Original text: The Block, compiled by DeFi Tao.
Image source: Generated by Maze AI
37 The Block Research research analysts recently released their 2023 crypto industry forecasts. They each expressed their outlook for the crypto industry in the new year, and their views were both similar and different.
Here’s a summary of their identical predictions:
- The overall macro environment will continue to exert downward pressure on high-risk assets such as cryptocurrencies. However, a sideways move over the next year is more likely than a severe decline.
- Many projects that fail to achieve product-market fit will slowly be abandoned due to lack of funding and demand.
- M&A activity will increase as financially weak companies will seek to be acquired.
- Venture capital investment will slow sharply in 2023, especially in the first half of the year.
- Cryptocurrency prices will remain correlated with central bank monetary policy.
- The market capitalization gap between Bitcoin and Ethereum will continue to narrow, but there will be no “flip” in 2023.
- The main narrative in 2023 will shift towards Ethereum Layer 2 (L2) scaling solutions. L2's TVL will increase (at least in terms of ETH value), with zk-rollups outperforming optimistic rollups in terms of relative growth. Major L2s such as StarkNet, zkSync and Arbitrum will launch their tokens.
- Modular blockchains like Celestia will receive increasing attention and may outperform the alternative monolithic blockchains of the previous cycle.
- The decline of centralized crypto entities last year will lead to increased regulation of centralized entities, with Binance in the spotlight. Coinbase will benefit from the FUD surrounding Binance.
- DEX will exhibit the strongest fundamental growth indicators compared to other DeFi use cases.
- The decentralized social ecosystem on Web3 will experience rapid growth as investment and activity increase.
- Driven by the accelerated adoption of NFT by traditional brands, more users will join NFT. Additionally, NFTs will continue to serve as a vehicle for the integration of cryptocurrencies with art and culture.
- Opensea's market share will further decline and the market will lose its monopoly position.
Here are detailed forecasts from various analysts:
Larry Cermak
Universal zk-rollups will eventually launch in 2023 and actually become as usable as Ethereum. Arbitrum, Starknet, zkSync, and Scroll are all set to release native tokens in 2023, and the growth in value of L2 tokens relative to ETH itself will be discussed repeatedly as rollups manage to siphon most of the smart contract activity away from the base layer. There will be fierce competition between Polygon zkEVM, Starknet, zkSync and Scroll. While there is an initial lack of demand for these expansion agreements, they will play a huge role as the next wave of retail arrives in the future. Polygon gained a huge lead as it successfully converted its PoS chain into a fully functional zkEVM chain.
While there is still a lot of VC capital sitting on the sidelines waiting to be allocated, due diligence will actually be taken seriously for the first time in years, with a focus on product-market fit. The seed round valuation will return to nearly $10 million. Many projects, especially those built on competing L1s, simply run out of money and shut down operations. We will see many projects switch from L1 to a different L2 to improve their chances of getting active, or simply to have better prospects of extending their runway. Developers and operators will no longer automatically receive compensation above $300,000, and we continue to see a brain drain of cryptocurrency “guests.”
Many projects will fundamentally rebuild token economics. When there isn’t a lot of new demand coming in, it will no longer make sense to pay a lot of tokens as an incentive. Axie, Stepn, and other projects will no longer be able to rely on Ponzi economics to provide value.
The market capitalization of Ethereum will not surpass that of Bitcoin, and no other currency will surpass Ethereum. However, Ethereum will outperform Bitcoin in 2023. Crypto prices will continue to behave like tech stocks and are fully correlated with the monetary policy of central banks, primarily the Federal Reserve. Cryptocurrencies will surge most violently when we start to see signs of lower interest rates in the near term. But that probably won't happen in 2023. Until then, the prices of major coins will remain roughly unchanged with little volatility. The gambling sentiment caused by some tokens or NFTs that increase in multiples will scratch a lot of people.
OpenSea will continue to lose its monopoly and its royalty-abusing ways will fail. Due to its strong position in spot and futures trading, Binance will become the focus of global regulation, just like Libra once was. Coinbase and other U.S.-regulated exchanges could benefit. Genesis will file for Chapter 11 bankruptcy, while Gemini will face pressure over its Earn product plans. GBTC and ETHE products will not be dissolved.
SBF will not spend a day in jail until 2023 and will continue to plead not guilty. U.S. regulators will use the FTX collapse to change the governance of the crypto industry, similar to the impact of the Lehman and Enron incidents on global policy. Lawmakers will draft new legislation similar to the Sarbanes-Oxley Act to avoid FTX-like situations in the future.
Steven Zheng
The overall macro environment will continue to exert downward pressure on high-risk assets such as cryptocurrencies. However, if I can profit handsomely from thinking about cryptocurrencies as an uncorrelated asset class, I believe the market will see a bottom forming in a second NFT wave that will be bigger than the one that peaked in 2022. The waves were several times higher. We will surpass the most recent NFT all-time high of $5 billion in transaction volume in 2023. Trading volume will be driven primarily by gaming projects, with many Tier 1 crypto games finally opening their games to the public after raising funds and selling NFTs throughout the 2021-2022 bull run. Crypto gaming tokens will enter the top 20 by market capitalization. The second wave of NFT PFP projects will be driven by the tertiary/low-end projects from the previous cycle, which focus on the appeal of entry-level luxury goods rather than high-profile luxury goods (see Seiko vs. Rolex). A likely beneficiary of the wave of mass appeal is Polygon, which spent the last bull market laying the groundwork for a potential influx of new retail users and recruiting talented engineers for zk scaling technology. By the end of 2023, Polygon will become the third largest application layer in terms of economic activity and market capitalization (after BNB Chain and Ethereum). I think people underestimate the demand and ecosystem development of the dYdX chain, and dydx may launch on Cosmos as well.
In terms of negative events, I think L2 rollup will experience the exploitation of centralized sequencers. Funds may not be lost, but users will get a shocking reminder of the scale of their funds at risk in a solution that remains centralized. Another algorithmic stablecoin will fail.
John Dantoni
The macro environment will not be conducive to high-risk assets such as digital assets. We may not have reached the final bottom in cryptocurrency prices yet. However, a sideways move next year is more likely than a severe decline. 2023 will be a pivotal year for developers and builds, as hype, narrative, and price will no longer be in the spotlight. L2 will continue to gain traction, with some launching native tokens, including Arbitrum and StarkNet.
