2023 ON-CHAIN
The key trends and indicators pushing crypto forward
Hope you are having a great end of the year, and are eager to dive into our 2023 crypto review. As usual, we cover the most relevant events and trends that shaped 2023, providing key insights and analytics explaining what has happened and what may come next for the crypto space.
This is a brief recap, but there’s still a lot to cover. Hope you enjoy!
2023 On-Chain
Crypto’s 2023 can be summarized in one word: resurgence. Following the collapse of multiple crypto giants and the adverse macro conditions faced in 2022, the crypto space has shown strong signs of recovery this year.
Multiple crypto-assets have rallied 100%+ in 2023 as positive catalysts helped push the space forward. But it’s not only prices that have been improving in 2023, several fundamental metrics for crypto-assets have been growing.
Let’s begin by diving into the performance of some of the largest crypto-assets and the factors leading them forward, before discussing the growth in on-chain metrics. It’s worth noting that the values of the table below are as of December 18, so they may have changed slightly by the time you read this.
Top Performers — Evaluating the top crypto-assets in a bullish year
- Bitcoin appreciated by over 160% in 2023. BTC’s price was propelled by an improving outlook of global liquidity (tied to the Fed slowing rate hikes), the regional banks collapse, the Blackrock ETF application and the increasing likelihood of its approval
- Ethereum’s market cap grew by 85%, slightly underperforming despite undergoing a major upgrade, also seeing spot ETF applications and recording growth in adoption metrics
- The biggest winner out of the top crypto-assets in 2023 is undoubtedly Solana, growing by over 740% in price. SOL’s price decreased by 96% in 2022, with the crash accelerating following the FTX/Alameda bankruptcy. The main factors leading to Solana’s resurgence in 2023 were its strong developer ecosystem, the improved consistency of the network (which has had 100% up-time in 2023) and more recently a slew of airdrops attracting users
- Other top performers were AVAX and LINK, appreciating by 341% and 199% in 2023, respectively. Though they are very different projects, both Avalanche and Chainlink have benefitted from important partnerships with traditional finance institutions and the release of new products (Subnets in the case of Avalanche, and the cross-chain interoperability protocol (CCIP) for Chainlink)
Early Stages of a Bull Market
Having bottomed in Q4 of last year, it is becoming increasingly clear that crypto is at the beginning of another bull cycle. Not only have prices and sentiment improved, but on-chain metrics are also repeating patterns indicating a promising outlook.
See more at IntoTheBlock’s 2023 Review Perspectives
Early Bull Market Accumulation — Long-term investors (“hodlers”) continue to buy more crypto
- Historically, hodlers buy Bitcoin aggressively during bear markets, like we saw in 2014, 2018 and 2022
- As prices rebound from the bottom, hodlers continue to accumulate though at a slower pace into the early stages of the bull market
- Then finally, after Bitcoin surpasses its previous all-time high, hodlers begin to take profits as new entrants come in
- This pattern has played out in the previous two crypto cycles, and the current trend suggests that we are still in the early to middle stages of the cycle
- Other key indicators such as the profitability of Bitcoin holders and BTC’s inflation rate align with the cyclical recovery the crypto space saw in 2023
Interestingly, the hodler accumulation is not only happening in Bitcoin.
ETH Hodlers Surpass BTC Hodlers — A larger percentage of ETH is now held by addresses holding over 1 year than in BTC’s case
- The amount of ETH owned by hodlers reached a record of over 70% in December
- It is worth noting that “hodlers” include not just individuals but also smart contracts that have held assets for over one year
- In ETH’s case, the largest hodler by that definition is the staking contract of the Beacon chain, where 23% of ETH is held
- Following the Shapella fork in April, which enabled withdrawals from the staking contract, the opposite of what many expected happened: instead of funds flowing out, much more inflows came in, which is why the amount of ETH held by hodlers accelerated around that time
Improving Fundamentals Fuel Sustained Rally
In addition to increased investment activity, the demand for the underlying crypto networks has been rising. Layer 1 fees reflect this trend.
Ordinals Boost — Bitcoin fees reached new highs in 2023 driven by inscriptions
- Bitcoin average daily fees have climbed by 35x relative to December 2022; Ethereum fees have increased by 4x in the same period
- Bitcoin ordinals launched in January 2023, enabling the creation of inscriptions tied to individual satoshis (the smallest unit of a Bitcoin)
- These inscriptions materialized initially as NFT-like collections within Bitcoin, and then as tokens through the introduction of the BRC-20 standard (similar to Ethereum’s ERC-20)
- In May 2023, with a meme token frenzy, Ordinals pushed Bitcoin fees higher, leading to the first day where Bitcoin fees surpassed Ethereum fees since 2021
- Now in December, we are seeing Bitcoin fees surpass Ethereum’s in a full week
Ethereum fees have also been in an up-trend in 2023, but have not yet reached 2021 levels. Even though ETH has recorded more in fees throughout the year ($2.3B+) than BTC ($640M+), the slower growth is symptomatic of something else going on.
Ethereum Layer 2 Adoption Boom — Activity on Ethereum has increasingly moved to L2s
- With a week left to go, Ethereum optimistic rollups (shown above) have already done more than triple the number of transactions than they did last year
- Compared to 2021, the number of transactions on these Ethereum L2s is up by 90x
- The transition to L2s, first highlighted by Vitalik’s rollup-centric roadmap, is effectively materializing with optimistic rollups doing more than double the number of transactions than Ethereum mainnet over the last quarter
- While the increased L2 adoption does allow for a broader user base to use Ethereum at significantly lower cost, it also means that the total fees (and corresponding amount of ETH burnt) on Ethereum as a whole has been relatively lower than it would have previously been
- Heading into 2024, Ethereum is set to go through the Dencun upgrade in late Q1/early Q2, which will reduce L2 fees by an order of magnitude, improving the prospects of broader on-chain economy
Overall, crypto has seen a strong recovery in 2023, both from the investment and the fundamental perspective: prices of several crypto-assets have increased by 100%+ while on-chain metrics like fees and transactions have grown by an even larger magnitude.
Crypto’s cyclical nature seems to suggest that 2024 should be another positive year, with hodlers’ accumulation and upcoming catalysts such as the spot ETFs backing this up. Ultimately, 2023’s resurgence is likely to turn into a year of acceleration as these catalysts play out and help crypto reach a broader audience.
