Crypto’s Next Act: Market Analysis and Trends for 2024

KEY INSIGHTS & TAKEAWAYS

The crypto world has been on a rollercoaster in 2023. We saw regulations tighten their grip, big institutions wade into the scene, and crypto markets weather a storm of challenges. As the year wraps up its saga, it’s time to turn our gaze toward the tale of 2024. And it looks like a breakthrough year for the whole blockchain space! 

Here’s what’s cooking:

• Ethereum’s Big Move: Picture faster and safer Ethereum experiences with Hybrid Rollup Solutions.

• Institutional Influx: Ripple and Grayscale’s legal wins could bring big players into the crypto game.

• Staking and DeFi Magic: Liquid Staking Tokens and innovative restaking mechanics are set to shake up DeFi on Ethereum.

• Real-World Assets Go Digital: $3.1 billion worth of real-world stuff is getting tokenized. It’s not just property anymore!

• AI Meets Blockchain: Expect top-notch security and privacy with the fusion of AI and blockchain. Think healthcare, finance, and supply chain upgrades.

• Simplified Crypto: Making wallets and blockchains easier for everyone. Visa’s into it, bridging the old and new internet.

• Power to the People: Decentralized governance is on the rise, letting users steer blockchain projects’ development.

• Bitcoin Steps Up: Staking Bitcoin might become real. Also, new blockchains built for specific jobs are in the works.

• Identity and Connections: Expect digital identity checks on DeFi platforms and smoother connections between different blockchains.

• Blockchain Made Easy: Businesses and developers get a head start with Blockchain-as-a-Service, making building on blockchain a breeze.

Dive deeper into the research and see what technologies are paving the way for this future.

Recap of 2023: A Year of Evolution and Resilience

Before we plunge deeper, let’s take a snapshot of the crypto scene in 2023. Despite the hurdles, crypto proved resilient and even scored a few wins. This dive into 2023’s landscape – the good, the bad, and the game-changers – sets the stage for what might unfold in the upcoming year. 

2023 Crypto Market Overview

The total global market capitalization for all cryptocurrencies reached $1.43 trillion in 2023, comparable to the world’s 22nd-largest economy. The cryptocurrency user base continued to expand, reaching over 420 million users worldwide by 2023.

2023 saw a gradual recovery in the market for the first 11 months after a comparatively slow second half in 2022. Market capitalization charts reflected this fluctuation.

Market Capitalization Chart (2021 – 2023)

In 2023, the crypto field was buzzing with about 23,000 assets. However, the top 20 coins and tokens held 90% of the market share, completely dominating the scene.

Top 10 cryptocurrencies by market capitalization (as of 12/15/2023) 

The global mobile wallet market was valued at $269 billion in 2023, showcasing the rapid growth of digital finance platforms. Stats revealed that although there were 358 million crypto wallet users spread across 400 wallets, just 10% of those wallets catered to 90% of all users.

The mobile wallet market transaction revenue will be valued at $54,534.1 billion by the end of 2023 and is expected to grow at a CAGR (Compound annual growth rate) of more than 10.6% over the forecast period (2023-2026).

Significant fluctuations hit the decentralized finance (DeFi) arena. Total Value Locked (TVL) dropped from $172 billion in November 2021 to $39 billion in December 2022 due to various incidents involving platforms like Terra. However, by November 2023, there was a slight uptick, with TVL at around $63 billion, hinting at a potential turnaround.

350 days-lasting bear market is over

The bear market overstayed its welcome, lasting over 350 days. Blame it on LUNA’s dip, FTX’s crash, user withdrawals, and the heavy cloud of Fear, Uncertainty, and Doubt (FUD) that hung over us. 

Still, Bitcoin pulled off a 158.82% yearly surge, hovering around $17,000 at the start of the year and reaching around $44,000 in December – its highest growth since April 2021! Sure thing, other cryptocurrencies joined the upward trend in the second half of 2023.

All thanks to the promising U.S. economy that boosted investors’ confidence with the potential approval of the first-ever Bitcoin spot exchange-traded fund (ETF) by the U.S. Securities and Exchange Commission. Even BlackRock, the world’s largest asset management company, has eyed the crypto sector by applying for ETF. 