A new narrative for the next cycle, including Web3 social networking, will begin to take shape. Investment and activity in this sub-sector will be watched, with Lens Protocol and Farcaster seeing the fastest early growth.
Venture capital investment in the blockchain space will slow significantly in 2023, especially in the first half of this year. In the first half of the year, we will see a month with investment below $1 billion, which will be the first time since February 2021 for the industry. By the end of this year, approximately $13.5 billion will be invested in blockchain companies, equivalent to a 58% year-on-year drop in private financing.
Projects in the crypto-financial services, infrastructure, and trading/brokerage categories are least affected by fluctuations in market conditions. Therefore, these categories will continue to attract interest and investment as investors look for the next foundational companies and projects.
Conversely, categories that are considered further down the risk curve and are more likely to be pre-product and/or at the seed stage level, such as decentralized finance (DeFi), NFT/gaming, and Web3, may see the amount they raise Funding and terms continue to reprice to a valuation range of $10 million to $15 million and are more favorable to investors.
In the mid- to late-stage period, companies will need help raising capital on favorable terms. As a result, we may see an influx of companies that may need to take down rounds and raise capital at lower valuations than before.
Another option for financially weak companies is to find a buyer in the mergers and acquisitions market. Similar to what happened after the 2017 cycle, we will see increased M&A activity and further consolidation among cryptocurrency companies.
The impact of Alameda Research, FTX, FTX US, Voyager Digital, Celsius, BlockFi and other potential lenders will make 2023 a critical year for companies providing institutional infrastructure for digital assets.
New lenders and market makers will compete for market share. We will also see a reversal of the trend that was evident in 2021, when every cryptocurrency finance company looked to build a full prime brokerage business. Instead, 2022 demonstrates the need to segregate certain services, and the risks and consequences that can occur when provided by a single counterparty.
Lars Hoffmann
On the macro front, China's sudden epidemic relaxation, combined with economic stimulus measures and the slowdown in the pace of interest rate hikes by the Federal Reserve, pushed global macro risk appetite higher in the summer, and cryptocurrencies benefited greatly from this. Autumn and winter are more difficult, and attention returns to Europe's unresolved energy crisis. However, the upcoming BTC halving in March 2024 keeps industry optimism at an overall high level.
For much of the first half, the impact of FTX and Alameda continued to reverberate throughout the industry. Many smaller projects that keep (part of) their funds on FTX will fade out and quietly close. The Bahamas primarily serves as a jurisdiction for crypto companies. In the second half of the year, focus will return to the coming wave of regulation as Western lawmakers seize the opportunity of FTX's bankruptcy and push for stricter reporting and de-anonymization requirements without actually addressing many of the issues that led to FTX's bankruptcy - centralization. . In Western jurisdictions, DeFi will be severely negatively impacted.
Privacy is still a topic that many industry players strongly advocate for, but over time it was eventually abandoned by most. Alternative privacy solutions from crypto natives continue to develop and thrive in their respective niches.
After mostly cautious and tough regulation in 2017/2018, Asia continues to open up more to cryptocurrencies. In terms of proper regulation, South Korea and Japan are starting to take cryptocurrencies seriously. The migration of industry locals to crypto-friendly jurisdictions continues and these developments are noted.
Eden Au
Arbitrum and StarkNet will launch their native tokens, and by the end of 2023 they will both be in the top 10 of TVL. As more traditional brands join, Polygon will increase its NFT market share. Organic usage of the Cosmos ecosystem will increase due to the development of multiple sidechains (e.g. dYdX, Berachain), native stablecoin support (e.g. USDC, IST), and the launch of Celestia. At least one notable rollup will implement an upgrade to decentralize its sorting process.
Withdrawal capabilities for collateralized ETH will be enabled in the first half of 2023, subsequently Coinbase's cbETH will double its market share in Ethereum liquidity staking and the asset will be widely accepted as collateral by major DeFi protocols. Structured products will gain momentum as crypto natives increasingly like the idea of “real yield,” which can help guide liquidity in on-chain derivatives. However, as regulatory pressure increases, privacy-focused applications will fail to gain meaningful traction.
As the EU finalizes MiCA legislation, adoption of euro-based stablecoins will grow steadily. USDC will surpass USDT to become the largest stablecoin by market capitalization, but Tether will still be important and will not collapse in 2023. While it is still early for non-stablecoin tokenized real-world asset (RWA) protocols to bloom, more RWA protocols will try to lay the groundwork.
The market capitalization gap between Bitcoin and Ethereum will continue to narrow, but there will be no “inversion” in 2023, and spot Bitcoin ETFs will not be approved. The year-over-year returns of the token will be positive. A new set of crypto-friendly first-world jurisdictions will slowly emerge, including the UK and Hong Kong, as they seek to enact more sensible regulations to attract talent.
Andrew Cahill
BTC will remain the largest asset by market capitalization by the end of the year, but ETH will outperform price-wise. SOL will outperform other alternative L1s, but will not be able to return to all-time highs. L2 scaling solutions will continue to see increasing developer and user adoption, but their native tokens will underperform relative to BTC and ETH.
Interoperability protocol/bridge hacks will decrease as development teams learn from 2022 vulnerabilities. Adoption of interoperability protocols will remain low due to reduced activity on L1 networks.
Although DeFi has performed smoothly throughout the market chaos in 2022, growth will remain subdued throughout 2023. DEX will post the strongest underlying growth metrics compared to other DeFi use cases. NFT and gaming will remain the largest industries in terms of venture capital investment received during the year. Stablecoins are set for another strong year, with more than $250 billion in circulation. As transparency becomes an increasingly important consideration, USDC will increase its market share.
Greg Lim
As the period of easy money comes to an end, the ability to raise equity and debt financing through cryptocurrencies and the broader market makes the outlook for 2023 quite grim. Companies will need to be more careful about spending, and we may see continued layoffs. It is worth noting the strengthening of supervision after the FTX fraud. As interest rates continue to rise to combat inflation, investors may seek to lend to the U.S. government and continue to implement risk-off strategies. As established Wall Street incumbents continue to build out their digital asset teams and strategies, the broad spreads seen in past cycles are likely to decline. The U.S. housing market could see a massive correction in mid-2023, leading to further liquidation as investors turn away from cryptocurrencies as traditional physical asset prices fall.
