Insights and Narratives from Market Leaders

In the first week of 2024, digital assets have started the year strong with Bitcoin printing new yearly highs. As Bitcoin surpassed $45k towards the end of 2023 the entire industry found their optimism restored.

What does the year ahead hold? We have seen a record number of forward-looking reports making predictions for 2024, due to the excitement in the ecosystem. Our team reviewed dozens of reports to consolidate themes from some of crypto’s most influential thought leaders and researchers. We noticed common themes converging on a few narratives.

Whether you’re a builder, investor, operator, or watching from the sidelines, these macro themes will provide a valuable navigation tool for the coming year. We believe these themes will take over your news feeds on X and the best is yet to come.

ETFs and TradFi

Bitcoin and Ethereum approaching the mainstream investment arena

Anticipation is running high for the potential approval of the first Bitcoin and Ethereum spot ETFs, a pivotal moment in bringing digital assets into the ~$30 trillion ETF market. Upon listing, this vehicle would make Bitcoin and ETH accessible to investors through retirement accounts, potentially unlocking vast new interest and liquidity via regulated, custodied products.

BitGo has covered this in our recent piece: Here’s What to Know About Spot Bitcoin ETF Filings.

ETFs minimize custody risk but provide greater market access to users who otherwise couldn’t allocate into Bitcoin. Like the Gold ETF, many had been interested for years but did not want to deal with the custodial pitfalls of owning a safe full of precious metals in their home. The same is true for digital assets. ETFs largely resolve this, granting digital asset exposure as easily as owning Microsoft, Tesla, or Apple shares.

These instruments unlock a large derivative market where market participants can buy or sell options to gain exposure and the ability to short or long Bitcoin without needing access to futures. Influential figures in finance, such as Blackrock’s Larry Fink, have advocated for a shift towards assets like Bitcoin. Such endorsements and ETF integration could significantly impact the digital asset space, solidifying cryptocurrencies’ role in the global economy.

While ETFs have been a staple in financial markets for years, the Bitcoin ETF stands out as the most viral financial product launch. This dominant narrative will keep buzzing in our news feeds. The initial launch may be straightforward, but the real excitement and challenge lie in the implementation and global use of digital asset ETFs. Following Bitcoin’s ETF approval, Ethereum is not far behind, with the next deadline for potential ETF approval set for May 2024.

The Halving Approaches

Epoch shift in Bitcoin economics

While the crypto news cycle brimmed with pessimism, Bitcoin soared ~160% in 2023. Bitcoin dominance is once again over 50%, showcasing the influx of attention to the internet’s top digital asset. With the ETF approval approaching and the narrative combined with the halving, Bitcoin’s price action draws similarities to previous halvings.

The halving is predicted to happen in April 2024. Miners currently receive 6.25 bitcoin per block. When the halving occurs, miners will receive 3.125 Bitcoins per block. With growing adoption, each halving increases scarcity and lowers the inflation rate of the network.

This critical juncture has historically been a precursor to a digital asset cycle. Following Bitcoin’s terminal bear cycle dip in November 2022, we’ve observed the mining hash rate more than doubling, indicating a surge in new involvement in the mining space. Whether this upward trend will extend into the new year remains uncertain, but the message is clear. Bitcoin is strong and continuing to grow. It’s important to remember that this is a marathon, spanning over four years, rather than a sprint.

Bitcoin underwent a brutal bear market with a ~77% markdown. Bitcoiners have been through this kind of cycle before, but the large influx of new users to digital assets meant the numbers were larger and the losses were heavier. ARK’s 2022 report crunched the numbers, and we’ve seen worse drawdown and length in cycles past.

What the future holds for Bitcoin is uncertain, but we’re approaching the end of this cycle from 2020 to 2024, and Bitcoin has historically followed these cycles very closely. Between a looming ETF approval and a potential asset cycle across the board, 2024 is shaping up to be a positive year for the industry.

UXgrading Blockchains

A seamless UX for U

The earliest pioneers in Bitcoin and Ethereum were coders; design and user interface came second. Now that crypto is a household name, and adoption is once again perking up, the simplicity of user experience is crucial; turning digital assets into a fluid, elegant experience aids adoption. Think back on how complex it was to use the internet in the 90’s. Getting online used to be a daunting task; today, the internet is seamlessly integrated into our daily lives. The same is true for digital assets; overwhelming complexity creates a monetary incentive for elegance to drive adoption.