Bloomberg Intelligence analysts give a 90% chance of the SEC approving a spot Bitcoin ETF by January 10, 2024 – the deadline for a proposal by Ark Invest and 21Shares. 

Bitcoin’s tech upgrades, like Ordinals and Inscriptions, also played their role and led to the long-awaited green charts. 

Ethereum’s Shapella upgrade

The Shapella upgrade, also known as Shanghai and Capella, revamped Ethereum in April 2023, enabling ETH withdrawals from staking. We heard the forecasts about the disastrous Ethereum unstakes (because everyone will want to collect their coins after three years of waiting), the drop in the price of ETH and many other things, but the reality turned out to be predictably different.

Enabling ether withdrawals turned to new staking highs and investor confidence while easing network congestion.

Layer-1 networks’ dynamic 

Ethereum achieved new liquid staking heights while BNB Chain made strides in enhancing scalability. Tron’s USDT gained substantial traction, and Avalanche made strides in subnets and corporate partnerships. Meanwhile, Cosmos advanced its shared economic security models, garnering attention in the space.

Rise of Optimistic Rollups and ZK innovations

Optimistic rollups took the spotlight, and the zero-knowledge (ZK) squad popped champagne for launching the first functional zkEVMs. The big players had their eyes set on interconnected blockchains – the L3s, Superchains, and Hyperchains became the new buzzwords.

Crypto regulation changes 

The year 2023 brought shifts in crypto regulations:

• Regulators dug into Tether, spotlighting stability concerns and pushing for tighter rules on stablecoin issuers. Yet, USDT’s market share swelled by 25.8%, setting it apart from the three major stablecoins.

• Regulatory focus in DeFi honed in on risks like fraud and manipulation, calling for clearer rules to bolster trust.

• Securities regulations extended to certain crypto assets, impacting issuers and investment platforms.

• Regulators are shaping rules for financial firms to handle and trade crypto assets securely. 

• The European Union enacted the Markets in Crypto-Assets (MiCA) regulation. MiCA is an extensive legislative measure aimed at establishing a unified regulatory structure for cryptocurrencies throughout the EU. 

Crypto’s legal and financial ups and downs

2023 marked significant legal and finance-related events in crypto:

• October 2023 handed Grayscale Investments a legal win against the SEC, a step closer to turning their Grayscale Bitcoin Trust into a spot ETF. 

• Binance shelled out a massive $4.3 billion for money transmission violations and breaching U.S. sanctions. Binance’s CZ pleaded guilty to breaking the Bank Secrecy Act, paying a jaw-dropping $50 million fine. 

• Silicon Valley Bank (SVB) crashed, making it the biggest bank collapse since 2008. Silicon Valley and the crypto scene felt the tremors, given that SVB’s clientele mostly danced in these sectors.

• Cryptocurrency deal activities declined, and venture capital funding was reduced overall. The infrastructure sector attracted the most investment, followed by gaming/entertainment and DeFi.

Embracing the Crypto Rollercoaster: 2024 Forecasts

So, 2023 was quite the ride, filled with lessons and milestones. As we peer into 2024, the crypto universe gears up for more changes. In the blockchain space, trends define how we trade, stake, and trust overall. So, let’s strap in and decode the anticipated trends of 2024.

Evolution of Layer 2 solutions

Layer 2 (L2) and rollups are two closely linked concepts that handle the issue of scalability limitations in layer-1 (L1) blockchains like Ethereum. Over the past year, this sector has witnessed a series of remarkable milestones and reached unprecedented heights in 2023. 

Rollups aggregate transaction data off the main chain (Layer-1) for processing and securing assets in an on-chain smart contract. After off-chain execution, data returns to the main chain.  

There are two types of rollups:

• Optimistic Rollups that batch transactions off-chain, compress data, and then record on the main chain, boasting a potential 100x scalability boost.

• Zero-Knowledge (zk) Rollups that group transactions off-chain, summarize changes on-chain and prove validity with smaller, faster zk proofs.

Looking ahead to 2024, the forecast is for the appearance of Hybrid Rollup Solutions. They aim for an ideal balance between security and decentralization by uniting strengths, thus elevating system security while preserving decentralization levels. Moreover, this hybrid approach promises to deliver an unparalleled experience for both users and builders.

