Crypto industry predictions for 2023 from 37 The Block analysts
Compilation of the original text: The Way of DeFi
Compilation of the original text: The Way of DeFi
37 research analysts from The Block Research recently released their crypto industry forecasts for 2023. They each expressed their outlook on the encryption industry in the new year, and their views were similar and different.
Here is a summary of the same predictions between them:
The overall macro environment will continue to exert downward pressure on risky assets such as cryptocurrencies. However, a sideways move in the year ahead is more likely than a severe downturn.
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 distressed companies seek to be acquired.
Venture capital 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 to Ethereum Layer 2 (L2) scaling solutions. The TVL of L2 will increase (at least in terms of ETH value), and zk-rollups outperform optimistic rollups in terms of relative growth. Major L2s like StarkNet, zkSync, and Arbitrum will launch their tokens.
Modular blockchains like Celestia will receive increasing attention and will likely outperform alternative monolithic blockchains from 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.
Compared to other DeFi use cases, DEX will show the strongest fundamental growth indicators.
The decentralized social ecosystem on Web3 will experience rapid growth as investments and activity increase.
Driven by the accelerated adoption of NFT by traditional brands, more users will join NFT. In addition, NFT will continue to serve as a vehicle for the fusion of cryptocurrency and art and culture.
Opensea's market share will drop further and the market will lose its monopoly.
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Larry Cermak
General purpose zk-rollups will finally be launched in 2023, effectively becoming as usable as ethereum. Arbitrum, Starknet, zkSync, and Scroll will all release native tokens in 2023, and there will be gossip about the value growth of the L2 token relative to ETH itself, as rollup manages to suck 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 will initially be a lack of demand for these scaling protocols, they will play a huge role as the next wave of retail arrives in the future. Polygon has a huge lead as it successfully converted its PoS chain to a fully functional zkEVM chain.
While there is still a lot of VC capital waiting to be allocated on the sidelines, 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'll see many projects switch from L1 to a different L2 to improve their chances of gaining activity, or just better prospects for extending the runway. Developers and operators will no longer automatically be paid over $300,000, and we continue to see a brain drain of crypto "visitors."
Many projects will fundamentally rebuild token economics. Paying large amounts of tokens as an incentive no longer makes sense when there is no significant new demand coming in. 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 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 central bank (primarily the Federal Reserve) monetary policy. Cryptocurrencies will surge most violently when we start to see signs of lower interest rates in the short term. But that probably won't happen in 2023. Until then, the price of the main token will remain roughly unchanged with little fluctuation. The gambling sentiment sparked by some multiplier token or NFT is going to scratch a lot of people.
OpenSea will continue to lose its monopoly and its way of abusing royalties 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 come under pressure for its Earn product plans. GBTC and ETHE products will not be dissolved.
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Steven Zheng
The overall macro environment will continue to exert downward pressure on risky assets such as cryptocurrencies. However, if I can profit handsomely from imagining cryptocurrencies as an uncorrelated asset class, I believe the market will see a bottom formed in a second wave of NFTs that will be bigger than the one that peaked in 2022. The tide was several times higher. We will break the most recent NFT all-time high of $5 billion in transaction volume in 2023. Trading volume will be primarily driven by gaming projects, with many Tier 1 crypto games finally opening up public access to their games after raising funds and selling NFTs throughout the 2021-2022 bull market. Crypto game tokens will enter the top 20 by market capitalization. The second wave of NFT PFP projects will be driven by the previous cycle's tertiary/low-end projects, which focused on the appeal of entry-level luxury rather than high-profile luxury (see Seiko and Rolex). A likely beneficiary of this wave of mass appeal is Polygon, which in the last bull market laid the groundwork for a potential influx of new retail users and hired good engineers for the zk scaling technology. By the end of 2023, Polygon will be the third largest application layer (behind BNB chain and Ethereum) in terms of economic activity and market capitalization. I think people underestimate the need and ecosystem development of the dYdX chain, dydx may also be launched on Cosmos.
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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 downturn. 2023 will be a pivotal year for developers and builds as hype, narrative and price will be out of focus. L2 will continue to gain traction, with some launching native tokens, including Arbitrum and StarkNet.