George Calle
Companies with exposure to the cryptocurrency industry will face continued pressure through 2023. More and more miners will declare bankruptcy or reorganize as the debt payments they face become more expensive than the machines and/or BTC Treasuries used to secure the loans. Given natural synergies (mining oversupply) and balance sheets unrelated to the recent cryptocurrency market downturn, large energy suppliers will be the acquirers of these equipment.
Volatility will also be lower in 2023 than in 2021-2022, resulting in fewer opportunities for traders to make easy profits. This new market paradigm will reward those who carefully track forced sellers or identify parts of the ecosystem that remain over-leveraged, creating more in the crypto options market as traders seek to position themselves around events or generally hedge their exposure. A potential silver lining for demand. A significant portion of the 2021-2022 vintage funds will close due to poor performance, leading to a cascade of liquidations in the first and second half of 2023, albeit less than in 2022. Seemingly “safe” strategies and positions will be tested. For example, due to the amount of capital involved in liquidity staking, the discount to ETH on some liquidity staking derivatives may drop below 90%, possibly due to on-chain deleveraging (see Lido's own thread on circular staking) as well as funding Usually only liquidity is needed. Unlike (possibly permanent) closed products like GBTC, LSD is expected to arbitrage back to 1:1 as the Ethereum Shanghai upgrade approaches sometime in 2023.
We should also be prepared to see more innovation and dramatic changes in the stablecoin market, but industry development will come from increasingly fragmented areas. Specifically, DeFi developers will create censorship-resistant products that are creatively integrated into protocols, while policy-minded players will more eagerly explore regulatory-compliant payment instruments. Language surrounding stablecoins backed by Fed reserves or stablecoins with deposit insurance will be discussed in Congress but won’t even be included in any legislation that lands. CBDC researchers will largely abandon the “direct CBDC” model piloted from 2017 to 2022 and propose a more integrated solution that would enable commercial banks to distribute to retail customers. These stablecoins will likely have much of the same governance as CBDCs, or at least be subject to similar oversight. Regulators will also be interested in stablecoins more generally as they resemble a new digital version of the euro-dollar market, amid growing concerns about competing currency systems (China) and fragmentation of the global economy. The issue of Tether’s reserve backing will become a major talking point on Capitol Hill and may even lead to a small short-term decoupling like in 2018, but Tether will not collapse. However, the top 10 stablecoins by market capitalization (both existing and new) will collapse in 2023.
While there are opportunities for a more regulated crypto-dollar market, regulatory pressure will be largely an adverse tailwind. If not strengthened, the current “regulate through enforcement only” regime will continue to exist without providing clarity or guidance. As a result, bank custody projects will largely be put on hold (along with any other bank initiatives). However, as the market consolidates, expect at least one large traditional market maker to announce the opening of a crypto help desk.
Simon Cousaert
In 2021, competition between different L1s is fierce, and user appeal has dropped significantly since then, and most non-Ethereum smart contract chains will continue to decline in terms of user adoption and TVL.
Scalability technologies will increase adoption and user interest, similar to what we've seen with optimistic rollups, Optimism and Arbitrum. Along with newer zk rollups such as zkSync and Starknet, L2 will lead a narrative that reinforces the downward trend of non-Ethereum L1.
One exception to this dynamic may be upcoming modular blockchain technologies such as Celestia and Fuel. I would like to see experimentation with rollup technology, not only on Ethereum but also on modular blockchains.
The Ethereum community will begin to consider staking and re-staking mechanisms to improve the security of decentralized services. Eigenlayer is currently at the forefront of these ideas. If all goes well, Ethereum's Shanghai upgrade will take place in 2023, allowing users to withdraw staked ETH. The combination of liquidity (staking) dynamics will force users to think about how staking assets can benefit the ecosystem.
Abraham Eid
By 2023, the focus will shift from infrastructure-driven development to application-based development. In turn, barriers may be overcome from existing user experience challenges that played a role in peak user activity. From a wallet operations perspective, EIPs that support account abstractions such as EIP 4337 should create a significantly smoother experience for users, which could spur growth over time and help solve the challenges dapps face from a mainstream adoption perspective. One of the existing challenges.
Due to expensive block space on L1, there may be more focus on use cases that truly leverage design spaces that didn't quite exist before, and interoperability solutions between different L2s may improve, in part because oracles provide a A messaging bus with more risk mitigation capabilities than existing bridging methods. This is already being experimented with somewhat in projects such as LayerZero, but this technical approach will mature further in 2023, allowing for truly robust interoperability solutions.
Regulators are likely to consider and potentially develop new legislation around certain existing practices in the cryptocurrency space (i.e., the DeFi sub-sector). Given the precedent set by the arrest of Tornado Cash developer Alexey Pertsev in 2022, we are likely to see clearer guidance on the use of mixers and the consequences of participating in mixing services. Although the U.S. Treasury Department sanctioned Tornado Cash as a software protocol and further emphasized the consequences for all addresses that interacted with it, there may be a more comprehensive bill to write the set of regulations surrounding the mixer. The existing MEV space may also experience more investigation and scrutiny, which may lead to more dapps considering MEV-centric design features.
From a higher level, although the central bank's interest rate hikes in 2023 may focus less on quantitative tightening, the second-order effects of this tightening will continue to be apparent throughout 2023. This will result in cryptocurrency valuations likely to remain in a range below previous all-time highs, and overall speculative activity likely to remain subdued compared to time periods leading up to the second half of 2022. This could spur greater attention to long-term design decisions for the space.
Wendy Hirata
Due to various events in 2022, trust in CEX and CeFi lending services is at an all-time low. Many market participants are looking for risk management, operational transparency and market expertise that have been overlooked in bull markets. Until appropriate measures are taken and trust is rebuilt, institutional investors will be reluctant to take a more aggressive stance – they will continue to look for defensive/low-risk capital management strategies. Crypto financial services will have to release more structured products with principal protection to meet these needs and maintain their current operating levels. More institutional investors will view staking as a safer source of income, especially as more enterprise-level liquidity staking protocols are developed and released in 2023. The rapid growth of cbETH and rETH this year indicates that there is room for growth in the liquidity staking business, and it is possible to see new enterprise-level protocols (such as Liquid Collective) take some market share away from Lido.
Kevin Peng
In 2023, L1 networks will continue to adapt to the changing needs of the market. As new application chains gain more relevance and usage, cross-chain technologies such as bridges and IBC will further mature. As teams compete for mainstream attention and organic demand, crypto-based applications will become more user-friendly than ever.