Currently, Ethereum’s L2 rollups rely on centralized sequencers, unlike Ethereum’s decentralized validator set. Shared, decentralized sequencers could become a solution. These innovative systems offer decentralization-as-a-service, addressing centralization concerns and unlocking new possibilities. 

Beyond addressing concerns related to censorship, MEV extraction, and liveness, shared sequencers introduce the concept of cross-rollup composability, unlocking a myriad of new possibilities.

Projects like Espresso, Astria, and Radius pioneer unique features within shared sequencing frameworks: 

• Espresso aims to leverage EigenLayer to bootstrap its network.

• Astria maintains close ties with the modular data availability network Celestia.

• Radius brings its distinctive encrypted mempool into the conversation, further diversifying the landscape of shared sequencing solutions.

Maturing Market, Maturing Rules

Amid cryptocurrency controversies and financial instability in recent years, the U.S. SEC has escalated their drive to establish robust crypto regulations as we advance into 2024.

Predicting specific rules is tricky, but based on ongoing discussions, the anticipated crypto regulations for 2024 may focus on:

• Clarification of tax treatment for different crypto activities. 

• Further classification of crypto assets as securities or commodities.

• General increased cooperation between international regulatory bodies to establish consistent crypto regulations.

This clampdown might feel like a dampener now, but still, it signals a maturing market, potentially opening doors for institutional players seeking entry into crypto.

Liquid Staking Tokens: DeFi’s Evolutionary Wave

LSTs have become the star players lately, boasting a staggering $26 billion in current deposits.

The following year in DeFi will be all about LSTfi: a financial ecosystem built on top of popular liquid staking tokens like stETH and BETH. It’ll unlock new ways to leverage your staked ETH, pushing the staking market to new heights and becoming the driving force in DeFi. 

The LSTfi surge commenced post-Ethereum’s Shanghai upgrade, heralding tokens like Lido’s stETH and Binance’s BETH. They illustrate the rebase token model, automatically adjusting balances in response to deposits and rewards. This user-friendly design aligns the LST balance with staking activities, creating a seamless experience for token holders. 

Meanwhile, Ethereum is on a quest for greater decentralization for the beacon chain. Projects fueling this sweat, such as the ssv.network and Obol Network backed by DVT, will play pivotal roles here. 

On a different stage, the evolution of restaking mechanics, with EigenLayer leading the charge, rises. 

Restaking is a new twist on traditional staking, which lets you “lend” your ETH out to secure other DeFi protocols instead of locking them. This allows you to earn more rewards while still contributing to the Ethereum ecosystem.

Tokenizing Real-World Assets (RWA)

Imagine owning real estate, a fine art masterpiece, or even a government bond – all without leaving your digital wallet. That’s RWA tokenization, and it will keep gaining momentum. 

Initially reserved for non-liquid assets, it’s now stretching into sovereign bonds and money market funds. Big players, once skeptical, now sing praises of tokenization’s benefits: 24/7 operations, automated intermediary functions, and crystal-clear audit trails. In fact, Bank of America recently declared it a key driver of digital asset adoption.

The impact is undeniable. The tokenized gold market alone boasts over $1 billion in investments, while demand for tokenized U.S. Treasury bonds is soaring. Add to that the $500 million market cap of tokenized money market funds, and it’s clear that RWA is no longer a niche concept.

Galaxy Research confirms this, revealing a record-breaking $3.1 billion in tokenized real-world assets across sectors like gold, equities, and even carbon offsets. And the future looks even brighter, with Citigroup and Boston Consulting Group predicting a range of $5 trillion to $16 trillion by 2030.

Real World Assets: A Diverse Ecosystem

The RWA landscape is already blossoming into various categories, each capitalizing on the potential of tokenization. Here’s a glimpse:

• Centralized Stablecoins: USDT and USDC are backed by real-world assets like fiat currencies or government and commercial securities, making them a prime example of RWA in action.

• DeFi Lending: MakerDAO entered the sector by establishing a $100 million credit line with Huntingdon Valley Bank, collateralized by off-balance sheet loans.

• Bond Tokenization: Projects like Ondo Finance and Mountain Protocol issue stablecoins backed by treasury bonds, such as Ondo Finance’s USDY tied to short-term US treasury bonds.