New narratives for the next cycle, including Web3 social networking, will start to take shape. Investment and activity in this sub-sector will be watched, with Lens Protocol and Farcaster showing the fastest growth early on.
Venture capital investment in the blockchain space will slow down significantly in 2023, especially in the first half of this year. In the first half, we will see a sub-$1 billion month for investment, which will be the first time since February 2021 for the sector. Some $13.5 billion will be invested in blockchain companies by the end of the year, equating to a 58% year-over-year decline in private funding.
Projects in the crypto financial services, infrastructure, and trading/brokerage categories are the least affected by fluctuations in market conditions. As such, these categories will still attract interest and investment as investors look for the next foundational companies and projects.
Conversely, categories seen as further along the risk curve, more likely to be pre-prod and/or at the seed-stage level, such as decentralized finance (DeFi), NFT/gaming, and Web3, are likely to see the amount of money they raise Funding and terms continue to be repriced to the $10-15 million valuation range and are more favorable to investors.
In the mid to late stages, 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 financing and raise capital at lower than previous valuations.
Another option for financially distressed companies is to find a buyer in the M&A market. Similar to what happened after the 2017 cycle, we will see increased M&A activity and further consolidation of cryptocurrency companies.
The influence of Alameda Research, FTX, FTX US, Voyager Digital, Celsius, BlockFi and other potential lenders will make 2023 a pivotal year for companies providing institutional infrastructure for digital assets.
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Lars Hoffmann
On the macro front, the sudden opening of China's epidemic, coupled with economic stimulus measures and a slowdown in the Fed's interest rate hikes, pushed global macro risk appetite higher in the summer, and cryptocurrencies benefited greatly from it. Autumn and winter have been tougher, with attention returning to Europe's unresolved energy crisis. However, the upcoming March 2024 BTC halving keeps industry optimism at an overall high level.
For most of the first half, the impact of FTX and Alameda continued to reverberate across the industry. Many smaller projects keeping (part of) their funds on FTX will fade 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 on the opportunity of FTX’s bankruptcy, pushing for stricter reporting and deanonymization requirements without actually addressing many of the issues that led to FTX’s bankruptcy — centralization . In Western jurisdictions, DeFi will be severely negatively affected.
Privacy remains a topic strongly advocated by many industry players, but over time it is eventually abandoned by the majority. Alternative privacy solutions for crypto natives continue to develop and thrive in their respective niches.
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Eden Au
Arbitrum and StarkNet will launch their native tokens and both will be in the top 10 TVL by the end of 2023. Polygon will increase its NFT market share as more traditional brands come on board. 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 ordering process.
Withdrawal of collateralized ETH will be enabled in the first half of 2023, followed by Coinbase’s cbETH doubling its market share in Ethereum’s liquidity collateralization, an asset that will be widely accepted as collateral by major DeFi protocols. Structured products will gain momentum as crypto-natives increasingly embrace the “real yield” parlance, which can help guide the liquidity of on-chain derivatives. However, as regulatory pressure mounts, privacy-focused apps will fail to gain meaningful traction.
Adoption of euro-based stablecoins will grow steadily as the EU finalizes MiCA legislation. USDC will overtake USDT as the largest stablecoin by market capitalization, but Tether will still be important and not crash in 2023. While it’s too early for non-stablecoin tokenized real-world asset (RWA) protocols to blossom, more RWA protocols will try to lay the groundwork.
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Andrew Cahill
BTC will remain the largest asset by market capitalization by the end of the year, but ETH will outperform in terms of price. SOL will outperform other alternatives to L1, but will not be able to regain all-time highs. L2 scaling solutions will continue to see increasing developer and user adoption, but their native tokens will underperform against BTC and ETH.
Hacking of interoperability protocols/bridges will decrease as development teams learn from vulnerabilities in 2022. Adoption of interoperability protocols will remain low due to reduced activity on L1 networks.
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Greg Lim
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George Calle
Companies with exposure to the cryptocurrency industry will face continued pressure through 2023. More and more miners will declare bankruptcy or restructure as they face debt payments that become more expensive than the machines and/or BTC treasuries used to secure loans. Given the natural synergies (oversupplied mining) and balance sheets unrelated to the recent cryptocurrency market downturn, large energy providers will be the acquirers of these equipment.