As the fallout from the collapse of FTX and others in 2022 continues, many projects will be slowly abandoned as the reality of lack of funding and demand eventually catches up with projects that fail to achieve product-market fit. DeFi exchanges and lending protocols will have an interesting opportunity to capture more market share while shaking the trust of their centralized counterparties. NFTs will continue to serve as a vehicle for cryptocurrencies to merge with art and culture, as will games that find compelling and creative use cases for NFTs and fungible cryptoassets. While games based on blockchain or that make heavy use of cryptography are unlikely to be as popular as leading video games, the crypto gaming industry in general will grow and generate some modest but active gaming user bases.
At the same time, scaling solutions in the form of rollups will begin to be adopted, threatening monolithic blockchains and their ecosystems. Ethereum will remain the de facto settlement layer for DeFi and NFTs, and L1 networks, which are primarily focused on execution optimization, will need to heavily incentivize usage to remain competitive. 2022 was a year of reckoning for the crypto industry, but 2023 will be a critical year as developers refocus their attention on fundamental scaling and user experience improvements, setting the stage for greater acceptance by traditional financial institutions and the ultimate industry success in 2024. Paving the way for revitalization.
Erina Azmi
Four Crypto Predictions for 2023. First, the social ecosystem on Web3 is expected to experience rapid growth, so protect your favorite names and domains before they are used by others. Some platforms may introduce tokens to enhance user experience.
Second, as the regulatory framework surrounding cryptocurrencies becomes more mature, adoption of privacy coins is expected to increase, depending on whether they are viewed as progressive or regressive policies.
Third, on-chain games are expected to stimulate the creation of new types and revitalize the Web3 game market. While current offerings in the Web3 gaming space may lack innovation (e.g., the same old gameplay and experience), on-chain gaming has the potential to attract forward-thinking game developers and drive change in the cryptocurrency and gaming industries.
Finally, keep an eye on GHO and crvUSD as they may surpass DAI in terms of market cap. This shift could have significant implications for investors and market participants.
Saurabh Deshpande
During a downturn, the correlation between TradFi and cryptocurrencies will remain elevated as both markets have more participants, but cryptocurrencies may bottom before TradFi. Cryptocurrency prices have remained more or less stable, although stocks may slide again due to a worse-than-expected earnings cycle. A less hawkish Fed will benefit cryptocurrencies, around the first half of 2023.
ETH will not surpass BTC in 2023; no other L1 will surpass ETH. Arbitrum and Starknet will launch tokens and be among the top L2s (by TVL). L2's total TVL will exceed $20 billion. The Solana ecosystem may be resurrected.
Binance will gain legitimacy from regulatory agencies outside the United States. The DEX/CEX trading volume ratio may grow to approximately 25%. OpenSea's market share will drop to about 25%. 1-3 excellent blockchain-based games (basically games that players like) will be launched (playable).
As the account abstraction starts to take shape, Metamask will lose ground to projects like Phantom and Argent.
Rebecca Stevens
By 2023, we will see Coinbase gain market share, emerging from the strong tailwinds of the FTX collapse, but still second only to Binance. DEX trading volumes have also grown significantly, especially ahead of any significant regulatory headwinds. It's unlikely we'll see anything too meaningful actually rolled out from the US side, but looming threats could still dampen things further this year. The concentration of trading volume in a handful of CEXs also drives the DEX-centric narrative. While this is historically true, the concerns raised by FTX will allow it to gain traction as a DEX use case.
As traditional markets become more accepting of cryptocurrencies, we have seen the ratio of spot to derivatives volume decline throughout the year, but the risks of trading spot have been prohibitive. Throughout the year, both futures and options trading volume and open interest increased in terms of the underlying assets, especially on more traditional exchanges such as CME.
Some of the more well-known brands and celebrities have experimented with NFTs, attracting some retail users. However, most of these projects will not stick, and more meaningful adoption will come from projects developed by crypto-native teams. Well thought out projects will appeal to users who already use cryptocurrencies, but the user experience needs to be excellent and potentially minimize the crypto aspects (like Reddit NFTs) to see a surge in retail users.
Edvinas Rupkus
The first half of 2023 won’t be too eventful as the fallout from FTX will start to spread, forcing some funds to close or restructure. It would also bring a stricter tone to Western cryptocurrency legislation; however, no significant bills will pass.
The main narrative in 2023 will shift towards ETH L2 scaling solutions. Specifically, one attracted a large market share, while the other suffered from major technical flaws. However, the effectiveness of L2 applications has not been tested as ETH will be able to handle all its traffic with ease.
Non-BTC/ETH chains will continue to lose relevance as markets remain in “safe havens” from global political instability and inflation. Nonetheless, I expect things on both fronts to show signs of life in the second half or end of 2023, leading to a more “exciting” crypto market as customer risk appetite increases.
There will be long-awaited NFT games and other innovative SocialFi applications entering the market. However, frugal macro timing will cause these projects to experience “pump and dump” situations, and unfortunately, the appeal of an application will still be severely affected by the price behavior of its underlying token.
Afif Bandak
As more applications are released as Cosmos and Ethereum L2 chains, the appchain theory is strengthened. The ZK chain is scaling up and starting to gain some traction. Rollups make significant technical improvements in scalability and performance, but the sorter remains centralized.
Proto-danksharding and staked ETH withdrawals will not become a reality in 2023.
Macro headwinds persisted but eased in the second half of the year. The industry shakeout continues as many projects run out of money and momentum. Coinbase stock COIN outperforms most cryptocurrencies. BTC outperforms most peers in 2023; gold could see a tailwind.
The regulatory response to last year's events brought turmoil, but clarity ultimately tilted toward the bullish side as productive conversations occurred. On-chain exchanges fill the gap left by FTX. New institutional players renewed push for stablecoins/payments.
Arnold Toh
Ethereum’s market cap will surpass Bitcoin’s in 2023 due to increased Layer 2 adoption and demand for Ethereum’s anti-inflation model. This could happen even if both ETH and BTC prices fall.
The L2 ecosystem will see growth, driven primarily by potential airdrops from Arbitrum, StarkNet, and zkSync. Polygon may also see some correlation in TVL growth, depending on the success of its zkEVM efforts.
