After reading 2023 trend reports from Messari, Delphi Digital, Coinbase, Binance, CoinShares, Kaiko, and others, I made a personal list of meaningful shifts I am most interested in for this new year.
BTC, A SAFE HAVEN IN AN INCREASINGLY FRAGMENTED WORLD
Pierre-Olivier Gourinchas, the IMF’s chief economist, warns of a world fragmenting into “distinct economic blocs with different ideologies, political systems, technology standards, cross-border payment and trade systems, and reserve currencies.”
In this fragmented reality where social, economic, political, and geopolitical crises are adding up, I can see a path for a decentralized store of value, non-tied to any major country or financial player, to do well.
It is impossible to predict when and how exactly feverish bursts of speculation and adoption will happen again around Bitcoin. Still, we can think of possible catalysts for a new cycle.
In 2023/2024, I see three main reasons for Bitcoin to attract new users:
- Permissionless transactions. Increased control on payment rails like SWIFT raised awareness of the risk of relying on one system to exchange value. Some people might look for ways to protect their savings and remain in control of their wealth. The ability of Bitcoin to transfer large sums of money from one country to another in just a few minutes without a central authority is a competitive advantage vs. FIAT monies.
- Inflation hedge season 2. Various reports from economists are foreseeing a possible economic recession forcing the Central Banks to ease their monetary policy in the second half of the year. This would create another window for a Bitcoin Rally as people try to protect themselves from inflation.
- Escaping the dollar’s influence. The position of the dollar as a reserve currency is challenged. With possible legal implications for companies trading mainly in dollar-denominated terms, some could see an opportunity to use Bitcoin partly instead.
More to read here:
- Paper on BTC correlation by Parker Lewis — https://bitcoiner.ghost.io/bitcoin-is-not-a-hedge/
- CoinShares 2023 Report https://coinshares.com/research/coinshares-outlook-2023
- IMF — Dedollarisation Report vhttps://www.imf.org/en/Blogs/Articles/2022/06/01/blog-dollar-dominance-and-the-rise-of-nontraditional-reserve-currencies
- IMF — A Deeper Look at Forces Fragmenting Our World — and How to Respond https://www.imf.org/en/Blogs/Articles/2022/06/02/a-more-fragmented-world
STABLECOINS PENETRATION IN HIGH-INFLATION FRAGILE ECONOMIES
Chainanalysis is constantly monitoring crypto-asset adoption in various geographies. They have built an index by aggregating volumes of five different crypto services.
Unsurprisingly, you find countries with high inflation rates or war in higher ranks. There is grassroots crypto adoption, primarily when populations rely on alternatives to collapsing centralized institutions.
For instance, Ukraine is listed as number 3 in the report. This follows the government’s decision to use cryptocurrency to quickly raise millions of dollars from outside the country.
Brazil, Argentina, and Lebanon are other classic examples of fast-paced adoption fueled by economic downturns and high inflation rates.
In the case of Brazil, the Brazilian Real (BRL) has been devalued by over 200% vs. USD. The State has implemented capital control on the Brazilian bank account, so crypto has become a way for people to protect their financial freedom and savings.
It’s important to note that they are investing in Bitcoin, Ethereum, and stablecoins. Those trees work together in a decentralized ecosystem.
More to read here:
- Chainanalysis Geography of crypto report — https://go.chainalysis.com/rs/503-FAP-074/images/2022-Geography-of-Cryptocurrency.pdf
- Kaiko Quaterly report https://25446524.fs1.hubspotusercontent-eu1.net/hubfs/25446524/Kaiko_Research_Q4_Cryptocurrency_Market_Report.pdf
THE MERGE OF NFTS AND DEFI
NFTs are social, artistic, and financial assets. Yet, the financial component is in its infancy. It’s still a long-only asset with very little liquidity and a high cost of entry for top collections.
Recently we have witnessed some growing traction on NFTs lending platforms like @NFTfi @the_x2y2 or @bendDAO. They maintained stable operations in a volatile environment by focusing on liquid highest market cap NTF collections (Punks, BAYC, or Azuki).
Users enjoy easy access to liquidity, the possibility to hedge their holdings, and other more complex strategies involving staking and yield farming.
On the derivative side, some decentralized NFTs perps protocols like @nftperp are constantly innovating to open NFT exposure at a lower entry price and unlock short positions.