Volatility in 2023 will also be lower 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 spot parts of the ecosystem that are still overleveraged, creating more in the crypto options market as traders seek to position around events or generally hedge exposure. A potential silver lining in demand. A significant portion of older funds in 2021-2022 will close due to underperformance, leading to a cascade of liquidations in the first half and second half of 2023, albeit less than in 2022. Seemingly "safe" strategies and positions will be tested. For example, some liquidity staking derivatives' discounts to ETH could drop below 90% due to the amount of money involved in liquidity staking, possibly due to on-chain deleveraging (see Lido's own thread on cyclic staking) as well as funding Usually only liquidity is required. Unlike (possibly permanently) closed products like GBTC, LSD is expected to arbitrage back 1:1 as the Ethereum Shanghai upgrade approaches sometime in 2023.
We should also be prepared to see more innovation and drama in the stablecoin market, but industry developments will come from increasingly fragmented fields. Specifically, DeFi developers will create censorship-resistant products creatively integrated into protocols, while policy-minded players will more eagerly explore regulatory-compliant payment instruments. Language around stablecoins backed by Federal Reserve reserves or stablecoins with deposit insurance will be discussed in Congress, but won’t even be included in any bill that lands. CBDC researchers will largely abandon the "direct CBDC" model trialed between 2017 and 2022 and come up with a more integrated solution that would enable commercial banks to distribute to retail customers in real time. These stablecoins will likely undergo many of the same governance as CBDCs, or at least be subject to similar oversight. Regulators will also be more generally interested in stablecoins, as it resembles a new digital version of the euro-dollar market, amid growing concerns about competing monetary systems (China) and a fragmented global economy. The issue of Tether's reserve backing will become a major topic 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 cap (whether existing or new) will collapse in 2023.
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Simon Cousaert
And in 2021, competition between different L1s is fierce, after which user attractiveness has dropped significantly, 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 like zkSync and Starknet, L2 will lead a narrative that reinforces the non-Ethereum L1 downtrend.
An exception to this dynamic may be upcoming modular blockchain technologies such as Celestia and Fuel. I would like to see experiments with rollup technology, not only on Ethereum, but also on modular blockchains.
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Abraham Eid
By 2023, the focus will shift from infrastructure-driven development to application-based development. In turn, obstacles may be overcome from existing UX challenges that played a role in the spike in user activity. From a wallet operations perspective, EIPs that support account abstraction (such as EIP 4337) should create a noticeably smoother experience for users, which could spur growth over time and help address the challenges faced by dapps from a mainstream adoption perspective. One of the existing challenges.
Due to expensive block space on L1, there may be a greater focus on use cases that really exploit a design space 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 has already been experimented with 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 possibly develop new legislation around some of the existing practices in the cryptocurrency space (i.e. the DeFi sub-sector). Given the precedent of 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. While the U.S. Treasury Department sanctioned Tornado Cash as a software protocol, further emphasizing the consequences for all addresses that interact with it, there may be a more comprehensive bill to write the set of regulations surrounding mixers. The existing MEV space may also experience more investigation and scrutiny, which may lead to more dapps considering mitigation MEV-centric design features.
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Wendy Hirata
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Kevin Peng
In 2023, the L1 network will continue to adapt to the changing needs of the market. Cross-chain technologies such as bridges and IBC will further mature as new Lisks gain increasing relevance and usage. As teams vie for mainstream attention and organic demand, crypto-based applications will become more user-friendly than ever.
With the lingering fallout from the collapse of FTX and others in 2022, many projects will be slowly abandoned as the reality of lack of funding and demand will eventually catch up to 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 crypto assets. While games based on blockchains or that make heavy use of cryptographic mechanics are unlikely to be as popular as leading video games, the crypto gaming industry in general will grow and generate some moderate-quality but active gaming user bases.
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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 domain names 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 policy.
Third, games on the chain are expected to stimulate the emergence of new types and revive the Web3 game market. While current offerings in the Web3 gaming space may lack innovation (e.g., same old gameplay and experience), on-chain games have the potential to attract forward-thinking game developers and drive change in the cryptocurrency and gaming industries.
