2013, during the rise of Bitcoin's price from 1000 yuan to 8000 yuan, the U.S. held ETF hearings, which was a significant driving factor.

From 2021 to 2022, the rise in coin prices was driven by a core asset management company. This company locked a large amount of Crypto Assets in its fund using an innovative arbitrage model, allowing only purchases and not sales, resulting in substantial USD inflows and driving up Bitcoin prices. Meanwhile, ETFs may become a larger-scale similar mechanism.

What is worth paying attention to in the future is the timing of the approval of a large number of ETFs. When traditional funds purchase ETFs through brokers and banks for asset allocation or hedging needs, a significant amount of capital will flow into mainstream crypto assets such as Bitcoin and Ethereum. This will be a key event.

Industry Exploration

In terms of industry development, there are several noteworthy events:

From February to March, the launch of a certain emerging public blockchain triggered a wave of small-scale speculation, but the bubble quickly burst.

The token airdrop from a certain NFT trading platform has brought a wave of liquidity feast to NFTs, leading to a price increase in January and February, especially for blue-chip NFTs. However, subsequently, some well-known NFT projects failed to meet expectations, resulting in a significant price drop. Currently, the NFT market is in a stage of bubble burst, searching for a new narrative logic.

The future of NFTs needs to find new application scenarios and narrative logic beyond profile picture projects (PFP). Possible directions include the combination of NFTs with offline events, personal fan economies, and membership benefits, among others. These areas are expected to attract a large number of new users.

From late April to early May, there was a wave of speculation on MEME coins, with the prices of many low-quality tokens skyrocketing. At the same time, NFTs and new tokens on the Bitcoin chain also fueled this MEME coin craze. This reflects the current lack of a strong narrative logic in the industry, forcing speculators to turn to the hype of MEME coins.

In summary, the current Crypto Assets industry lacks a clear narrative logic and is significantly affected by macroeconomic factors and regulation.

Three Major Events to Watch in the Second Half of the Year

1. Ethereum will undergo a performance upgrade in the second half of the year. Multiple layer two network solutions are also set to go live on the mainnet within the next 6-12 months. These upgrades are expected to enhance Ethereum's transaction processing capacity to thousands per second, and potentially reach tens of thousands per second in the future through hardware acceleration and other means. This will enable the blockchain to support applications with high daily active user counts and low-cost transactions.

2. Keyless wallets based on MPC technology and account abstraction (AA) smart wallets on-chain may form a unified standard with the popularization of layer two networks, thereby promoting large-scale application. This will greatly lower the user access threshold.

3. Traditional financial institutions apply for Crypto Assets ETFs. It is expected that by the end of the first quarter of next year, regulatory bodies will respond to ETF applications. The industry looks forward to seeing one or two ETFs issued by traditional financial institutions with large-scale liquidity go live, reopening compliant funding channels in North America.

These developments may drive a new wave of application trials and user growth, with significant effects expected to be seen after the second quarter of next year. However, the specific development direction of the Crypto Assets industry, successful application scenarios, etc., will ultimately be determined by the market.