For better or worse, this financialization of art and communities could trigger the next NFT bull market under leverage this time.
More to read here:
- https://twitter.com/wardaddycapital/status/1613276846480842752?s=46&t=--PV1ln2m_McgNakM8Z2BA
- https://twitter.com/Ari_CRVE/status/1612824059858796545?s=20&t=WocBqi2_p-e0pbvgTucSaQ
DEFI USING REAL-WORLD ASSETS COLLATERALIZATION
MakerDAO has started to enable “real’ asset exposure in its various dapps. Assets like Real Estate, Invoices, trade receivables, and commercial loans. They added $500 million in exposure to U.S. Treasuries this fall.
Today, most traditional assets are still tricky to access for many of the world’s population. The instantaneity and permissionless nature of DeFi could help connect to those growth reserves.
On top of that, younger generations used to managing crypto could favor those types of exposure over more traditional ways of investing through their bank for a portion of their wealth.
Merging traditional financial assets into DeFi will allow users and protocol to develop more elaborate strategies mixing crypto and real-world assets.
I am also looking closely at NFTs using tangible assets as collateral. For example, a building in NYC was tokenized as an NFT on the Blockchain last year.
Our Friends from Courtyard, for instance, are developing a solution to secure and deal with the logistic of assets represented as NFTs on Chain.
More to read here:
- https://www.coindesk.com/business/2022/10/06/stablecoin-issuer-makerdao-allocates-500m-for-treasuries-corporate-bond-investment/
- Section 7.3 “Real-World Collateralized DeFi” in the Messari Report https://messari.io/crypto-theses-for-2023
- CourtYard https://courtyard.io/
ASIAN DIGITAL COLLECTIBLES MINI BULL RUN
We’ve seen predominantly clumsy NFT launches by leading entertainment players like Warner Bros and HBO, and their failed Games Of Thrones drop this month.
The strongest NFT brands are native to the ecosystem, like Yuga Labs with BAYC or Chiru Labs with Azuki. I wonder if, in 2023, we will see an entertainment mastodon manage to monetize its IP in this new space and leverage its fan base.
After their annual letter focused on NFTs, I expect a possible announcement from Square Enix in 2023. FFXIV, one of their MMO RPGs, has over 40 million players. If you look at historic franchises like FFVII, your potential user base could be even more significant.
Millions of players worldwide would pay for collectibles integrated into virtual worlds and secured by Blockchain.
Asia, especially Japan, is taking off as a critical market for NFTs. This is because collectibles are deeply ingrained in the local culture. In 2020 alone, the estimated value of the Japanese toy action figure market reached ¥32 billion ($290 million).
More to read here:
- https://www.forbes.com/sites/paultassi/2023/01/01/square-enixs-new-years-letter-is-mostly-about-nfts-again/?sh=130010e46926
- Japan NFT landscape — https://twitter.com/chewtoro/status/1615000129978920960?s=46&t=G-8mTVmKUv7Oo2tn6fQ_-Q
DEEPER MERGE OF REAL AND ON-CHAIN EXPERIENCES
Chiru Labs revealed their PBT Token as an open-source technology to help bridge the physical and digital worlds. The first application was an auction that did $2.5 million ETH in sales volume for height Golden Skateboards. Those were not regular skateboards but had an integrated chip opening access to virtual experiences and avatar modification.
Earlier this year RTFKT worked on clothes with augmented reality capabilities. The ability to integrate an imaginary landscape and virtual world into a product or an experience could be a game changer for brands.
Metaverse is already in games, films, and series. We must create better ways to merge them into our daily lives and digital identities.
NATIVE ON-CHAIN CREATIVITY
Last year, we saw the first wave of artists using NFTs and the digital art medium. The most inspiring example came from Damien Hirst and his project, the currency using a burn contract to question the concept of ownership and timelessness.
Burner, a dynamic crypto art series that changes every block in response to live Ethereum gas price data or Chromie Squiggle by SnowFro, the pioneer of Digital Generative Art, are two examples of craft using smart contracts as an artistic tool to assemble esthetical experiences.
We have only started to scratch the surface of the possibilities of the medium and the interaction of art and Blockchain. I am expecting in 2023 more complex and profound interactions between art and the technical possibilities of a programmable medium. It all lies in the mind of artists and their capacity to use the smart contract to create aesthetic experiences.
Some NFTs projects I am following closely