In a recent year-end post a16z touched on this topic:

“While it has been much-lamented, the fundamentals of user experience in crypto haven’t actually changed much since 2016. It’s still too complicated: self-custodying secret keys; connecting wallets with decentralized applications (dApps); sending signed transactions into increasingly many network endpoints; more. It’s more than we can expect users to learn in their first few minutes in a crypto app.”

Attempting to onboard new users to Metamask or other browser-based wallets to use popular on-chain applications is still an arduous and frustrating process. The user experience for interacting with dApps has improved dramatically over the past several years. However, new users are still confronted with massive levels of friction when presented with immutable transactions, keypair security issues, and the general hassle of transaction approval.

In 2020, decentralized applications were forced to rapidly adapt to a new wave of retail users, leading to improvements in wallet UX and web app usability. The same can happen for other blockchain functionalities and interoperability between protocols and chains. 2024 will need similar improvements to crypto UX to continue onboarding future users and encourage them to stay.

Chaincatcher (via Gate.io) has expanded upon a16z’s post and provided a deep dive into the future of building seamless user experiences. We highly recommend it for deeper understanding.

DePIN

Narrowing the gap between digital assets and real-world infrastructure

Decentralized Physical Infrastructure Networks are slowly taking hold in the digital asset space by enhancing data reliability and accessibility on decentralized networks. Departing from traditional centralized systems, DePIN distributes data across multiple nodes, enhancing security and promoting a trustless, permissionless ecosystem.

This approach counters single-entity dominance and offers better protection against attacks. DePIN’s potential extends to reshaping how digital service providers manage and monetize data, fostering advanced, scalable solutions. It leverages cryptocurrency for cost-efficient infrastructure, targeting diverse sectors like telecom, logistics, and more.

Projects like Hivemapper, Render, Akash, and Helium exemplify DePIN’s growing relevance in this nascent sector.

We highly recommend Messari’s “State of DePIN” for a more detailed dive.

The Rise of Restaking

Bolstering institutional returns and network security

You’re likely familiar with staking, locking up tokens on a protocol to receive rewards. Restaking with EigenLayer offers a new solution to enhance the security of other protocols by leveraging Ethereum’s network. Validators actively engage in additional tasks, which can lead to financial incentives. Restaking incentivizes validators and institutional participants by enabling them to distribute security across additional protocols while providing additional financial incentives.

Many L1 blockchains leverage deflationary mechanisms, including burning transaction fees to influence token supply. Should the deflationary effect of burning transaction fees exceed the inflationary reward for validating,ETH will effectively offer enhanced real rates of return. EigenLayer is slated to proceed with its second launch phase in the first half of 2024.

Restaking is a new phenomenon for Ethereum, but the innovation to maximize its potential is just starting. Vitalik Buterin’s new roadmap for 2024 is a big preview of the things to come in Ethereum, and it’s worth reviewing.

Artificial Intelligence (AI) in Digital Assets

Blockchain Intelligence

AI is being recognized as a transformative technological force changing the world even in its early stages. It delivers a path to permanently alter our interaction with digital tools, potentially automating routine tasks and condensing extensive research into simple keyboard commands.

AI’s path into digital assets is particularly intriguing. Projects have been underway for years, and they are now capitalizing on the heightened focus on AI. The digital asset industry is just beginning to explore the potential applications and impacts in this space including:

• AI Decentralized Autonomous Organizations
• AI Chip/Graphic Processing Unit (GPU) Marketplaces
• Marketplaces for AI services
• Trading systems/Backtesting

This sector is continuing to attract sustained interest. Digital asset ventures strive to gain a market foothold and tokenize their services. Their long-term success and relevance will hinge on their distinct value propositions and how they adapt to the dynamics of a digital asset cycle.

A few examples of AI ecosystems for your research: Bittensor (TAO), Render (RNDR), Fetch.ai (FET), Akash Network (AKT), and SingularityNet (AGIX).

Bitcoin Inscriptions

Do “NFTs” belong on Bitcoin?

Inscriptions bring to the Bitcoin blockchain a concept that has divided the industry in a way we haven’t seen in years. Unlike traditional Bitcoin transactions that assume the fungibility of individual satoshis, Ordinal theory creates a lens where someone can track the individual “satoshis,” the smallest unit of Bitcoin. Using this model, each satoshi can be “inscribed” with unique data, such as images or text, using a specific format to encode the data. These satoshis now have non-fungible assets connected to them on the Bitcoin blockchain, similar in concept to NFTs on other blockchains.