GameFi and P2E will phase out games with practical use cases for blockchain technology. Possible contenders are trading card games, especially Gods Unchained and its potential mobile version, or Parallel Alpha, which has released a lot of content surrounding its game and its lore.
SocialFi will see pump-and-dump hype cycles, and protocols will emerge that offer some decentralized alternatives to today’s existing social media frameworks. Notable deals include Lens and Farcaster, although some much-hyped deals like So-Col could also end up being strong contenders.
Jae Oh Song
Due to recent market events, regulators will increase their oversight of centralized entities. This may result in customers continuing to prefer self-custody of their assets until sufficient creditworthiness is re-established. This trend may promote the development of existing decentralized exchanges such as (dYdX and Uniswap). The government may develop regulatory plans for these decentralized entities; however, such attempts will not have an immediate impact due to the lengthy regulatory process and consensus.
Web 3.0 social networking protocols (e.g. Lens Protocol, Bluesky Social) will further develop to gain market share from existing social networking services. Initially, users will participate in these protocols based on speculation on potential token airdrops, which may not occur until Q4 2023 or later. These protocols must develop additional crypto-friendly features to appeal to the non-crypto-native crowd, as users are more than willing to switch to other platforms.
The options market is likely to see growth due to increased demand to hedge crypto risks amid uncertain market conditions. In addition to institutional demand, we may see increased retail demand in the options market as asset volatility decreases. Existing options vault protocols may develop additional options strategy vaults in response to retail demand.
Hiroki Kotabe
L2 continues to gain traction. Arbitrum will launch its token, which will rank higher than Optimism’s token and outperform the entire cryptocurrency market. L2's TVL generally increases (at least in terms of ETH value), and ZK rollups outperform optimistic rollups in terms of relative growth. Major ZK rollups such as StarkNet and zkSync will also launch/sell their tokens, which will also outperform the overall market. Polygon will benefit from all of this through association.
People will have more trust in Ethereum's scalability with L2 technology, which also improves user experience by making transactions cheaper and faster. Ethereum dapps that integrate L2 technology will see their user base and activity grow. While this could put upward price pressure on ETH (and move away from other L1s), a structural shift in activity away from Ethereum and towards various scaling solutions could put downward price pressure on ETH (and move towards scaling solutions). That said, the additional focus on scaling solutions may come with bad actors exploiting current design weaknesses (e.g., rollup sorter centralization), which will hinder their progress.
Some other predictions: Ethereum will delay the launch of sharding until 2024 and will focus on MEV issues this year. Celestia launches its token and modularity becomes a hot (and hotter) topic. Wintermute has launched a derivatives exchange that outsources the storage of client funds to trusted custodians.
Hayden Booms
BTC will bottom in the first quarter of 2023, below $12,000, as public sentiment begins to worry about the Federal Reserve’s overt tightening of economic policy, and the 4-year market cycle continues despite ongoing macroeconomic concerns. BTC lows will be retested later in the cycle, with prices retracing at least 75%.
The Ethereum Shanghai upgrade that enables users to unlock their staked ETH will be delayed until Q4 2023 and will serve as a rumored sell-through liquidity event. As staked ETH is unlocked, public sentiment will be concerned about an ETH sell-off, causing the ETH price to fall during the Shanghai upgrade. However, after the Shanghai upgrade, ETH price will begin to trend upward as there are no longer concerns of further selling pressure. This liquidity event would mark a retest of the cycle bottom for ETH.
Fidelity's launch of BTC and ETH trading for retail customers in time for Q4 2022 will boost consumer confidence and help Fidelity capture a significant proportion of U.S. BTC and ETH trading volume in 2023. Retail investors have seen Bitcoin perform for two cycles, but those who are no longer involved in the cryptocurrency market will finally feel comfortable enough to invest in cryptocurrencies on the Fidelity platform. Gen Fidelity will also enable BTC and ETH withdrawals in the second half of 2023.
The relaunch of the Arbitrum Odyssey and the airdrop of the Arbitrum token will kick off another “airdrop season” as many projects that have been waiting to airdrop their tokens through the bear market will finally go ahead with their plans that have been delayed for too long. The most famous airdrops will be Arbitrum, Celestia, LayerZero, StarkNet, zkSync and nftperp.
CoinGecko begins allowing users to purchase airdrop allocations for projects they are working with in 2022, such as Access Protocol. CoinGecko will continue to allow users to purchase small airdrop allocations in 2023 for the various projects they work with. This will cause CoinMarketCap to follow suit and provide airdrop allocations to users who collect CoinMarketCap Diamonds. Considering that all users must be aware of and participate in these reward programs, these small allocations will ultimately pay out relatively generously to candy and diamond collectors.
Carlos Guzman
Overall cryptocurrency price levels will continue to be primarily determined by macro conditions and will continue to correlate with other risk assets. A potentially weak earnings season could push stocks lower, and cryptocurrencies could follow suit amid fears of a recession. Cryptocurrency-specific market conditions will also put downward pressure on prices throughout the first half of 2023, as bearish sentiment prevails and credit contagion from the FTX/Alameda collapse spreads throughout the ecosystem. On the other hand, if inflation starts to ease back in the second half of the year, we could see a significant increase in cryptocurrency prices.
Given the more difficult funding environment and lack of product-market fit, a significant number of projects funded during the market boom in 2020 and 2021 are likely to close. However, as well-capitalized venture capital funds continue to be deployed, we will continue to see high-quality projects funded. Overall private financing levels in 2023 will be lower than in 2021 and 2022, but higher than in 2020 and previous years.
Driven by global inflation and its particularly deleterious effect on weaker currencies, we are likely to see significant demand and adoption of USD-pegged stablecoins globally, especially in developing countries. Projects that offer easy-to-use savings products that allow individuals to purchase fiat stablecoins should see widespread adoption.
The U.S. Congress is likely to be more aggressive, swift, and stringent in passing encryption-related regulations than in previous years, which could result in regulations that are far less industry-friendly than expected.
Driven by reduced issuance, fee burning, and the “super-sound money” narrative, ETH will overtake BTC in market cap dominance. However, ETH will not flip BTC in 2023 yet. ETH will begin to gain enhanced "moneyness" and monetary premium, in part by becoming the de facto reserve asset in L2. The “ETH killer” narrative will die down in 2023, and L2 competition will become the main focus of attention.