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Saurabh Deshpande
In a downturn, the correlation between TradFi and cryptocurrencies will remain high as there are more players in both markets, but cryptocurrencies may bottom out before TradFi. Cryptocurrency prices have remained more or less stable, although the stock market may be heading for another slide 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 few L2 (by TVL). Total TVL for L2 will exceed $20 billion. The Solana ecosystem may be resurrected.
Binance will receive legality from regulators outside the US. The DEX/CEX volume ratio could grow to around 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).
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Rebecca Stevens
In 2023, we will see Coinbase break away from the strong momentum of the FTX debacle, gain market share, but remain second only to Binance. DEX volumes also grew significantly, especially before any major regulatory headwinds. It's unlikely we'll see anything too meaningful actually rolled out from the U.S. side, but the looming threat 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 FTX brings 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 volumes decline throughout the year, but the risks of trading spot are prohibitive. For the year, volumes and open interest in both futures and options increased in terms of underlying assets, especially on more traditional exchanges such as the CME.
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Edvinas Rupkus
The first half of 2023 will not be too volatile, as the impact of FTX will start to spread, forcing some funds to close or restructure. It will also set a stricter tone for Western cryptocurrency legislation; however, no significant bills will pass.
The main narrative in 2023 will shift to ETH L2 scaling solutions. Specifically, one of them 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 stay in “safe havens” due to global political instability and inflation. Nonetheless, I expect things on both fronts to show signs of life in the second half of 2023 or towards the end of the year, leading to a more "exciting" crypto market as clients' appetite for risk increases.
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Afif Bandak
The appchain theory is strengthened as more applications are released as Cosmos and Ethereum L2 chains. The ZK chain scales up and starts to gain some traction. Rollups have made significant technical improvements in terms of scalability and performance, but the sorter is still centralized.
Proto-danksharding and pledged ETH withdrawals will not be possible in 2023.
Macro headwinds persisted but eased in the second half of the year. The industry shake-up continues as many projects run out of money and momentum. Coinbase stock COIN outperforms most cryptocurrencies. BTC outperforms most of its peers in 2023; gold may see tailwinds.
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Arnold Toh
Ethereum's market capitalization will surpass Bitcoin's in 2023 due to increased Layer 2 adoption and the need for Ethereum's anti-inflation model. This could happen even if both ETH and BTC prices drop.
The L2 ecosystem will see growth, driven primarily by potential airdrops for 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 real use cases for blockchain technology. Likely contenders are trading card games, especially Gods Unchained and its potential mobile version, or Parallel Alpha, which publishes a ton of content around its game and its lore.
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Jae Oh Song
Due to recent market events, regulators will increase their oversight of centralized entities. This may cause customers to continue to prefer to hold their assets in self-custodial until sufficient creditworthiness is re-established. This trend may boost existing decentralized exchanges such as (dYdX and Uniswap). Governments may develop regulatory plans for these decentralized entities; however, due to the lengthy regulatory process and consensus, such attempts will not have immediate impact.
Web 3.0 social networking protocols (eg Lens Protocol, Bluesky Social) will be further developed to gain market share from existing social networking services. Initially, users will participate in these protocols based on speculation about a potential token airdrop, which may not happen 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.
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Hiroki Kotabe
L2 keeps getting attention. Arbitrum will launch its token, which will outrank Optimism's token and outperform the entire cryptocurrency market. The TVL of L2 generally increases (at least in terms of ETH value), and ZK rollups outperform optimistic rollups in terms of relative growth. Major ZK rollups like 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 put more faith in the scalability of Ethereum with L2 technology, which also improves user experience by making transactions cheaper and faster. Ethereum dapps integrating L2 technology will see their user base and activity grow. While this could put upward price pressure on ETH (and away from other L1s), a tectonic shift in activity from Ethereum to various scaling solutions could put downward price pressure on ETH (and towards scaling solutions). That said, additional focus on scaling solutions could come with bad actors exploiting current design weaknesses (e.g., rollup sorter centralization), which would impede their progress.
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Hayden Booms
BTC will bottom out in Q1 2023, below $12,000, as public sentiment begins to worry that the Fed's economic policy is tightening too much, and the 4-year market cycle continues despite ongoing macroeconomic concerns. BTC lows will be retested later in the cycle with at least a 75% retracement in price.