Inscriptions have ignited controversy in the industry, primarily over concerns about the impact on congestion of the Bitcoin network. The rush to mint some of these inscriptions leads to an inflated fee market as speculators set higher fees to move faster. Inscriptions depart from Bitcoin’s original purpose as a lean, efficient transaction ledger. They raise concerns about increased transaction fees, longer times transactions are spent in the mempool, and impose greater storage demands on node operators. This challenges the scalability and efficacy of the network, affecting its core functionality as a decentralized digital currency. The most vocal of the Ordinal detractors view them as spam attacks on the network.

On the other side of the debate, there have been some tangible benefits to the Bitcoin network.

Miner revenue has risen due to the rise in the number of inscriptions over the last few months. As Bitcoin’s block reward decreases, transaction fees will become a more significant economic motivator for miners securing the network to avoid a decrease in dedicated hash power.

We anticipate inscriptions to continue being front and center of discussion in Bitcoin circles.

Play-To-Own Gaming

A joystick on the blockchain?

Venture capital investment from the last digital asset cycle was weighted to crypto gaming startups with the rise of Web3, and now we’re starting to see some of their investments come to market. Players are now getting their hands on entrants such as Nine Chronicles and Oh Baby! Kart and Star Atlas through early access. Global gaming has a user base exceeding ~3 billion, and crypto can capture a portion of that given the right conditions. The widespread adoption of engaging multiplayer games can catalyze the onboarding of millions of users into crypto.

Play-To-Own models allow users to accumulate in-game items that can be sold or swapped with other players on-chain. For example, a user completes a difficult level and receives an extremely rare item. They can sell the item and receive money for their invested time if they no longer want to play the game.

As players learn to own their in-game progress and achievement, the next step for this market sector is for well-established gaming entities to add functionality to their existing intellectual property. Many are anticipating a breakout of blockchain gaming; the industry anticipates different models to be on the horizon while driving deeper participation into the entire industry.

Swissborg summarized the coming shift succinctly:

“Gaming goes through paradigm shifts every 15/20 years, and in our view, the rise of Play-To-Own is similar to the rise of Free-to-Play 15 years ago. We believe that over the next 10 years, most games will incorporate web3 tech and ownership layers, enabling web3 to become a dominant business model in gaming.”

On-Chain Revolution

A shift towards accessibility and transparency

Scaling solutions have led to new options to gain access to products, such as perpetual futures or access decentralized exchanges (DEXs). Users opting for on-chain solutions seek accessibility compared to centralized exchanges. Anyone with a wallet and an internet connection can take advantage of the services offered by smart contracts on-chain. These solutions also reduce custody risk by allowing users to take control of their funds and only risk what they put into their smart contracts. Depending on the network and platform not all of these on-chain services will have the liquidity for larger participants, but the crypto natives and smaller firms can make use of them as needed.

What we can objectively observe is that volume has been trending up on these on-chain services since the 2022 lows in digital assets.

The complexity of offerings on-chain is becoming more appealing to by providing:

• Perpetual Futures
• Options
• NFTs
• Yield farming
• Liquid Staking
• Narrative Assets (meme coins)
• Financing

The total value locked in smart contracts grew by over 20% in 2023, and we expect this trend to continue. With recent price appreciation and an influx of new speculators, DEX volumes and user counts have also grown. Recently, we’ve also seen Solana begin to attract large volumes of speculators, surpassing Ethereum’s own DEX volumes and attracting an influx of users to popular Solana platforms. We anticipate more growth and activity to continue on-chain in 2024 and the years to come as users take advantage of new native protocol offerings.

Closing Thoughts

These nine narratives have captured the imagination of industry leaders, researchers, and capital allocators. This excitement is driven by the potential integration of Bitcoin and Ethereum ETFs into the mainstream market. The Bitcoin halving event could further catalyze this growth, affecting the asset’s scarcity and value. Innovations in DePIN and AI are set to revolutionize data management and security, enhancing the digital asset ecosystem’s robustness. The increasing adoption of digital assets in gaming and the shift towards on-chain trading solutions signify a broader acceptance and integration of cryptocurrencies in multiple sectors, heralding a new digital asset utilization and investment era.

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