In 2023, the global economy continued to face macro and geopolitical headwinds. We saw further monetary tightening by Western central banks to try to tame inflation, protracted kinetic conflict in Europe and a new one in the Middle East, and longer-term consequences of the COVID-19 pandemic. As a result, according to the International Monetary Fund (IMF), the expected global GDP growth is 3.0% for 2023 and 2.9% for 2024, respectively, both lower than the 3.5% achieved in 2022. Meanwhile, global inflation is forecast to decline to 6.9% in 2023 and 5.8% in 2024, respectively, compared to 8.7% in 2022.
In this challenging macro environment, the total cryptocurrency market cap increased during 2023 to reach over $1.4 trillion (+70.7% YoY growth). A swell of optimism surrounding spot Bitcoin and Ether exchange-traded funds (ETFs) in the latter half of 2023 was likely a major driver of the industry. Notable headlines include BlackRock’s proposed spot Bitcoin ETF appearing on the DTCC website and Grayscale’s court win versus the SEC regarding the proposed conversion of the Grayscale Bitcoin Trust (GBTC) into an ETF. Fidelity and BlackRock also applied for spot Ether ETFs.
The highly anticipated Ethereum Shapella hard fork was the protocol’s first major upgrade in 2023 since transitioning to a Proof of Stake (PoS) system. It was considered a significant change to the network with the implementation of EIP-4895, which enabled validator withdrawals of staked ETH from the Beacon Chain. The success of the Shapella upgrade served as a catalyst for the development of the liquid staking market. Ethereum saw over 28 million ETH (23.6% of the total ETH supply) deposited into the Ethereum Beacon Chain staking contract. Over a third of the total ETH staked is locked up in liquid staking.
2023 was a watershed year for generative artificial intelligence (AI), driven by the launch of ChatGPT by OpenAI. Technology giants like Google and Meta are also developing large language models (LLMs) to compete. Meanwhile, OpenAI introduced several significant updates, including GPT-4 and DALL·E 3. Industry experts have begun to analyse the potential applications of AI-generated content in Web3. For example, generative AI can help with design tasks in the NFT space and gaming, as well as with the development of smart contract codes and assist in quality assurance. With the AI hype, the market capitalisation of AI-related tokens rose from just over $8 billion at the start of 2023 to nearly $28 billion (as of 30 November 2023).
The main utilities of Bitcoin have traditionally been attributed to its functions as a store of value and a global payment network. Compared to Ethereum and other smart contract platforms, Bitcoin is limited in use cases. However, experiments around expanding the network’s functions were widely developed this year, starting with the introduction of the Bitcoin Ordinals protocol.
Layer-2 (L2) rollups witnessed notable development in 2023 with multiple chains and tech stacks launched. Optimistic rollups still led the L2 market, with Arbitrum and Optimism dominating around 80% of market share in TVL. Additionally, the implementation of zkEVMs boosted the growth of ZK rollups. zkEVMs combine the benefits of zero-knowledge proofs and the Ethereum Virtual Machine (EVM).
Interest in meme coins saw a resurgence in 2023, fueled by various factors, including increased mainstream awareness of cryptocurrencies and high-profile endorsements. Pepe (PEPE), Milady (LADYS), and CorgiAI (CORGAI) were notable entrants in 2023.
According to a report by Boston Consulting Group, the on-chain RWA market is projected to reach up to $16 trillion by 2030. As per recent survey data, receptiveness from institutional investors remains high, with about 91% of respondents interested in investing in tokenised assets. This growing interest was supported by measures such as RWA TVL, which continued expanding thanks to protocols like Ondo Finance, Centrifuge, and Tangible. The TVL of RWA protocols was $2.8 billion at the end of November.
Innovative designs to mitigate the risks of fiat-pegged centralised stablecoins have emerged, including float-pegging, as well as delta-neutral and yield-bearing stablecoins. Another new category of stablecoins is flatcoins, which are pegged to the cost of living instead of real-world assets like fiat currencies. In terms of market cap share, centralised stablecoins still dominate the market, with USDT and USDC accounting for 85.4% of the total market capitalisation at the end of November.
Blockchain-based social media applications are gaining traction, thanks to the emergence of dapps like friend.tech. 2023 paved the way for the rise of SocialFi, as seen by the trend of the total number of unique wallets interacting with the smart contracts of social dapps.
Crypto derivatives continued to dominate trading activity (versus spot) in 2023. The latest data (October) shows derivatives trading volume at $1.94 trillion, representing 75.4% of the total trading volume. Decentralised (DeFi) derivatives monthly volume rose from $46.04B at the start of the year (January) to $84.46B in November, with the dYdX protocol accounting for the largest share.
Crypto fundraising overall hit the lowest in three years in 2023 due to the macroeconomic environment. The amount raised by crypto firms in 2023 stands at around $7.96 billion, a significant drop from the $29 billion raised in 2022. In terms of sector trends, the blockchain service category saw the most fundraising, with almost $6.5 billion worth of investments throughout the year. This is followed by CeFi, with $1.36 billion raised. Growing interest in AI gave way to the creation of a new sector, with interest increasing for the overlap between AI and cryptocurrency, raising over $60 million (3.2% of all venture capital deployed in Q3 2023).
Across 2023, we continued to see hacks and exploits. At the time of writing, the total amount of money lost in cryptocurrency hacks in 2023 is approximately $3.7 billion at the time of writting, which dropped by 51% compared to 2022. Vulnerabilities in exchanges accounted for over 22% of the overall amount.
2024 Year Ahead
Despite challenging macro conditions, cryptocurrency adoption growth remained strong in 2023. As of November 2023, the number of crypto owners reached 575 million. During the year, the monthly average adoption growth rate was 2.8%. Depending on market conditions, we expect the number of global crypto owners to reach 700 – 900 million in 2024.
Bitcoin’s halving, which describes the decrease of Bitcoin miners’ block rewards by 50% every four years, will be an important event in 2024. Expected to happen in April 2024, the reward for producing one block will be halved from 6.25 BTC per block to 3.125 BTC. The reduced supply of BTC is commonly seen as a bullish signal for its price and this trend was already shown in historical halving events.
The Dencun upgrade is the next significant upgrade for Ethereum, which aims to enhance rollup-centric scaling in Ethereum via data sharding (Danksharding). The key update in the Dencun upgrade is EIP-4844, also known as Proto-Danksharding, which introduces blob-carrying transactions, making way for lowered data availability costs for Layer-2 rollups while increasing the transaction throughput of Ethereum.
Account abstraction (AA) is a concept for smart contract platforms (like Ethereum) that aims to improve the flexibility, security, and user experience of transactions and wallets. It is a new paradigm that allows for a more user-friendly experience when interacting with dapps. Account abstraction has been proposed in ERC-4337, which went live in March 2023 on Ethereum. The total number of AA wallet users reached over one million by the time of writing.
Developments around Bitcoin spot ETFs are likely to continue into 2024 as the market increasingly begins to anticipate the approval of ETF applications by the US Securities and Exchange Commission (SEC). Prominent crypto fund management firm Galaxy Digital estimates that if SEC approvals are obtained, spot Bitcoin ETFs could attract around $79.5 billion over the next three years.
Besides the above trending topics, developments in other areas are expected to be watched, including the development of ecosystems, blockchain gaming, the intent-centric concept, more responsible and accessible AI, new blockchain infrastructure, and real-world assets and yield-bearing stablecoins. Interested readers can access the full version of our outlook in 2024 by becoming a Private Member or Exchange VIP.
2023 has been an eventful year for the crypto industry. In this report, we curate the top crypto events and trends of 2023, followed by our outlook for 2024.
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