• Security Tokenization: Bitfinex Securities introduced tokenized bonds in October 2023, marking a significant move into the RWA market.

• Tokenized Precious Metals: Paxos has backed their USDP with physical precious metals.

The untapped liquidity of the global RWA market is truly astonishing, exceeding trillions of dollars. And RWA protocols are tapping into it, with locked funds growing significantly since 2021, reaching $4.5 billion with $571 million in issued credits.

Blockchain AI: Power Duo for Innovation

Blockchain AI is like a dynamic duo, merging blockchain’s transparent nature with AI brainpower. On the one hand, blockchain keeps your information safe and traceable, and on the other, AI can crunch massive amounts of data and make smart decisions. Combined, it’s a powerhouse for unlocking new possibilities.

The hunger for security and transparency is pushing this market forward. Blockchain’s knack for locking in data integrity is a game-changer for AI algorithms reliant on accurate information. 

AI and blockchain are already transforming healthcare, finance, and supply chain management industries, spurring remarkable growth. And more is definitely yet to come the following year. This partnership is a magnet for businesses wanting to supercharge their operations.

Simplifying with Account Abstraction

Imagine if interacting with Web3 feels as familiar as ordering sushi online. No more mysterious wallets, confusing contracts, or blockchain jargon. That’s what abstraction is for – to act as a friendly translator, building comprehension between users and the complex world of decentralized applications (dApps).

And for developers, it’s a golden opportunity to build a user experience that feels smooth. Developers can tailor these contracts to suit users’ needs by infusing logic into wallets. Visa’s bold steps into the crypto world demonstrate how abstraction can blend the best of Web2 and Web3, making interactions seamless. 

As seen in the on-chain stats, the rising interest in these technologies signals a growing preference for these user-friendly features. While initially tied to scaling solutions like StarkNet and zkSync, ongoing efforts are laser-focused on spreading this simplicity across the board.

Expanding abstraction’s reach not only beefs up NFT capabilities but also showcases how blockchain isn’t just theoretical – it’s making a real impact in everyday life.

Community Governance: The Crowd Power

Tech revolution is a thing, but Web3 was always about the community in the first place. It’s about shifting power back to the people, and that means empowering communities to shape their own projects. 

With Web3 drawing in more users, decentralized governance is gaining steam. These solutions aim to bring crypto holders into the fold, letting them participate in blockchain development by voting on proposals. We will likely see new layers or in-house setups focusing on decentralized governance in 2024.

Our team is also diving into these initiatives, working to develop solutions in the governance area, making blockchain more accessible and inclusive for everyone involved. Learn more about Everstake’s governance approach.

Bitcoin’s Evolution: The Rise of Staking

The king crypto has been a bit of a wallflower when it comes to earning passive income. That’s because its proof-of-work (PoW) mining system doesn’t allow for staking, unlike assets built on proof-of-stake (PoS). But 2024 might change the game.

Groundbreaking projects like Babylon are splitting boundaries by blending Bitcoin’s scripting language, merging it with advanced cryptographic techniques without any soft or hard forks within the Bitcoin blockchain.

And it doesn’t stop there. Babylon comes with perks like yield generation, slashability, and the flexibility of on-demand unstaking. Operating under the safeguard of the Bitcoin network, Babylon’s PoS chain acts as the central hub, giving other PoS chains access to the innovative Bitcoin Staking Protocol.

Babylon is still in testing, but the excitement is real. The mainnet launch in 2024 could open doors for Bitcoin’s security to boost the whole crypto world. 

Layer 3 Blockchains: Turbocharging DApps

Layer 3 (L3) blockchains are another solution to revolutionize how we interact with DApps. They’re tailor-made for one specific decentralized app (DApp), bypassing the congestion and bottlenecks of traditional blockchains like Ethereum. 

Here’s what makes Layer 3s so compelling:

• Faster Transactions: L3s dramatically increase transaction speed by optimizing their infrastructure for single DApps. Imagine near-instantaneous DeFi swaps or lightning-fast gaming experiences. It will become real.

• Lower Fees: L3s can significantly reduce costs, making DApps more accessible and opening the door to broader adoption.

