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

The Crypto Assets industry experienced a series of significant events in the first half of 2023. While there seemed to be many, in reality, only a few had a profound impact. Let us review these key events and look forward to the development trends in the second half of the year.

Macro Events

In March, the U.S. digital banking sector faced a crisis, leading to a blockage of an important channel between Crypto Assets and fiat currency. This channel accounted for over 70% of the traffic in the entire market, and the disruption had a huge impact on the industry.

In April, Ethereum successfully completed the Shanghai upgrade. This major upgrade brought safe and reliable underlying yield-bearing assets to the Crypto Assets market. After the upgrade, a large amount of Ether was locked in nodes, currently approaching a ratio of 20%. At the same time, many traditional enterprises have begun to build new strategies based on this.

The way traditional funds enter the Crypto Assets world has changed. In the past, they mainly engaged in physical mining by purchasing mining machines. Now, some institutions have begun to establish funds to buy Ether and earn returns through staking. This will become one of the important native sources of funds for the future of Crypto Assets.

In April, Hong Kong adjusted its Crypto Assets policy, triggering a wave of activity. However, whether Hong Kong can replace the United States as an important hub between Crypto Assets and fiat currency remains to be seen. On June 1, Hong Kong's new Crypto Assets policy officially took effect, and while there has been some movement, the scale is still relatively small.

In June, U.S. regulations became stricter, leading to lawsuits against several exchanges and causing severe market fluctuations. However, market sentiment quickly reversed as a large number of traditional financial companies began applying for Crypto Assets ETFs.

Crypto Assets ETFs have always been an important narrative in the industry. As early as 2013, during the process of Bitcoin's price rising from 1000 RMB to 8000 RMB, the United States held an ETF hearing, which was a significant driving force. Since then, the topic of ETFs has been hotly discussed for 10 years.

The rise in coin prices from 2021 to 2022 was largely driven by a certain fund. This fund locked a significant amount of Crypto Assets within it through an innovative arbitrage model, allowing only inflows and no outflows, which resulted in a large influx of dollars and pushed up Bitcoin prices. An ETF may become a larger-scale similar product.

What deserves attention in the future is the timing of a large number of ETF approvals. Once traditional funds begin to purchase ETFs through brokerages and banks due to asset allocation or hedging needs, it means that a large amount of capital will flow into mainstream Crypto Assets such as Bitcoin and Ethereum. This will be an extremely critical event.

Industry Exploration

In terms of industry development, there are several noteworthy events:

1. In February to March, the launch of a certain public chain triggered a wave of small-scale speculation, but the bubble quickly burst.

2. An airdrop event on a certain platform brought about a wave of liquidity in NFTs, leading to a surge in the NFT market from January to February, especially for blue-chip NFTs. However, subsequently, some well-known NFT projects failed to meet expectations, resulting in a significant price drop. Currently, the NFT market is in a phase of bubble bursting and repositioning.

3. From late April to early May, there was a wave of speculation on MEME coins, causing the prices of many low-quality tokens to soar. At the same time, NFTs and BRC20 tokens on the Bitcoin chain also contributed to this trend. This indicates that the industry has entered a phase with almost no clear narrative logic.

Key Focus for the Second Half of the Year

Currently, the Crypto Assets industry is still searching for new narrative logic. But there are three major events worth paying attention to:

1. Ethereum will undergo an upgrade in the second half of the year to improve performance. At the same time, several layer two networks are expected to launch on the mainnet within the next 6-12 months. This could bring about a performance increase of around 10 times, providing a foundation for high daily active applications and low-cost transactions.

2. Non-custodial wallets and on-chain smart wallets based on MPC technology may gradually form a unified standard with the launch of layer two networks, greatly lowering the user threshold.

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

These events may drive a new wave of application attempts and user growth, with more significant performance expected after the second quarter of next year. Overall, the current industry still lacks a clear narrative logic and is greatly influenced by the macro environment and regulation. The future direction of development and successful application scenarios still require continuous trial and error and validation from the market.