As activity continues to migrate there and away from EVM-compatible L1, Optimistic rollup will see more users and transactions. ZK rollups will be slower to gain adoption, but it will start to gain momentum in the second half of this year as zkEVM starts to be used by popular applications. Specific application rollups running as L2 or L3 will challenge L1 application chains and will attract the attention of institutional players interested in deploying their own blockchains.
2023 will mark the beginning of the Cambrian explosion of ZK-related applications in privacy, identity, and bridging. As privacy-related applications come under regulatory scrutiny, the industry will focus on developing reliable forms of cloud compliance.
We will see significant growth in the “real world assets” (RWA) space in DeFi throughout the year. With crypto-native DeFi yields still suppressed due to falling prices, declining interest in yield mining, and the closure of large market makers, RWA will be an attractive source of yield given the high interest rate environment for traditional fixed income assets .
Thomas Bialek
Driven by the accelerated adoption of NFTs by traditional brands, more users will join NFTs in 2023 than in all previous years combined. To this end, NFTs will disguise themselves as seamlessly integrated digital collectibles to overcome the technology’s image crisis.
Despite the growing adoption of NFTs, a major bull run will not materialize, even if individual sub-sectors will experience isolated resurgences. Dynamic crypto art, in particular, will flourish as artists create more and more artworks that would not be possible without the unique properties of blockchain technology.
The holy grail of generative art will be decoupled from the rest of the NFT market in terms of price performance. In the blue-chip PFP sector, many remaining survivors will disappear, and market power is increasingly monopolized.
As the gaming field accelerates and games and NFTs merge, the gaming vertical will accelerate again as new stories are fleshed out, reigniting interest.
NFT projects and markets will explore new systems for attracting and retaining users as the ephemeral nature of cookie-cutter token incentives becomes apparent. The ongoing war over creator royalties will spark a lot of experimentation with new (and old) revenue streams for NFT projects.
NFT-native brands will amplify their efforts to bridge the gap between the physical and digital realms by facilitating more brand activations in the physical world. The web3 social space will reach its critical mass and become more widely adopted.
Mohamed Ayadi
The crypto winter (and traditional markets) will continue into the first half of 2023 as the United States enters a mild recession and Europe experiences a more severe one.
Fear and uncertainty surrounding cryptocurrencies on centralized exchanges will remain high until one of the larger exchanges obtains a proper audit from a major audit firm. This will lead to DEX and perpetual l/option protocols continuing to be adopted by more people (such as GMX), and new protocols launching innovative features. However, trading futures in DeFi will always be a matter for “advanced” users.
In the second half of 2023, Ethereum L2 will compete for market share through the launch of L2 zk-rollups. This draws attention away from Ethereum, specifically ETHER, which will cause Ethereum to lose value compared to Bitcoin (ETH/BTC pair), especially as it approaches the unlocking of staked ETH.
The L2 battle will heat up with the launch of the Arbitrum token and a host of new events attracting user adoption, ultimately revealing how some L2s are far ahead of others in terms of development, especially when it comes to decentralization. This will be a key factor in determining the winner of the market share battle (at least until the centralized layer-2 focuses more on decentralization). From this point on, the industry will realize that the future must be multi-chain, with multiple L2s and even L3s, and any future L1 launches will not be adopted.
In the second half of 2023, markets will start to see some form of recovery, inflation will fall significantly (although not close to 2%), and the Fed will pause on raising interest rates and decide to keep interest rates at around 5% until 2024.
There will be more crackdowns on DeFi crime as U.S. courts are not hesitant to pursue crypto-related crimes. This ultimately benefits the industry as a whole and leads to a decrease in DeFi-related activity. However, this will come at the cost of tighter regulation and less privacy in the long term. The second half of 2023 will see the emergence of new privacy-related projects aimed at showing regulators that crypto OGs are willing to push back against strict or unfair regulation and censorship and measures that drastically reduce privacy.
By the end of the year, the U.S. Securities and Exchange Commission will file another lawsuit against another popular crypto project, such as XRP, and require projects that are not decentralized to register as securities in order to be traded on U.S. exchanges. This leads to protocols doing their best and getting creative in achieving higher levels of decentralization. However, the SEC remains unclear about which items are securities and which are commodities.
Last but not least, by the end of this year, new use cases will emerge for NFT, and more traditional brands will continue to join the NFT game. Polygon will benefit the most from this and eventually become a top 10 project by market capitalization. However, the focus will be more on NFTs as part of the overall ecosystem, rather than the ecosystem established after the launch of the NFT series.
Michael McNelly
There are many factors currently hindering widespread adoption and interest in cryptocurrencies. Due to the collapse of LUNA and the bankruptcy of FTX, the reputation of the entire cryptocurrency market has taken a huge hit. On top of this, global macroeconomic conditions have been tightening in response to excessive inflation levels. These situations cannot be resolved quickly. The time it will take to restore confidence in the cryptocurrency market is uncertain, however, those responsible for theft, fraud, and hacks need to be brought to justice and regulations put in place to prevent such incidents from happening again.
That being said, I do believe we will see continued innovation in the industry around scaling, NFTs, user experience, hosting, and other unique use cases. Ethereum rollups, specifically Polygon, Arbitrum, StarkNet and Optimism, continue to be used as new innovative products and solutions are launched. These platforms will host dApps with new user-friendly improvements and simple user experience. A recent example is the rise of the popular Arbitrum trading platform GMX. In addition to incremental improvements in DeFi, institutional adoption will continue to focus on data management. Many companies, including Home Depot, Walmart, and Coca-Cola, have been experimenting with using blockchain to accurately track their supply chains. This will only get stronger over time.
The energy industry in particular is and will become a hotbed for further experimentation and adoption. Players like General Motors are interested in the concept of virtual power plants using blockchain to track and manage the grid, especially green energy. This has led to the creation of peer-to-peer energy markets where everyone is both an energy supplier and a consumer. The concept is still in the early stages of development. However, some pilot projects have been launched successfully in smaller cities. Combining electric vehicles with solar power will usher in a new era of energy management and supply, with every home becoming a power plant with batteries connected to the grid.
Meanwhile, oil and gas companies like ExxonMobil are repurposing natural gas to generate electricity to power Bitcoin mining equipment. This further supports the claim that Bitcoin is backed by energy itself, giving it even more perceived value. As resources become more and more limited in our ever-consuming society, the energy and resources used to mine Bitcoin will be increasingly respected. Therefore, as projects like this continue, confidence in Bitcoin as a currency will increase over time.
