Cryptocurrency Market Prospects for 2024

INTRODUCTION

The cryptocurrency market cap doubled in 2023, signalling the end of its “winter” and a significant transition. While positive, it’s premature to label it a victory over sceptics. Despite hurdles, the past year’s developments defy expectations, affirming crypto’s permanence. Now, the challenge is to capitalize on the moment and innovate further.

Theme 1: Bitcoin Boom

Riding the Wave of Hegemony

In 2023, the cryptocurrency market saw a shift towards higher-quality assets, boosting Bitcoin’s dominance above 50% for the first time since April 2021. The trend was fueled by established financial players applying for spot Bitcoin ETFs in the US, validating crypto as an emerging asset class. Despite potential capital rotation in the coming year, we anticipate an institutional focus on Bitcoin, with traditional investors’ pent-up demand making it challenging to challenge Bitcoin’s dominance shortly.

Revolutionizing Trades: Unleashing Crypto’s Next Era

The post-2018 crypto winter led to decentralized finance (DeFi) and new layer-1 networks, initially aiming to meet on-chain block space demand. Mainstream adoption surged through experimentation, but activity plateaued in late 2021. Recognizing the lack of block space necessity, developers redirected efforts during the crypto winter to overcome technological barriers hindering new blockchain use cases.

The Layer-1 Equilibrium

Over the past two years, reduced demand for general-purpose layer-1 blockchains has solidified Ethereum’s dominance in smart contracts, holding 57% of the total cryptocurrency value locked. Ethereum’s 18% dominance in the overall market exceeds all tokens except BTC. As attention shifts to applications, alternative layer-1s are adapting, with sector-specific platforms emerging, focusing on gaming, NFTs (Beam, Blast, Immutable X), DeFi (dYdX, Osmosis), and institutional participation (Avalanche’s Evergreen subnet, Kinto).

The Development of Layer-2s

Layer-2 scaling solutions, including OP Stack, Polygon CDK, and Arbitrum Orbit, have rapidly grown, allowing developers to create customized rollups more easily. Despite their proliferation, L2s have mainly impacted alt L1s rather than the Ethereum mainnet.

Theme 2: Macro Makeover

Unveiling the Journey to De-Dollarization

In 2024, de-dollarization remains a popular topic, especially in an election year. Despite ongoing discussions, the USD’s global supremacy remains secure for now. However, the USD is at an inflexion point, with macroeconomic imbalances in the US growing. As the cost of servicing America’s debt is projected to rise, the global monetary regime is gradually shifting away from USD dominance. Although full de-dollarization may take generations, the shift is underway for valid reasons.

The Economic Prospects for 2024

While the chance of the US evading a 2024 recession has risen, it’s not zero, as evidenced by the deeply inverted US Treasury yield curve. Economic resilience results from substantial government spending and near-shoring efforts. Yet, these effects are anticipated to wane in 1Q24, potentially softening the economy with tighter financial conditions. Recession risk depends on factors like US banking system weaknesses and the pace of disinflation.

Interpreting the Regulatory Signals

In a recent survey by Institutional Investors for Coinbase, 59% expect increased allocations to digital assets in the next three years, with a third already boosting allocations in the past 12 months. Despite global regulatory actions, uncertainty in the US hampers opportunities, with 76% agreeing that the lack of clear crypto regulations threatens the country’s financial services leadership.

Theme 3: Linking to Reality

Tokenization, Revisited

Tokenization is crucial for traditional financial institutions and is expected to play a significant role in the new cryptocurrency market cycle. It involves automating workflows and removing unnecessary intermediaries in asset issuance, trading, and record-keeping. Tokenization aligns well with distributed ledger technology (DLT) and gains relevance in the current high-yield environment by providing capital efficiency, which is particularly valuable for institutions facing costlier capital tie-ups in higher interest rate scenarios.

Resurgence and Challenges in Web3 Gaming: Navigating
Mainstream Adoption and Play-to-Earn Models

Web3 gaming is resurging in 2H23, focusing on mainstream gamers beyond cryptocurrency communities. The gaming industry, currently a $250B market, is projected to reach $390B in five years. Despite massive investment opportunities, existing web3 play-to-earn models, like Axie Infinity, face broad user rejection, leading to scepticism among mainstream gamers about web3 integrations.

Decentralizing Real World Resources in 2024: Exploring
DePIN and DeComp in Physical Infrastructure Networks

A major focus for 2024 is Decentralizing Real-World Resources through DePIN and DeComp. Token incentives drive participants to construct independent physical infrastructure, spanning energy, telecommunications, data storage, and mobility. Projects like Akash, Helium, Hivemapper, and Render exemplify this shift away from corporate control.”

Decentralized Identity

Decentralized identity is pushing privacy boundaries in blockchain through innovations like zero-knowledge fraud proofs and homomorphic encryption. This allows computations on encrypted user data, offering extensive applications, especially in healthcare research. Achieving full control over personal data requires a shift from centralized entity servers to individual control over identity data.

Theme 4: The Upcoming Direction of Blockchain

Improved User Experience

In the recent bear market, improving cryptotech accessibility has been a key focus. Managing cryptocurrency elements like wallets, private keys, and gas fees overwhelms many users. Overcoming these challenges is vital for industry growth. Account abstraction progress, treating various accounts similarly, tackles these issues. Ethereum’s March 2023 introduction of the ERC-4337 standard is a substantial leap forward.

Maximizing Validator Customization

Middleware for validators and customization options Restaking and Distributed Validator Technology (DVT) empower validators to customize key parameters, adapting to evolving economic conditions and network demands. While validator middleware innovation has been prominent in 2023, its full potential for enhancing customizability and unlocking new business models remains unrealized, in our opinion.

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