• Tailored Solutions: Again, each L3 chain is custom-built for a specific DApp, allowing developers to design features that perfectly suit their needs. In 2024, we may witness the rise of innovative DApps we haven’t even dreamed of yet.

Digital ID: The Key to Smooth Compliance

With regulatory heat rising, there’s a good chance that DeFi platforms and other services might start asking users to verify their identity, just like traditional crypto exchanges do. 

This is challenging for the user experience – imagine the hassle of repeating KYC checks on every DeFi platform you use. That’s where universal digital identity tokens shall come in. Think of them like passports for the DeFi world. One token, verified and accepted by all platforms, would eliminate the need for separate KYC checks. 

There are already services doing this, but they’re not widely used across the board yet. That might change soon, though. With everyone aiming for the same goal, we might see some serious competition among these projects already next year.

Cross-Chain Connectivity: Breaking Down the Blockchain Walls

Imagine if your Bitcoin could seamlessly interact with your Ethereum, and you could effortlessly transfer data and assets between any blockchain platform. That’s the promise of cross-blockchain connectivity, and it brings a range of exciting possibilities:

• Smooth Transfers: No more hassle moving your crypto around. Sending Bitcoin to your Ethereum wallet or vice versa will be as easy as emailing.

• Borderless DeFi: Imagine borrowing money on one blockchain and using it on another. Or participating in a DeFi protocol that spans multiple networks. This has the potential to become a reality.

• Supercharged DApps: Developers can use the strengths of different blockchains to build dApps that are faster, more secure, and offer a broader range of features. 

• Widespread Adoption: By making blockchain more accessible and user-friendly, cross-chain connectivity can make it mainstream, unlocking the full potential of blockchain technology in various common sectors.

Given all the pros, cross-blockchain connectivity is expected to explode the space in 2024.

BaaS: The Tech Utopia

BaaS stands for Blockchain-as-a-Service, and it is like a toolbox from cloud providers, allowing businesses and developers to create, manage, and run blockchain apps without building their networks.

These platforms offer ready-made blockchain setups and tools, so there’s no need to dive deep into the blockchain intricacies like setting up nodes or managing networks. Plus, they support various blockchain protocols, letting businesses pick the one that fits their needs. 

Simply put, BaaS saves you time and money building blockchain apps. And what is more precious in our lightning-fast world? 

So, whether you’re a developer with a brilliant app idea or a business looking to innovate, keep your eyes on BaaS in 2024.

Should we expect the bull run?

Well, yes. We do! Here’s the lowdown on what’s revving the anticipation:

• Halving Event: In April/May 2024, brace yourself for the Bitcoin halving event, which historically has caused prices to skyrocket due to reduced supply. BTC halvings happen every four years and typically kick off a bull market, followed by a significant market surge about a year later, based on past data.

• ETF Approval: Early 2024 might see ETFs open the door for traditional investors, flooding the market with cash and propelling prices upwards.

• Interest Rate Cuts: When rates dip, investors seek excitement, steering more capital toward alternative assets like crypto. And interest rates might take a dip in 2024, according to the forecasts.

• Election Buzz: 2024 is an election year in the U.S., and that often means bullish trends in financial markets. Historically, these years have pumped up market optimism, which could spill over into the crypto space. 

All these factors merge to paint a picture-perfect landscape, so buckle up, crypto crew! With regulatory green lights, significant blockchain milestones, and market shifts, 2024 could be the year where crypto truly takes flight.

Final Thoughts

The following year looks more than promising. Imagine a blockchain world where:

• Transactions happen in the blink of an eye, leaving slow networks in the dust.

• Different blockchains seamlessly share information and assets.

• AI and blockchain become power partners, combining brainpower with security to revolutionize everything from healthcare to finance. 

• Real-world assets like real estate and even government bonds get digitized, opening doors to a brand new financial playground. 

• Putting your crypto to bring profits is easier than stuffing cash under your pillow. 

• Power shifts from faceless corporations to empowered communities. 

• Security and privacy become your digital birthright, not a privilege. 

Imagined? So, get ready to explore this exciting new frontier. The journey toward a decentralized, secure, and interconnected future is just beginning, and 2024 will bring us closer to a world where everyone can benefit from the power of blockchain.

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