Review and Outlook of the Crypto Assets Industry in the First Half of 2023

In the first half of 2023, the Crypto Assets industry experienced several significant events, but looking back, there were not many events that had a long-term impact.

Major Event Review

The collapse of American digital banks

In March, the collapse of a digital bank in the United States caused a huge shock to the industry. This event led to the instantaneous disappearance of the primary trading channels between Crypto Assets and fiat currency, which had accounted for over 70% of the total market flow.

Ethereum Shanghai Upgrade

In April, Ethereum completed the Shanghai upgrade, which is a significant market upgrade. It brought secure and reliable underlying yield-bearing assets to the Crypto Assets world. After the upgrade, a large amount of Ethereum was locked into nodes, with approximately 20% of Ethereum currently locked. At the same time, many traditional enterprises have also started to build new strategies based on this.

This upgrade provides a new way for traditional funds to enter the Crypto Assets world. In the past, traditional funds mainly engaged in physical mining by purchasing mining machines. Now, some traditional institutions are starting to establish funds to buy Ethereum and enhance returns through Staking. This could become one of the important native funding sources for Crypto Assets in the future.

Hong Kong Crypto Assets policy changes

In April, Hong Kong adjusted its Crypto Assets policy, sparking a wave of activity and attracting significant attention. 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. The new Crypto Assets policy in Hong Kong took effect on June 1, but the current response has been limited.

US regulatory tightening

In June, the U.S. Securities and Exchange Commission filed lawsuits against multiple trading platforms, leading to extreme market sentiment fluctuations and triggering a major downturn. However, market sentiment quickly reversed as a number of traditional financial companies began applying for Crypto Assets ETFs.

The ETF has always been an important narrative in the Crypto Assets market. As early as 2013, during the process of Bitcoin rising from 1000 yuan to 8000 yuan, the United States held an ETF hearing, which was a significant driving force. Since then, the topic of ETFs has continued to impact the market for a decade.

The rise in coin prices from 2021 to 2022 was largely driven by a certain fund. This fund adopted an innovative arbitrage model, attracting a large amount of Crypto Assets locked in it, but could only enter and not exit, resulting in a significant influx of dollars and driving up Bitcoin prices. Meanwhile, ETFs could become a larger-scale similar mechanism.

Industry Exploration

In terms of industry development, there are several trends worth noting:

1. The launch of the Move public chain triggered a brief speculation, but the bubble quickly burst.

2. An airdrop from a certain NFT trading platform brought about a wave of NFT liquidity feast, driving blue-chip NFTs up in January and February. However, as some well-known NFT projects failed to meet expectations, prices plummeted, and the current NFT market is in a phase of bubble burst, repositioning itself.

3. From late April to early May, the hype around MEME coin surged, leading to skyrocketing prices of many low-quality tokens. At the same time, NFTs and BRC20 on the Bitcoin chain also contributed to this, reflecting the industry's lack of substantial narrative logic.

Future Outlook

Currently, the Crypto Assets industry is still looking for new narrative logic. In the next six months to a year, there are three major events worth paying attention to:

1. Ethereum will undergo a new round of upgrades to improve performance. Multiple layer 2 networks are expected to go live on the mainnet within the next 6 months, competing for first-mover advantage. This could bring about a performance increase of around 10 times for the blockchain industry, enabling it to support more high-frequency applications and low-cost transactions.

2. Non-custodial wallets based on MPC technology and on-chain AA smart wallets may gradually form a unified standard with the launch of Layer 2 networks, lowering the user entry threshold. This is expected to become the default configuration for users, greatly promoting large-scale applications and user growth.

3. Progress of traditional financial institutions applying for Crypto Assets ETFs. By the end of the first quarter of next year, we may see one or two traditional financial institution ETFs with large-scale liquidity launched, reopening the compliant funding channels in North America.

These developments may lead to a surge of application trials and user growth after the second quarter of next year. However, which applications will ultimately succeed and which scenarios will be implemented still need to be tested by the market and proven by time.