The total value of the 2024 crypto market is expected to rise by 44.2%, with Bitcoin's dominance climbing to 56.8%.

1. Market Overview

1.1 Cryptocurrency Market Fundamentals

In 2024, the total market capitalization of the cryptocurrency market rose from $2.31 trillion to $3.33 trillion, an increase of 44.2%. This growth is attributed to several key milestones, including the approval of a spot Bitcoin ETF in the first half of 2024, as well as Donald Trump's re-election as President of the United States in the second half of the year, which injected optimism into the industry with his deregulation and pro-crypto policies. Bitcoin's dominance rose to 56.8%, mainly due to the doubling of assets managed by Bitcoin ETFs, reflecting increased interest from institutional investors.

Despite the launch of the Ethereum ETF in the second half of 2024, its performance has been relatively lackluster, and institutional investors' preference for Bitcoin remains evident, as seen in the continuously declining ETH/BTC ratio.

Solana performed well, with the SOL price rising by 29.3%. The Solana ecosystem saw a net inflow of 2 billion dollars in 2024.

In 2024, the DeFi market share further expanded, with the total locked value ( TVL ) growing by more than double since the beginning of the year. The ratio of DEX/CEX trading volume increased from 9.37% to 11.05%, with an annual trading volume reaching 2.67 trillion USD. Solana and Base's DeFi TVL market shares more than doubled in 2024, reaching 7.17% and 3% respectively.

Stablecoins have seen significant acceleration, with a market capitalization growth of 26.8%, reaching a historical high of over $205 billion. New entrants like Ethena have further boosted this trend with competitive yields. Looking ahead, the potential approval of ETFs for other institutionally preferred assets like XRP and SOL will bring positive catalysts to the market.

1.2 Macroeconomic Environment and Politics

Politics

In the November 2024 U.S. election, Trump is re-elected as president, and the Republican Party wins the majority seats in both houses of Congress. During his campaign, Trump is very friendly towards cryptocurrency market policies, claiming that he will allow self-custody wallets, vigorously develop USD stablecoins, select crypto-friendly economic officials, and consider designating BTC as a reserve asset for the U.S. Treasury.

Europe is mainly affected by the Russia-Ukraine war, which seems to have fallen into a stalemate. The discourse power of right-wing parties has significantly strengthened, playing an important role in multiple countries such as the Netherlands, Germany, and Italy. Europe is more in a following state in terms of crypto market policies, and the regulation of the crypto asset market bill (MiCA) will be officially implemented by the end of 2024.

The Middle East is engulfed in continuous conflicts, with the Israel-Hamas clash entering its final stages. Several South American countries are advancing legislation to legalize the regulation and circulation of crypto.

Economy

In 2024, the global GDP growth rate is 2.6%, and the inflation rate is 2.5%. After two consecutive years of interest rate hikes, the United States will begin to cut rates by 25bps three times starting in September 2024. The Eurozone is experiencing sluggish economic growth due to geopolitical conflicts. China and emerging market countries maintain a high growth rate but face significant challenges. China is in a deflationary state, facing high unemployment rates and difficulties in business operations. Emerging market countries are affected by the U.S. dollar interest rate hikes, leading to severe depreciation of local currencies in some countries.

The three major U.S. stock indexes surged, with technology companies performing exceptionally well. The Nikkei index reached a new high not seen in over 30 years, mainly benefiting from carry trades by international investors and the export advantages brought by the depreciation of the yen.

2. Bitcoin

2.1 Product and Protocol Design

In the second half of 2024, Bitcoin will have some important software upgrades, such as Bitcoin Core 28.0 introducing flexible transaction forwarding strategies and BOLT12 for the Lightning Network. These client upgrades may impact various application scenarios.

Discussions about the design of the Bitcoin protocol layer are ongoing, mainly focusing on soft fork proposals. There are divisions among developers, roughly divided into several camps: one camp aims to achieve more flexible functions by adding new opcodes; another camp is LNHANCE, which introduces a toolkit to improve the Lightning Network; and there are developers promoting the "big script recovery movement."

These discussions have not yet reached a consensus. Some discussions focus on whether certain upgrades are too focused on specific areas and lack diversity, while another part of the discussion concerns whether some proposals are too flexible, potentially leading to unintended uses.

There is a feedback form in the community to collect opinions from developers with various backgrounds. Several studies have analyzed transactions related to soft fork proposals on signet.

It is foreseeable that many controversies will still arise during the activation process of soft forks in the future. By 2025, some form of consensus and development is expected to be seen.

The implementation of BitVM is still progressing steadily, focusing on the design and implementation of cross-chain bridges. Recently, some test versions of cross-chain bridges based on BitVM, such as BitLayer, have begun to operate.

2.2 Layer 2 - Lightning Network

The number of publicly accessible Lightning Network channels has not changed much, remaining at about 5000 BTC. The number of nodes is basically stable, but the number of channels continues to decrease. This may indicate that liquidity is gradually concentrating in the hands of some large node service providers, or that some early channels have been closed due to security patch updates.

The Lightning Network protocol and application ecosystem are still evolving. BOLT12(offer) has been adopted by many clients, supporting static payment methods and enhancing user experience.

In addition, some Layer 1 networks ( such as Nervos CKB) are developing Layer 2 solutions that comply with the BOLT specification to achieve compatibility and interoperability with the Lightning Network.

