NewsFlash Articles Data Fundraising BlockBeats Pro

ShenYu: Three most noteworthy events to watch for in the second half of 2023.

Read this article in 11 Minutes

The entire cryptocurrency industry is currently in a state of searching for a new narrative logic.

Original Title: "Divine Fish: Three Things Worth Paying Attention to in the Second Half of 2023"

Original Author: Divine Fish, Co-founder and CEO of Cobo

Original Source: Wu Shuo Real

There were quite a few things that happened in the first half of the year. However, looking back today, there weren't actually many significant events.

Macro Events

Firstly, the collapse of American digital banks in March had a significant impact, as a very core channel from Crypto to fiat and from fiat to Crypto, which had been established over the past few years, disappeared. This channel accounted for more than 70% of the market's traffic.

In April, Ethereum completed the Shanghai upgrade. This was a major market upgrade that brought a core change, which is that the entire cryptocurrency has welcomed a very secure underlying asset. After the upgrade, a large number of Ethereum began to be locked, and now about 20% of Ethereum has been locked into nodes. At the same time, many traditional enterprises have also begun to build strategies based on this.

For a long time in the past, traditional funds entering the world of cryptocurrency could only do one thing, which was to buy mining machines and physically mine. Now, some traditional institutions are starting to do funds, buying Ethereum and enhancing returns through Staking. This will become an important native source of funds for cryptocurrency for a long time in the future. In the past decade, there have been roughly two things in the cryptocurrency industry: the first is the issuance of assets, and the second is the trading of assets. This is a very important way to change the issuance of assets.

In June, the US regulatory environment tightened and the SEC sued trading platforms such as Binance and Coinbase, causing a period of extreme market sentiment and a major decline. However, market sentiment quickly reversed as a large number of traditional financial companies began applying for cryptocurrency ETFs.

ETF is also a very important narrative logic in the cryptocurrency industry. In 2013, the process of Bitcoin rising from 1000 yuan to 8000 yuan was largely driven by the United States holding an ETF hearing. Therefore, the ETF story has been hyped for 10 years.

Behind the rise in cryptocurrency prices in 2021 and 2022 is a core driving force, which is actually Grayscale. Grayscale is a very interesting innovation that uses a good arbitrage model to lock many coins into the Grayscale fund, but can only be bought in and not sold out, resulting in a large influx of US dollars and causing a rise in Bitcoin. ETF may be a larger version of Grayscale.

What is worth observing next is when a large number of ETFs are passed. From the perspective of traditional fund allocation or risk avoidance, buying ETFs directly from these securities firms and banks represents a significant influx of funds into major asset classes such as Bitcoin and Ethereum. This will also be a very critical event.

Industry Exploration

At the industry development level, there are several things worth paying attention to.

One is in February and March, due to the launch of the Move public chain, which brought a small wave of speculation, but the bubble burst quickly. The second is the Blur airdrop, which brought a liquidity feast for NFTs, leading to a rise in NFTs in January and February, especially blue-chip NFTs. However, with the subsequent failure of blue-chip projects such as Ape and Azuki to meet expectations, prices have plummeted, and NFTs are currently in a state of bubble bursting and narrative logic reorganization.

Next, NFT needs to find new narrative logic and landing scenarios beyond the concept of PFP. Perhaps it can be combined with offline scenarios, such as something that combines with personal fans and membership rights, which should bring in a large number of new users. I personally have high hopes for this area.

In late April to early May, there was a wave of hype around MEME coins, causing many garbage coins to rise many times in value. In addition, the combination of BTC chain Ordinals NFT and BRC20 is also contributing to the hype around MEME coins. This also indicates that the industry's narrative logic has reached a stage where there is almost no narrative logic left. People have nothing else to speculate on, so they can only hype up MEME coins.

Above are the major events that have occurred in the cryptocurrency industry over the past six months. The basic conclusion drawn from the above analysis is: the current stage is one where the industry lacks narrative logic, while being greatly influenced by macro and regulatory factors.

Three things to pay attention to in the second half of the year

Now the entire cryptocurrency industry is still in a state of searching for a new narrative logic. However, there are still several major events worth paying attention to in the industry. As for what the final narrative logic of cryptocurrency will be, which applications can be launched, and what kind of scenarios can be implemented, we can only see very clearly by the second quarter of next year. These are all results that will be tried and tested in the end, and everything will be determined by the market.

First of all, Ethereum will have an upgrade in the second half of the year to improve its performance. Secondly, L2 will go live on the mainnet in the next 6-12 months, most likely within 6 months. A series of layer 2 networks, including Scroll and ZKS, are competing to become the first and gain a good first-mover advantage. Once Ethereum is upgraded, the performance issues that have plagued the entire blockchain industry for the past decade may gradually be resolved, perhaps with a performance improvement of around 10 times, from a few hundred TPS to around a thousand TPS. In the future, with hardware acceleration and other methods, it could reach the level of tens of thousands of TPS, which will bring a significant performance improvement. At that time, some high-traffic applications and low-cost transactions can finally run on the blockchain.

The second consensus is that the unified standard for MPC-based keyless wallets and on-chain AA smart wallets may gradually emerge with the launch of L2, which will bring about large-scale promotion and application. The Layer 2 network was actually designed to provide users with an AA wallet from day 1. This may become the default configuration for users in the future, greatly reducing the user threshold.

Once the performance of blockchain is initially resolved and the user threshold is further lowered, there may be a wave of attempts and outbreaks of a large number of applications, and a large number of users will flock in. This is what we hope to see. I expect this to happen sometime after the second quarter of next year.

The third important issue is the application of traditional institution ETFs. Starting in June of this year, many traditional financial institutions have applied for cryptocurrency spot ETFs, and it looks very likely that they will be approved. A hard timeline is in Q1 of next year, around the end of March, when the SEC must respond whether to approve the ETF. We expect to see one or two traditional financial institutions apply for and launch ETFs with large-scale liquidity by the end of Q1 next year, re-establishing compliant funding channels in North America.

These are the three most core driving factors in the industry that I believe will occur in the next six months to a year.