Cobo Shenyu: Review of major cryptocurrency events in the first half of 2023

summary

Cobo co-founder and CEO Shenyu recently reviewed the major industry events and their impacts in the first half of 2023 at an internal event, and analyzed the events worth paying attention to in the second half of the year. The following is a partial excerpt of Shenyu's speech, which is specially published to share with Cobo users and partners.

A lot of things happened in the first half of the year. However, looking back today, there weren’t many major events.

Macro Events

First of all, the collapse of a digital bank in the United States in March had a very significant impact. A very core channel from Crypto to fiat currency and fiat currency to Crypto that had been established in the past few years disappeared, and this channel probably accounted for more than 70% of the entire market's traffic.

In April, Ethereum completed the Shanghai upgrade. This was a major market upgrade, and a core change brought about was that the entire cryptocurrency ushered in a very safe underlying interest-bearing asset. After the upgrade, a large amount of Ethereum began to be locked, and now about 20% of Ethereum has been locked in the node. At the same time, many traditional companies have also begun to build strategies based on this.

For a long time in the past, traditional funds entering the cryptocurrency world could only do one thing, which was to buy mining machines for physical mining. Now, some traditional institutions have started to set up funds, buy Ethereum, and increase their returns through staking. This will become an important source of funds for cryptocurrency for a long time in the future. In the past ten years, there have been two things in the cryptocurrency circle: the first thing is to issue assets, and the second thing is to trade assets. This is a very important change in the way assets are issued.

The change in Hong Kong’s cryptocurrency policy in April brought a wave of activity to Hong Kong and brought a lot of traffic. However, we are still observing whether Hong Kong can replace the United States and become an important channel between the Crypto and fiat worlds. On June 1, Hong Kong’s new cryptocurrency policy came into effect, and we saw some movement, but it was still small.

In June, the US tightened compliance and the SEC sued exchanges such as Binance and Coinbase, which led to a period of extreme market sentiment and a sharp drop. However, market sentiment soon reversed because a large number of traditional financial companies began to apply for cryptocurrency ETFs.

ETF is also a very important narrative logic for cryptocurrency. In 2013, the process of Bitcoin rising from RMB 1,000 to RMB 8,000 was largely driven by the ETF hearing held in the United States. Therefore, the ETF story has been hyped for 10 years.

A core driving force behind the rise in coin prices in 2021 and 2022 is actually Grayscale. Grayscale is a very interesting innovation. It uses a good arbitrage model to lock a lot of coins into the Grayscale fund, but it can only enter but not exit, so it brings a large inflow of US dollars, leading to a round of Bitcoin price increases. And ETF may be a large-scale Grayscale.

What is worth observing next is when a large number of ETFs will be approved. Whether from the perspective of asset allocation or risk aversion, traditional funds will directly buy ETFs from these brokerage banks, which means that a large amount of funds will flow into major asset classes such as Bitcoin and Ethereum. This will also be a very critical event.

Industry Exploration

At the industry development level, there are several things worth paying attention to.

One was in February and March, because of the launch of the Move public chain, which brought a small wave of hype, but the bubble soon burst. The second was the airdrop of Blur, which brought a wave of NFT liquidity feast, leading to the rise of NFT in January and February, especially blue-chip NFT. However, soon as blue-chip projects such as Ape and Azuki failed to meet expectations, prices plummeted. Currently, NFT is in a state of bubble bursting and narrative logic reorganization.

The next step for NFT is to find new narrative logic and landing scenarios other than the concept of PFP. Perhaps NFT should be combined with offline elements, such as personal fans and membership rights. This should bring in a large number of new users. I am personally very optimistic about this aspect.

From late April to early May, there was a wave of hype about MEME coins, which caused many junk coins to rise many times. In addition, the combination of Ordinals’ NFT and BRC20 on the BTC chain also fueled this wave of MEME coins. This also shows that the industry’s narrative logic has reached a stage where there is almost no narrative logic. There is nothing else to hype, so everyone has to hype MEME coins.

The above are the major events that have occurred in the cryptocurrency industry in the past six months. The basic conclusion drawn from the above analysis is that the industry is currently in a stage where it lacks narrative logic, and the industry is greatly affected by the macro and regulatory aspects.

Three things to watch out for in the second half of the year

The entire cryptocurrency industry is still in a state of re-finding narrative logic. However, there are still several major events in the industry that deserve attention. As for what the narrative logic of cryptocurrency will eventually become, which applications can be run, and what scenarios will be implemented, we will not be able to see everything very clearly until the second quarter of next year. These are the results of the final trial and error, and everything is determined by the market.

First, Ethereum will have an upgrade in the second half of the year to improve performance; second, L2 will be launched on the mainnet in the next 6-12 months (most likely 6 months), and a series of second-layer networks including Scroll and ZKS are striving to be the first to gain a better first-mover advantage. Once Ethereum is upgraded, the performance problems that have plagued the entire blockchain industry in the past decade may be gradually solved , perhaps with a 10-fold performance improvement, from the current hundreds of TPS to thousands of TPS, and in the future through hardware acceleration and other methods, it can reach tens of thousands of TPS. This will bring a wave of relatively large performance improvements, and by then the blockchain will finally be able to run some high-daily-active applications and conduct some low-cost transactions.

The second consensus is that the private keyless wallet based on MPC technology and the AA smart wallet on the chain may gradually form a unified standard as L2 goes online, thus bringing about large-scale promotion and application . In fact, the second-layer network has been providing users with an AA wallet since day 1. This may become the default configuration for users in the future, which will greatly reduce the user threshold.

Once the performance of blockchain is initially resolved and the user threshold is further lowered, there may be a large wave of application attempts and explosions, and a large influx of users, which is what we hope to see. I estimate that this time point should be after the second quarter of next year.

The third important issue is the application of traditional institutional ETFs . Since June this year, many traditional financial institutions have applied for cryptocurrency spot ETFs, and it seems that the possibility of approval is very high. A hard timeline is Q1 of next year, around the end of March, when the SEC must reply whether to approve the ETF. We expect to see one or two ETFs with large-scale liquidity applied by traditional financial institutions go online at the end of Q1 next year, reopening the compliant funding channel in North America.

These are the three most important things that I think will drive the industry in the next six months to a year.