In this field, the main focus remains on assessing the feasibility of business models. Investment and financing decisions must place greater emphasis on project performance indicators, such as the number of users and asset scale.

As the payment sector receives increasing attention, the capability of the Lightning Network to support payment services makes it a promising solution. Service-oriented projects, especially those utilizing the Lightning Network as a settlement layer for cross-border transactions, may gain more attention. Future developments depend on issuing stablecoins on the Lightning Network, with possible implementations including RGB and Taproot Assets mentioned below.

2.3 Layer 2 - Side Chains

Layer 2 sidechains show uneven performance. Some projects have declined since their peak, while others continue to grow. The TVL of various Layer 2 projects presents a clear alternating trend.

The challenges faced by Bitcoin Layer 2 (L2) and BTCFi are multifaceted, with a key issue being the reliance on unsustainable TVL surges and airdrop incentives. Although efforts have been made to incentivize TVL with points, the crucial factor remains building a robust ecosystem to ensure lasting liquidity. The main driver for Bitcoin deposits into L2 solutions is the opportunity for low-risk returns priced in Bitcoin. In terms of portfolio efficiency, BTCFi can achieve better liquidity abstraction and protocol layer stacking by leveraging existing infrastructure. If Bitcoin L2 can focus on building an ecosystem around enhancing BTCFi's utility rather than simply replicating EVM chains, there is still significant room for growth.

Therefore, the key to the success of Bitcoin L2 lies in: ensuring asset security ) whether through third-party custody or self-custody (; and pursuing a vertical integration strategy ) which will better serve BTCFi ).

(# On-chain Assets

Bitcoin on-chain assets are usually divided into two main categories: meta-protocols and CSV) client validation###. However, overall, these assets have not shown significant appreciation with the rise in Bitcoin prices and have low liquidity. Altcoins on the Bitcoin chain have generally not outperformed other altcoins.

BRC20, Runes

BRC20, Runes, and other meta-protocol assets have recently performed poorly. Their market value and growth are far behind many popular meme assets this year, confirming that such assets have a short lifecycle and cyclical characteristics in the absence of strong utility. These easily replaceable tokens are now being supplanted by newer meme and AI agent narratives.

RGB

As the earliest CSV protocol, RGB is still being promoted recently. There are already some technical implementations that can support integration with the Lightning Network. The narrative of RGB mostly revolves around the issuance of Tether stablecoins, but the specific implementation plan is still unclear. In terms of further programmability, AluVM may need some time to support more flexible development possibilities. Therefore, overall, the performance of RGB-type protocols and assets is still to be observed.

Taproot Assets

Taproot Assets, developed by the Lightning Labs team of the Lightning Network, enables the minting of stablecoins at lower fees and facilitates instant settlement on Bitcoin. Tether has announced that it will issue stablecoins based on Taproot Assets.

For the on-chain asset sector, due to the current insufficient user experience and liquidity support of Bitcoin-based DEXs to meet the demand for better performance of tokens, CEXs are still important for such assets. At the same time, because CEXs naturally support technologies like hot and cold wallets, this may cause difficulties in integrating some new types of assets.

(# 2.5 BTCFi

BTCFi can provide Bitcoin holders with additional Bitcoin-denominated earnings, and as the infrastructure continues to improve, the overall locked value is expected to grow.

In addition, the type of returns pursued by BTC assets has shifted from L2 to staking, liquid staking, and liquid re-staking, which can compound multiple yields and also drive the growth of various BTCFi projects. Among them, Babylon, as the cornerstone of this yield path, has attracted a large amount of TVL denominated in Bitcoin after undergoing several phases of controlled testing, highlighting the urgent need for the community to enhance the practicality of BTC by utilizing the decentralized and tested security of Bitcoin. As a gateway to the BTCFi ecosystem, Babylon enables Bitcoin holders to participate directly. Furthermore, various LST projects have emerged successively to unlock liquidity and promote DeFi activities. The designs of these LST projects generally draw on mature DeFi design concepts, incorporating methods such as veModel and Pendle into the protocols; at the same time, they have unified the abstraction of rewards extracted from the liquidity layer and various partners. Over the past six months, the combinatorial development of these protocols has matured further. However, the recent Solv controversy, as well as questions regarding the calculation methods of BTCFi TVL and how promised yields are fulfilled, have cast a shadow over the start of BTCFi in 2025.

An important focus this year is finding ways to efficiently utilize and circulate staked assets rather than letting them remain idle. Projects like Yala, along with other lending and stablecoin initiatives, are leveraging the native infrastructure of the Bitcoin blockchain. With market support for BTCFi remaining bullish, these projects are expected to see significant growth and development opportunities. However, the rising capital costs during a bull market also pose considerable challenges to the listing strategies of these projects. Protocols that can more flexibly mobilize Bitcoin liquidity and support a richer variety of asset classes will have a greater chance of success.

![A Comprehensive Review of the Crypto Market in the Second Half of 2024 from Macro Environment to Vertical Tracks])https://img-cdn.gateio.im/webp-social/moments-b403864e1699d18dfb8e0b4d8cd1a77e.webp###

( 3. Ethereum

Despite the launch of the ETH ETF in the United States on July 23, 2024, its performance has not been able to replicate the success of the Bitcoin ETF pioneer, nor has it positively impacted the underperforming price of Ethereum.