All in all, I believe we will not see a bull run in 2023, but rather institutional experimentation and adoption of using private blockchains for internal infrastructure purposes. DeFi will steadily advance and NFTs will be implemented more creatively while curbing regulatory pressure. Regardless of any innovation, I don't think there will be any surge in activity or adoption until regulatory clarity and confidence is injected back into the market.
Marcel Bluhm
Privacy will be a big topic. Full privacy coins will struggle due to regulatory scrutiny. But solutions like zk.money that explore the middle ground between privacy, censorship resistance, and regulatory realities may find product market fit.
The United States will introduce a national legal framework for stablecoins. If carefully designed, this will lead to a significant increase in stablecoin market capitalization over time and perpetuate the dollarization of the digital asset space. Globally, some CBDCs may become available. But unless they work on public rail or encourage use, they will only see limited adoption.
Blockchain will become more “mobile”: most use cases (and many blockchain users) are in developing countries, which use mobile access to a large extent in their daily lives.
Related to the market, cryptocurrencies will continue to trade sideways/down unless central banks pivot.
Jason Michelson
Market conditions remain largely bearish in the first half of 2023 as recession unfolds in the United States and Europe. Weak earnings could push stocks further lower, with crypto markets following suit. During this period, volatility will decrease along with interest in digital assets, and crypto markets will mostly trade sideways. It will take years to restore public trust in cryptocurrencies in the wake of FTX's fraud, and many institutions will continue to distance themselves from digital assets until the public forgets and macroeconomic conditions improve and make risky assets more palatable. Nonetheless, the value proposition of distributed ledger technology offering more efficient value transfer and a trustless financial rail remains. Some will continue to experiment with institutional use cases, such as Project Guardian, an initiative created by the Monetary Authority of Singapore in partnership with the likes of JPMorgan Chase and HSBC to further advance asset tokenization and institutional-grade DeFi protocols. New use cases in this space will continue to emerge.
ETH will not replace BTC in 2023, but it will make significant progress in terms of market capitalization. Most existing EVM-incompatible L1 will underperform compared to ETH and start to slowly fade away in terms of mindshare. Polygon may be an exception with the launch of Polygon's zkEVM and its continued product market fit in retail and asset tokenization use cases. Cross-subnet communication through Avalanche Warp Messaging will make bridging between subnets more efficient and may drive more projects and developers to try Avalanche. GMX will continue to grow, but as long as it continues to offer minimal spreads and price impact on trades, it will eventually be exploited again. The general decline in crypto natives’ trust in centralized trading venues will continue to drive the flow and trading volume of decentralized options/perpetual futures protocols.
Funding will be significantly reduced compared to 2020 and 2021, but VC funds with deployment mandates will continue to do so. In the next bull market cycle, a new wave of projects and tokens will emerge to surpass existing ones. Modular blockchains like Celestia will receive increasing attention and may outperform the alternative monolithic blockchains of the previous cycle. Arbitrum may release its token in the first or second half of 2023, which could lead to a mini- Altcoin season for tokens within its ecosystem. The total value locked in Ethereum L2 will gain a significant advantage over the TVL of non-Ethereum L1, and may even exceed it. ZK-rollup technology will make significant progress, but most will not launch in 2023 or see significant traction.
Atharv Deshpande
With the cryptocurrency market capitalization hovering between $0.65 trillion and $1 trillion, the bearish market structure will create more uncertainty for users over the next three quarters. More companies will become insolvent and more bad actors will be purged. The collapse of cryptocurrency exchange FTX and the FUD surrounding Binance have sparked more demands for better regulation, but we're unlikely to see any breakthroughs. However, the decline of centralized entities and the drawbacks of centralization of power in 2022 will increase DEX adoption more than ever.
ETH market cap will be closer to BTC, but it won't flip immediately. With the launch of Starknet and Arbitrum, the adoption rate of L2 will increase, and more and more NFT game projects will be bridged to L2. Polygon will continue to build partnerships with non-crypto traditional brands and strengthen its position in the NFT space. The user onboarding resulting from these partnerships will cause ripple effects throughout the industry, as we will observe the highest NFT user adoption and transaction volumes compared to previous years. Most games that rely on P2E will gradually disappear because we are no longer in the "play only" market stage and, more importantly, lack the "entertainment" element. Decentralized social networks will grow, and protocol-native tokens from this category will perform better than other decentralized entities that hinder exchanges.
Given that funding activity is typically a lagging indicator of the health of the industry, venture capital investment will slow over the first three quarters in response to events in the second half of 2022. Infrastructure and cryptocurrency financial services companies were least affected by the drawdown.
Ian Devendorf
The importance of decentralized identity solutions will continue to grow as they build the infrastructure for self-sovereign identity and enable compliant onboarding of institutional capital as regulatory clarity is established. As the market awaits clearer regulatory guidance, market share will continue to be concentrated among incumbents that prioritize transparency and have a strong track record, making it difficult for new entrants to contend. Until centralized exchanges can provide reliable proof of reserves that are consistently audited by third parties, and rely little on exchange tokens as collateral, a greater proportion of users will favor self-custody. As Optimistic and zero-knowledge rollups begin to expand functionality, EVM-compatible chains will continue to dominate TVL.
Dipankar Dutta
By 2023, we will see renewed interest in blockchain technology that protects privacy and increases censorship resistance. Other general predictions include that Ethereum-staking token withdrawals will be enabled in the second half of 2023, and that there will be no spot Bitcoin ETFs in 2023. Additionally, more regulatory challenges will be initiated by the SEC to label tokens as securities, setting the stage for case law in 2024 or beyond. There will be more legislative bills coming out of the U.S. Congress, some of which will undoubtedly test the crypto community’s unity, lobbying efforts, and resolve.
Healthy adoption of L2 and sidechain-based scaling solutions will continue into 2023 – mitigating issues related to the scarcity of block space, but also potentially revealing issues related to its complexity and (general) lack of decentralization. User adoption and investment patterns in the blockchain ecosystem will also meaningfully shift towards innovative applications built on top of it rather than the technical merits of the underlying layer 1 blockchain (e.g. TPS, time to finalization, etc.). Revenue-generating platforms will be an important vertical. Application-specific blockchains and interoperable ecosystems will continue to emerge in development activity (e.g. Cosmos, etc.)