The Ethereum Shanghai upgrade, which enables users to unlock their staked ETH, will be delayed until Q4 2023 and will be sold as a rumored liquidity event. As staked ETH is unlocked, public sentiment will fear an ETH sell-off, causing ETH price to drop during the Shanghai upgrade. However, after the Shanghai upgrade, ETH price will start trending upwards as there are no further fears of further selling pressure. This liquidity event will mark a retest of the cycle bottom for ETH.
Fidelity's timely launch of BTC and ETH trading for retail clients in the fourth quarter of 2022 will boost consumer confidence and help Fidelity capture a significant percentage of U.S. BTC and ETH trading volume in 2023. Retail investors have seen Bitcoin perform through two cycles, but those who have not participated in the cryptocurrency market will finally feel comfortable enough to invest in cryptocurrencies on the Fidelity platform. Gen X investors will feel reassured about their financial security through Fidelity's reputation and enjoy the same simple user interface they are accustomed to managing their legacy portfolios without the anxiety of self-custody. 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 continue with their plans that were delayed for too long. The most famous airdrops will be Arbitrum, Celestia, LayerZero, StarkNet, zkSync and nftperp.
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Carlos Guzman
Overall cryptocurrency price levels will continue to depend primarily on 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 recession fears. Crypto-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 crash spreads across the ecosystem. On the other hand, if inflation starts to come down 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 may close. However, we will continue to see high-quality projects funded as well-capitalized venture capital funds continue to be deployed. The overall level of private financing 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 worldwide, 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 strict in passing encryption-related regulations than in previous years, which could lead to regulations that are far less industry-friendly than expected.
ETH will overtake BTC in market cap dominance, driven by reduced issuance, fee burn, and the "ultra-sound money" narrative. However, ETH will not flip BTC in 2023 yet. ETH will start to gain enhanced "moneyness" and monetary premium, partly by being the de facto reserve asset in L2. The "ETH killer" narrative will die down in 2023 and L2 competition will be the main focus.
Optimistic rollup will see more users and transactions as activity continues to migrate there and away from EVM compatible L1. ZK rollups will be slower to gain adoption, but will start to gain momentum in the second half of the year as zkEVM begins to use popular applications. Application-specific 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 a Cambrian explosion of zk-related applications in privacy, identity, and bridging. As privacy-related applications come under regulatory scrutiny, the industry as a whole will focus on developing solid forms of zk compliance.
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Thomas Bialek
Driven by the accelerated adoption of NFT by traditional brands, more users will join NFT in 2023 than in all previous years combined. To that end, NFTs will masquerade 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 subsectors will experience isolated revivals. In particular, dynamic encrypted art will flourish as artists create more and more works of art 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 will increasingly be monopolized.
As the gaming space accelerates and the convergence of games and NFTs, the gaming vertical will accelerate again as new stories are fleshed out, rekindling interest.
NFT projects and marketplaces 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 lead to plenty of experimentation with new (and old) revenue streams for NFT projects.
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Mohamed Ayadi
The winter for cryptocurrencies (and traditional markets) will continue into the first half of 2023 as the US enters a mild recession and Europe experiences a deeper one.
Until one of the larger exchanges receives a proper audit by a major audit firm, fear and uncertainty surrounding cryptocurrencies on centralized exchanges remains high. This will lead to continued adoption of DEX and perpetual l/options protocols (like 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 takes attention away from Ethereum, especially 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 many new events attracting user adoption, and finally reveal 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 centralized layer-2 focuses more on decentralization). From this moment on, the industry will realize that the future must be multi-chain, with multiple L2, or even L3, and any future L1 launch will not be adopted.
In the second half of 2023, the market will start to see some kind of recovery, inflation will drop sharply (though not close to 2%), and the Fed will pause and decide to keep interest rates at around 5% until 2024.
There will be more crackdowns on DeFi crime as U.S. courts do not hesitate to go after crypto-related crimes. This ultimately benefits the industry as a whole and leads to a reduction in DeFi-related activity. However, this will come at the cost of tighter regulation and less privacy in the long run. New privacy-related projects will emerge in the second half of 2023, aimed at showing regulators that crypto OGs are willing to fight back against strict or unfair regulation and censorship and measures to significantly reduce privacy.
