Original Author: ARK Invest

Original compilation: 0x137

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How blockchain can lead to change

Similar to how the internet ultimately facilitates all industries, cryptoassets issued on blockchains could impact all asset classes such as art, commodities, and even joint stock companies. We can further refine this framework into three simultaneous changes: the currency revolution brought about by Bitcoin, the financial revolution brought about by DeFi, and the consumption revolution that will occur in Web 3.0.

As far as DeFi is concerned, Ethereum has attracted a lot of talent and capital through its application of decentralized finance, which enables users to access various financial services globally without permission. Now, with the rise of NFT and decentralized identities, blockchain seems to be catalyzing the growth of the next-generation Internet, effectively empowering users to control their online identities and data.

The potential market and specific application scenarios released by the blockchain also have different requirements for trust and convenience. Therefore, there will not be a situation where one blockchain solves all needs. Each market and use case requires specific functionality and security tradeoffs. Therefore, in many cases, it is not feasible to compare blockchains in different transformational sectors.

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In 2021, Bitcoin's market value will exceed $1 trillion for the first time. Despite the recent sharp drop, the two charts below still show the extremely high position intensity of most Bitcoin holders.

In the chart on the left, we can see that while the market capitalization of Bitcoin has increased by nearly 96%, the actual profitability and total cost base of Bitcoin has increased by nearly 170%, exceeding $450 billion. While Bitcoin’s market capitalization has fallen nearly 50% from its highs, its total cost basis remains at historically high levels, indicating extremely high investor confidence in Bitcoin.

And as you can see in the chart on the right, the long-term holder base is also strengthening. Currently, long-term holders hold approximately 13.5 million bitcoins, and there are more than 500,000 bitcoin addresses that have received only two incoming transactions and never had an outgoing transaction.

While many criticize Bitcoin for its inability to support high transaction throughput, they fail to realize that Bitcoin has become a global settlement network for high-value transactions. In 2021, the settlement value on the Bitcoin chain will exceed 13 trillion US dollars, which has more than doubled year-on-year. $36 billion is settled in the Bitcoin base layer every day, with an average transaction value of over $136,000, officially surpassing VISA.

As the best-performing asset of the past 10 years, many investors believe they are missing the best time to invest in Bitcoin. But if you look at it in terms of comparison with other asset classes, Bitcoin still represents only a small fraction of the global asset value. ARK believes that by 2030, the market value of Bitcoin may increase by more than 25 times, reaching 28.5 trillion US dollars. Even then, it's still a tiny fraction of stocks, the global money supply, bonds, and real estate.

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DeFi will help Ethereum's market value break through $22 trillion

Since 2017, as the development ecosystem around smart contracts has matured, the complexity of smart contracts has also increased significantly. Now we see a full range of decentralized financial services such as lending, exchange asset management, insurance, etc., all of which have been deployed, built and adopted on public chains such as Ethereum. This parallel financial ecosystem is open to global users and has enough potential to challenge the market share of traditional established companies in the long run.

To illustrate the impact of these developments on the underlying blockchain, we can refer to the total fee revenue they generate, which is the sum of transaction fees paid by users to use the blockchain. Ethereum’s fee revenue per transaction paralleled Bitcoin’s in the first half of the year, but in the last quarter of last year, as NFTs gained momentum, Ethereum’s annual revenue grew to $10 billion, surpassing many of the S&P 500 company's annual revenue.

At the level of ecological development, developers do not need to build new applications on top of other people's innovations, and use the blockchain track and the instant settlement provided by it, reducing the obstacles of middlemen and reducing the risk of counterparties. This makes the capital efficiency of DeFi much higher than that of traditional finance.

Over the past year, the assets under management of DeFi protocols on Ethereum have grown to over $100 billion. The issuance of stablecoins also exceeded $100 billion. Coupled with the emergence of NFT, the price of Ethereum also surged to a record high of $4,000. Despite the high volatility of the cryptocurrency market throughout 2021, the market value of stablecoins continued to rise steadily, even accelerating at the end of the year. This shows that market participants are not willing to fully exit and hold cash.

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Web3 Annual Online Spending Will Grow to $12.5 Trillion

What makes web 3 different from web 2? ARK believes it ultimately comes down to digital ownership. In the traditional web 2 model, a centralized platform sits centrally between us as consumers, businesses, creators, and our digital assets, identities, and data, occupying the primary resource.

However, with the emergence and adoption of blockchain technology, this model has been subverted to a large extent, and users, businesses, and creators can fully own their digital lives without interacting with centralized aggregates or platforms. In the long run, this will have a huge impact and help redefine consumers' preferences for online consumption.

In 2021, NFT generated 21 billion in sales, and the number of monthly unique buyers soared nearly eightfold to more than 700,000, indicating that the concepts surrounding digital ownership and digital assets are starting to resonate widely among Internet users.

Currently, collectibles and digital art account for more than 75% of Ethereum NFT sales. NFT sales of games like The Sandbox and Axie Infinity accounted for only 25% of cumulative Ethereum sales. Based on the development of the game and metaverse market, the demand for game NFT is likely to exceed the demand for digital collectibles and artwork, showing more practicality.

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2022 Encryption Market Macro Background

The summit also invited Raoul Pal, the founder of the macro institution Real Vision, to analyze and discuss the volatility of the current market. The editors of Rhythm compiled it as follows:

In terms of the correlation of the crypto market with the mainstream market, institutional investment plays a major driving role behind it. So when the macro narrative shifts, all markets are equally relevant. Suppose you are a hedge fund investing in the crypto market. When you are forced to reduce your risk exposure ratio due to a change in the macro narrative, cryptocurrencies will naturally become part of the asset sell-off, which will make the crypto market different from other markets. correlation.

The current volatility in the market is a response to a shift in the "inflation narrative," a growing realization that both growth and inflation are slowing, a shift that markets don't like. But the past experience is that the central bank will consider stimulus measures again after a short-term interest rate hike, because the economy is difficult to regain enough traction in the short term, so the central bank will be more dovish than people expected in the future. The prices of cryptocurrencies are very well supported.