By Discus Fish, Co-founder and CEO of Cobo
Discus Fish, Co-founder and CEO of Cobo, recently shared his review of significant industry events in the first half of 2023 and their impact on the market, as well as an analysis of noteworthy events to look out for in the next 6 months. Here’s an overview of his insights, shared exclusively with Cobo users and partners.
In retrospect, while the first half witnessed numerous events, it is now apparent that only a handful truly stood out as major events.
March 2023 - The collapse of key US banks impacted a vital channel for crypto-fiat exchange, evaporating over 70% of trading volume.
April 2023 - Ethereum completed its Shanghai upgrade, introducing a newly formed asset class known as liquid staking derivatives (LSDs) and spurring institutions to develop and participate in staking strategies. In the past, traditional funds could only participate in crypto mining by purchasing mining machines. Now, institutions are launching funds that invest directly in Ethereum and enhancing their returns through staking. This will become an important native source of liquidity for the crypto industry.
April also saw heightened interest and activity due to Hong Kong's new crypto policies. While it remains uncertain if the city can fully replace the US as a crypto-fiat gateway, it has undeniably positioned itself as a contender.
June 2023 - Tighter US regulations alongside SEC filing lawsuits against Binance & Coinbase led to a series of market volatility and downturn. However, market sentiment quickly reversed after traditional financial giants began seeking approval for crypto ETFs.
Historically, ETFs have been a driver of crypto narrative and price actions. In 2013, Bitcoin surged eight-folds amid hype around a US ETF hearing. More recently, Grayscale played a key role in the 2021-2022 bull run, channelling substantial capital inflows into crypto from traditional investors, which were subject to a six-month lockup. The pending ETF approvals could replicate this on an even larger scale once approved, given their potential to usher in a wave of traditional fund allocation into major crypto assets like Bitcoin and Ethereum.
Looking ahead, regulatory shifts and growing institutional adoption are poised to reshape the cryptocurrency landscape, with staking and ETFs emerging as potential disruptive catalysts.
At the industry level, there were several notable developments.
Q1 2023 - Speculation around new Move-based chains like Sui and Aptos fizzled out quickly after launch. NFTs saw temporary euphoria with the Blur airdrop, driving liquidity and price surge in blue chips such as BAYC and Azuki. However, with these projects failing to deliver utility beyond profile pictures (PFPs), there has been a need to re-evaluate their perceived value and purpose. Moving forward, NFTs need real-world use cases beyond just being collectibles, such as integrating membership benefits with fan bases. Such use cases hold the potential to bring in an influx of new users, and personally, I am very optimistic about this.
Q2 2023 - Meme coins took off as speculative fever grew in the absence of other narratives. Additionally, the ability to mint NFTs (Ordinals) and BRC20 tokens on the Bitcoin blockchain further fueled this frenzy.
Key takeaway - The above highlights two main issues: crypto currently lacks a clear narrative and is heavily influenced by macro forces and regulations. For the industry to thrive sustainably, compelling narratives and real-world utility need to develop.
Three Key Areas to Watch in the Next 6 Months
Currently, the entire cryptocurrency industry lacks narrative and direction. Concrete narratives, applications, and use cases may only take clearer shape by Q2 2024 as the market iteratively tests and validates them. For now, there are three major developments worth watching carefully.
- Ethereum network is set to undergo an upgrade in H2 2023 which will significantly improve its performance, possibly 10x higher TPS. Furthermore, Layer 2 solutions are expected to go live on the mainnet within the next 6 to 12 months, with Scroll, ZKS, and other Layer 2 networks, competing for first mover advantage. These developments have the potential to alleviate the performance issues that have plagued the entire blockchain industry for the past decade. This could pave the way for widespread adoption, with low-cost, high-throughput transactions for mainstream usage.
- We are seeing an emergence of non-custodial wallets based on MPC (Multi-Party Computation) and AA (Account Abstraction) smart contract wallets. As Layer 2 solutions go live, they could coalesce around a unified standard, enabling mass adoption. Layer 2s also inherently support the use of AA wallets. They may become the default configuration for users, significantly lowering entry barriers. Once we see substantial improvements in blockchain performance and lower user barriers, we may start to witness a wave of application experiments and explosive growth, accompanied by a significant influx of new users. This is what we hope to see. I expect this turning point to occur sometime after Q2 2024.
- Since June 2023, many traditional financial institutions have applied for crypto spot ETFs, and the chances of approval seem to be very high this time around. The critical deadline is the end of Q1 2024, when the SEC is expected to provide a response on whether to greenlight the ETFs. We anticipate 1-2 high liquidity ETFs to be launched by leading traditional institutions by the end of Q1 2024. This is set to establish compliant crypto-fiat funding channels in the US.
Cobo is a globally trusted leader in digital asset custody solutions. As the world’s first omni-custody platform, Cobo offers the complete spectrum of solutions from custodial wallets to non-custodial wallets including MPC and smart contract wallets, as well as Wallet-as-a-Service, a DeFi management platform (Argus), and an off-exchange settlement network (SuperLoop). Trusted by over 500 institutions with billions in assets under custody, Cobo inspires confidence in digital asset ownership by enabling safe and efficient management of digital assets and interactions with Web 3.0. Cobo is SOC2 Type 1 and Type 2-compliance-certified and licensed in 5 jurisdictions.
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