By the end of the year, the SEC will file another lawsuit against another popular crypto project such as XRP and require non-decentralized projects to register as securities in order to trade on U.S. exchanges. This leads to protocols doing what they can and being creative in achieving higher levels of decentralization. However, the SEC remains unclear which items are securities and which are commodities.
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Michael McNelly
There are many factors currently holding back the 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 blow. In addition to this, global macroeconomic conditions have been tightening to counter 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 the theft, fraud and hacking will need to be brought to justice and regulations will be put in place to prevent such incidents from happening again.
Having said that, I do believe we will see continued industry innovation in scaling, NFTs, UX, custody, and other unique use cases. Ethereum rollups, especially 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 the 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 be a hotbed for further experimentation and adoption. Players like General Motors are interested in the concept of virtual power plants that use blockchain to track and manage the grid, especially for green energy. This has led to the creation of a peer-to-peer energy marketplace 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 successfully launched in smaller cities. Combining electric vehicles with solar power will usher in a new era of energy management and supply, where every home becomes a power plant with batteries connected to the grid.
Meanwhile, oil and gas companies like ExxonMobil are repurposing gas to generate electricity to power bitcoin mining rigs. This further supports the claim that Bitcoin is backed by energy itself, giving it more perceived value. As resources become more and more limited in our consuming society, the energy and resources used to mine Bitcoin will become more and more respected. So, as projects like this continue, confidence in Bitcoin as a currency should rise over time.
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Marcel Bluhm
Privacy will be a big topic. Full privacy coins will struggle due to regulatory scrutiny. But solutions like zk.money, which explore the middle ground between privacy, censorship resistance, and regulatory realities, may find a product that fits the market.
The United States will introduce a national legal framework for stablecoins. If carefully designed, this could over time lead to massive growth in stablecoin market capitalization and perpetuate the dollarization of the digital asset space. Globally, some CBDCs may be on the horizon. But unless they work on public rail or encourage use, they'll only see limited adoption.
Blockchain will become more "mobile": most use cases (and many blockchain users) are in developing countries, which largely use mobile access in their daily lives.
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Jason Michelson
Market conditions remain largely bearish for the first half of 2023 as recessions unfold in the US and Europe. Weak earnings could drive 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. Restoring public trust in cryptocurrencies after FTX's fraudulent actions will take years, and many institutions will continue to distance themselves from digital assets until the public forgets and macroeconomic conditions improve and risky assets become more palatable. Still, the value proposition of distributed ledger technology to provide more efficient value transfer and trustless financial rails 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 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 will make significant gains in market cap. Most existing EVM-incompatible L1s will underperform and start to slowly fade in terms of mind share compared to ETH. With the launch of the Polygon zkEVM and its continued product-market fit in retail and asset tokenization use cases, Polygon may be an exception. Cross-subnet communication via 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 provide minimal spread and price impact on transactions, it will eventually be utilized again. The general decline in crypto-native trust in centralized trading venues will also continue to drive traffic and trading volumes on decentralized options/perpetual futures protocols.
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Atharv Deshpande
With the cryptocurrency market cap 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 be insolvent, and more bad actors will be purged. The collapse of cryptocurrency exchange FTX and the FUD surrounding Binance have sparked more demand for better regulation, but we are unlikely to see any breakthroughs. However, the decline of centralized entities and the shortcomings of centralized power in 2022 will increase DEX adoption more than ever.
ETH market cap will be closer to BTC, but not immediately flipped. With the launch of Starknet and Arbitrum, the adoption rate of L2 will increase, and more and more NFT game items will be bridged to L2. Polygon will continue to forge partnerships with non-crypto traditional brands and strengthen its position in the NFT space. User onboarding resulting from these partnerships will have ripple effects across the industry as we will observe the highest NFT user adoption and transaction volume compared to previous years. Most games relying 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 that category will outperform other decentralized entities that block exchanges.
