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 from the current perspective, there are not many events that have a truly far-reaching impact.

Important Events in the First Half of the Year

The banking crisis impacts Crypto Assets channels

In March, the collapse of a digital bank in the United States had a huge impact on the industry. This incident caused the important channel established between Crypto Assets and fiat currency over the past few years to suddenly disappear, which had accounted for more than 70% of the market's traffic.

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 industry. After the upgrade, a large amount of Ether has been locked, with approximately 20% of Ether currently locked in nodes. At the same time, many traditional enterprises have also begun to build new strategies based on this.

Some traditional institutions have begun to set up funds to purchase Ether and increase returns through staking. This could become an important source of native funding in the future Crypto Assets industry. Over the past decade, the Crypto Assets circle has mainly focused on two aspects: asset issuance and asset trading. This upgrade has changed the important way of asset issuance.

Hong Kong policy changes

In April, Hong Kong adjusted its Crypto Assets policy, triggering a wave of activity and bringing in a large amount of traffic. However, whether Hong Kong can replace the United States as an important channel between the Crypto Assets and fiat currency world still needs further observation. On June 1, Hong Kong's new Crypto Assets policy took effect, and although there has been some movement, the scale remains relatively small.

US regulatory tightening and ETF applications

In June, U.S. regulators took legal action against certain trading platforms, leading to extreme fluctuations in market sentiment and triggering a significant drop. However, the market sentiment quickly reversed as a number of traditional financial companies began applying for Crypto Assets ETFs.

ETFs have always been an important narrative in the Crypto Assets industry. As early as 2013, during the process of Bitcoin rising from 1000 RMB to 8000 RMB, the United States held ETF hearings which served as a significant driving force. Therefore, the topic of ETFs has persisted for 10 years.

The rise in coin prices in 2021 and 2022 was actually driven by a core factor: a certain investment trust fund. This fund adopted an innovative arbitrage model, locking a large amount of Crypto Assets in the fund, allowing only inflows and no outflows, which led to a significant influx of dollars and drove up Bitcoin prices. ETFs may become a similar mechanism on a larger scale.

What is worth paying attention to in the future is the timing of the approval of a large number of ETFs. When traditional capital purchases ETFs through brokers and banks for asset allocation or hedging needs, it will mean a massive inflow of funds into mainstream Crypto Assets like Bitcoin and Ethereum. This will be a very critical event.

Industry Exploration

In terms of industry development, there are several directions worth paying attention to:

1. The brief speculation of the Move public chain
2. Volatility of the NFT Market
3. The speculation of MEME coin
4. Development of NFTs and Tokens on the Bitcoin Blockchain

Currently, the NFT market is in a stage of bubble collapse and reorganization. In the future, NFTs need to find new application scenarios beyond PFP (Profile Picture), such as integrating with offline events, fan economy, or membership benefits, which may bring in new user groups.

Overall, the current Crypto Assets industry is in a stage of lacking a clear narrative logic, while being significantly influenced by macroeconomic conditions and regulatory policies.

Focus Points for the Second Half of the Year

Although the industry is still searching for new narrative logic, the following three aspects are particularly worth paying attention to:

1. Ethereum Performance Upgrade: In the second half of the year, Ethereum will undergo a new round of upgrades to enhance network performance. At the same time, several Layer 2 network solutions are expected to go live on the mainnet within the next 6-12 months. This could bring about a performance improvement of around 10 times for the entire blockchain industry, enabling more high-frequency applications to run on the blockchain.

2. Wallet Technology Innovation: Keyless wallets based on MPC technology and on-chain AA smart wallets may form a unified standard with the development of layer two networks, significantly lowering the user entry barrier.

3. Traditional financial institutions' ETF applications: By the end of the first quarter next year, we may see one or two ETFs with large-scale liquidity launched, applied for by traditional financial institutions, which will reopen compliant funding channels in the North American region.

With these developments, we may see a wave of application attempts and user growth after the second quarter of next year. However, which specific applications will succeed and what kinds of scenarios will be implemented still need to be tested by the market and proven by time.