The application-centric growth of the ecosystem will mean that the L1 Foundation and Ecosystem Growth Fund will serve the needs of application developers more so they build specific blockchain ecosystems rather than their competitors.
Edvin Memet
DeFi TVL, normalized by total cryptocurrency market capitalization, increased by at least 50% from the beginning of the year to the end of the year. ETH will once again be net deflationary at the end of the year (with the second half making up for still subdued first half activity), reinforcing the “super-sound money” narrative and increasingly eating away at BTC’s market dominance (although it has yet to flip BTC).
The future is still multi-chain, so the much-maligned Solana began to steadily shrink to the top 13. At least one L2 token will be launched in Q4. Compared with 2022, the total amount of losses from attacks related to cross-chain bridges will drop significantly and will not exceed $500 million.
As new use cases emerge, old use cases re-emerge, and user experience continues to slowly improve, NFT transaction volume will grow at least 4x from the beginning of the year to the end of the year. The exodus from Twitter will see more brands turn their attention to the Metaverse and web3 customer loyalty programs. Web3 social networks are slowly gaining popularity. The metaverse becomes more interconnected/easier to navigate and land prices increase at least 2-3 times.
Incentive programs that attract more loyal capital/users will be increasingly explored and adopted by quality builders - in DeFi and GameFi - consciously moving away from the highly reflexive nature of inflationary rewards and towards slower, more organic ones increase. At least one blockchain game will reach 400,000 monthly active users (MAU) again, but it won’t surpass peak Axie MAU (2.8 million) until 2024.
A certain DAO will conduct a sale of over $100 million, possibly purchasing a third-rate team. Venture capital will continue to flow in at a respectable rate; there will be less capital than in 2021 or 2022, but it will still hit the $15 billion mark. The GBTC discount will narrow significantly at the end of the year to no more than 15%.
Florence Kuria
Through 2023, the adoption of Ethereum L2 solutions designed to solve Ethereum’s scalability issues, such as Optimism, will continue to increase steadily. We may also see fewer rate hikes and lower inflation. This could lead to increased interest in risky assets such as cryptocurrencies and a return of retail investors to the industry.
As investor confidence in CEX continues to decline, decentralized exchanges such as DYDX will begin to outperform centralized exchanges. We may also see DeFi protocols backed by real assets become increasingly popular among investors.
Jaiden Percheson
2023 will continue to be another challenging year for market participants. Due to current macroeconomic conditions, we are unlikely to get a large influx of new market players this year, so it will be difficult to find volatility across the crypto space. Markets will continue to be volatile this year, with short-term fluctuations and Bitcoin not hitting any new highs. Bitcoin and Ethereum will continue to gain overall dominance as market participants sell other assets they hold and seek to return to “value.” NFTs will continue to be one of the leaders in overall adoption by traditional companies, as total transaction volume increases exponentially throughout the year as people seek volatility in the cryptocurrency space. As the industry continues to gain legitimacy among market participants, the majority of NFT trading volume this year will occur within a handful of projects.
There will be a handful of coins that outperform ETH and BTC throughout the year. I believe Binance will continue to increase its exchange dominance in this space and BNB will continue to be strong throughout the year. Arbitrum will launch its token in mid-2023, which will also be one of the areas where the market outperforms. Speculation that the token's launch will fuel dApps built on Arbitrum will last longer than most believe the chain's TVL will exceed $4 billion. Shibarium will launch its chain sometime in the second quarter of 2023 and will surpass Dogechain in volume and attract more market participants.
Further regulatory action will be taken against DeFi, NFTs and other cryptocurrency-specific applications. Additionally, authorities will pursue further arrests and charges against influencers (and other cryptocurrency-specific actors). While I expect regulation to increase, if regulatory action gains significant traction in 2023, I don’t expect major privacy concerns to emerge this year, aside from a small outperformance of Monero and other related privacy coins.
Imran Khan
With many new DeFi + privacy projects launching, building activity on ZK rollups like Starknet and Aztec will increase, while TVL for DeFi as a whole remains low as yields compare to yields elsewhere Still not attractive.
Web3 applications built for mobile devices will improve upon the current UX. USDC will also allow the creation of Cash App style applications where cryptographic integration is more subtle.
As the pace of interest rate hikes slows, we will see risk appetite and the crypto market will have its moment. However, I think this time, as the market becomes more value-oriented, the number of tokens will decrease significantly.
Zak Abdi
The digital asset market is generally bearish in 2023; it will always be restricted by macro policies, and it makes no sense to buy risky and complex assets at relatively high risk-free returns.
DeFi tokens as governance rights will continue to fall, although the DeFi vs. Real World Assets (RWA) narrative will gain traction because most DeFi is circular and market participants are starting to accept this. Nonetheless, networks like Centrifuge will not be popular as remaining resources are focused on more prominent networks like Ethereum; protocols such as Aave or Maker that bring RWA to Ethereum will benefit from this.
Binance will face a lot of challenges and scrutiny, but it will be fine. NFT trading volume will remain low. BTC will maintain its dominance.
Brandon Kae
The market will continue to be bearish and unlikely to return to ATH until the Fed turns real. Most market participants will initially resist a clear bearish rally, pushing it above expectations (but still nowhere near ATH) until it reaches a "mini-euphoria" level before more downside pain or sideways boredom.
Most L1s will not return to peak value in terms of valuation, TVL or usage, and 90% of new L1 launches will be DOA. Optimistic rollups will continue to thrive, while zk-rollups will remain relatively sluggish until at least the second half of 2023. L3 will divert some attention from the Cosmos application chain. Verification is starting to gain more traction.
ETH will not flip BTC. CBDC testing/trials begin.
Shamel Tejani
The Fed's pivot toward the end of the year caused Bitcoin to form lows and begin the recovery process. Most NFT projects and coins continue to bleed as liquidity further dries up as people realize that a good project does not mean good value growth for the token. Ethereum flipped Bitcoin in market cap, albeit briefly. As the fallout from FTX and 3AC spreads, more regulations are proposed and more cryptocurrency companies undergo mass layoffs and/or go out of business. Certain tokens with strong narratives will create echo bubbles within their industries, perhaps AI and Game-Fi. We see a new NFT project on Ethereum that could compete with Bored Apes and Punks for the top spot. A new blockchain-powered sports betting platform with good transaction volumes, low commissions and audited smart contracts captures a large portion of the market share.