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Ian Devendorf
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Dipankar Dutta
By 2023, we will see renewed interest in privacy-preserving and censorship-resistant blockchain technologies. Other general predictions include that Ethereum collateralized token withdrawals will be enabled in the second half of 2023, and that there will be no spot Bitcoin ETF in 2023. Additionally, more regulatory challenges will be initiated by the SEC to label tokens as securities to develop case law in 2024 or later. There will be more legislative bills coming from the U.S. Congress, some of which will undoubtedly test the solidarity, lobbying efforts and determination of the crypto community.
Healthy adoption of L2 and sidechain-based scaling solutions will continue through 2023 — mitigating issues related to blockspace scarcity, but potentially revealing issues related to its complexity and (general) lack of decentralization. User adoption and investment patterns of the blockchain ecosystem will also meaningfully shift towards the 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.)
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Edvin Memet
DeFi TVL, normalized by total cryptocurrency market capitalization, grew at least 50% from year-to-year. ETH will again be net deflationary towards the end of the year (with second half compensating for still subdued first half activity), reinforcing the "ultra-sound currency" narrative and increasingly eating away at BTC's market dominance (albeit yet flipping BTC).
The future is still multi-chain, so the much-maligned Solana began to shrink steadily to the top 13. At least one L2 token will be launched in Q4. Compared with 2022, the total amount of attack losses related to cross-chain bridges will drop significantly, and will not exceed 500 million US dollars.
With the rise of new use cases, the reemergence of old use cases, and the continued slow improvement of user experience, NFT transaction volume will increase by at least 4 times from the beginning of the year to the end of the year. Twitter's exodus will see more brands turn their attention to metaverse and web3 customer loyalty programs. Web3 social networking is gaining popularity. Metaverse becomes more interconnected/easier to navigate, land prices go up at least 2-3x.
Incentive schemes 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 increase. At least one blockchain game will hit 400,000 monthly active users (MAU) again, but won't surpass peak Axie MAU (2.8 million) until 2024.
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Florence Kuria
Through 2023, the adoption of Ethereum's L2 solutions (such as Optimism) designed to solve Ethereum's scalability problems 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.
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Jaiden Percheson
2023 will continue to be another challenging year for market players. Due to the current macroeconomic conditions, we are unlikely to get a large influx of new market participants this year, so it is difficult to find volatility in the entire crypto space. The market will continue to be volatile this year, with short-term volatility, and Bitcoin will not hit any new highs. Bitcoin and Ethereum will continue to gain overall dominance as market participants sell their other holdings and seek to return “value.” NFTs will continue to be one of the leaders in overall adoption by traditional companies, as total transaction volume grows exponentially throughout the year as people look for volatility in the crypto space. As the industry continues to gain legitimacy among market participants, the majority of NFT volume this year will be in a handful of projects.
There will be a handful of coins outperforming ETH and BTC throughout the year. I believe Binance will continue to increase its exchange dominance in the 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 will stand out. The token launch will fuel speculation of dApps built on top of Arbitrum and 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 outnumber Dogechain and attract more market participants.
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Imran Khan
With many new DeFi + privacy projects launching, building activity on ZK rollups like Starknet and Aztec will increase, while DeFi's TVL as a whole remains low as yields are low compared to yields elsewhere Still unattractive.
Web3 applications built for mobile devices will improve upon current UX. USDC will also allow the creation of Cash App-style applications, where crypto integration is more subtle.
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Zak Abdi
The digital asset market is generally bearish in 2023; it will always be constrained 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 decline, although the DeFi vs Real World Assets (RWA) narrative will gain traction as most DeFi is cyclical and market participants begin to accept this. Still, networks like Centrifuge will not be popular as the remaining resources are focused on more prominent networks like Ethereum; protocols like Aave or Maker that bring RWA to Ethereum would benefit from this.
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Brandon Kae
Markets will remain bearish and unlikely to return to ATH until the Fed turns true. Most market participants will initially resist an apparent bear market rally, pushing it above expectations (but still far from ATH) until a "mini excitement" level is reached before more downward pain or sideways boredom.
Most L1s will not return to their peak in terms of valuation, TVL or usage, and 90% of newly launched L1s will be DOA. Optimistic rollups will continue to thrive, while zk-rollups will remain relatively subdued until at least the second half of 2023. L3 will take some attention away from Cosmos Lisk. Validation started to get more attention.
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Shamel Tejani
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