In 2023, the cryptocurrency industry faced many challenges but showed resilience, overcoming a brutal bear market that saw many of the last cycle’s big names such as Celsius, FTX, and 3AC bankrupted.

The year marked a turnaround, setting the stage for a new era in leadership, regulation, and venture creation in 2024. Notably, the approval of 11 spot Bitcoin ETFs signalled industry recovery and growth.

The Secure Digital Markets Market Outlook for 2023 analyzes digital asset trends, regulatory shifts, and insights from industry leaders, guiding readers towards future opportunities.

The report discusses the historical perspective of Bitcoin ETFs, the state of the market, trading, derivatives, lending, on-chain fundamentals, M&A activity, mining, emerging markets, and Layer 2 innovations.

Researchers, representing Bloomberg Intelligence, Bitwise, SDM and others discuss the impact of ETF approval on institutional adoption, market dynamics, and the evolving landscape of tokenization, real-world assets, and Layer 2 solutions.

The full report can be downloaded here.

Highlights from the report include the following.

Chapter 01. The ETF Arrival

“The ETF Arrival” reflects on the launch of a Bitcoin ETF, comparing it to the historical timeline of other assets like gold. Despite the instant gratification culture, it highlights the progress made in just 14 years since Bitcoin’s inception. The chapter encourages the industry to focus on broader goals, emphasizing the need to build a global financial system. Juan F. Leon, Senior Research Analyst at Bitwise Asset Management, discusses the impact of the spot Bitcoin ETF approval on the firm’s strategy, emphasizing its significance for accessibility and liquidity. Leon anticipates potential future ETF approvals and advancements in tokenizing real-world assets, emphasizing the need for improved user experience in crypto and mentioning growing interest in blockchain-based gaming.

Mads Eberhardt, Senior Cryptocurrency Analyst, explores the historical context and potential market impact of the recent approval of 11 Bitcoin spot ETFs by the SEC. The article suggests a positive trajectory for Bitcoin, with a contrarian view anticipating a short-term sell-off. Eberhardt expresses optimism about Ethereum’s prospects, citing factors such as relative undervaluation and its shift to a deflationary model post the Ethereum merge.

In an interview with Eric Balchunas from Bloomberg Intelligence, insights into the Bitcoin spot ETF saga and its impact on the cryptocurrency market are discussed. Balchunas emphasizes the significance of ETFs being available on major brokerage exchanges, suggesting a positive impact on awareness. Despite short-term price volatility, Balchunas sees the ETFs as bridges between the crypto asset class and traditional finance. He reflects on regulatory challenges and anticipates Ethereum as the next likely candidate for ETF approval in May, predicting further market innovation catering to institutional investors.

Chapter 02. State of the Market

Mostafa Al-Mashita, Co-Founder and Director of Sales and Trading, reflects on the challenges faced by the digital asset industry in 2023, highlighting a consolidation trend, executive losses due to corruption, SEC lawsuits, and a banking contagion threat. Despite these challenges, the industry introduces the Bitcoin spot ETF, anticipating a healthier post-ETF market with increased participation, reduced speculation, and more investment in verticals and use cases. Al-Mashita expects stablecoins to play a significant role in global payments, and foresees improved relations between regulators and industry leaders due to legislative clarity. The Market Outlook for 2024 is optimistic, building on the strong Q4 performance in 2023.

The timeline of events in Q1, Q2, Q3, and Q4 2023 is outlined, covering significant developments such as regulatory actions, exchange troubles, legal issues, and market fluctuations. Key events include the filing of a Bitcoin spot ETF by BlackRock, regulatory approvals, court rulings, and notable market movements.

The report also provides insights into the total crypto market cap in 2023, emphasizing Bitcoin’s dominant market share and its outperformance compared to Ethereum. It touches on the growth of other cryptocurrencies like Binance Coin, Solana, and XRP, attributing their success to regulatory victories and ecosystem development. Additionally, Bitcoin’s historical performance, correlation with traditional assets, and volatility data are discussed.

Chapter 03. Trading, Derivatives, & Lending

Chapter 03 explores Crypto Asset Trading Volume on Major Centralized Exchanges from November 2019 to December 2023. Binance maintains its top position, but regulatory changes lead to a decline in spot market dominance from 60% in January 2023 to 40% in December 2023. Coinbase stands out for regulatory compliance.

The chapter discusses macroeconomic factors influencing crypto markets in 2023, covering inflation, liquidity, and interest rates’ impact on assets. It also explores the role of the Bitcoin halving, Ethereum’s performance, and institutional adoption’s influence.

Insights into 2023’s crypto volatility, trader responses to events, and preparation for potential 2024 volatility are provided.

In a conversation with Alan Mittleman, COO at SDM Financial, the focus is on crypto institutionalization. Mittleman discusses digital asset evolution, regulation, and insights on a Bitcoin spot ETF’s approval.

Conversing with James Godfrey, Head of International Banking & Lending at SDM Financial, the focus shifts to the crypto lending landscape. Godfrey highlights market evolution, emphasizing counterparty risk mitigation. SDM Financial’s lending is distinguished by over collateralization, family office backing, and coins in cold storage at Coinbase, offering a unique approach in the industry.

Chapter 04. Onchain Fundamentals

Chapter 04 focuses on key metrics of leading blockchains in 2023. Ethereum leads in total revenue at $1.99 billion, followed by Tron at $972 million. Arbitrum, OP Mainnet, and Base contribute smaller revenues of $61.96 million, $36.74 million, and $12.45 million, respectively. Ethereum also tops the list in average daily revenue with $5.52 million, followed by Tron with $2.70 million. Solana leads in daily active user growth at 353.62%, with BNB Chain, Ethereum, Polygon, and Bitcoin following. The user/transaction fee correlation highlights Ethereum’s sensitivity with a correlation of -0.475. The chapter notes global crypto user adoption growth from 106 million to 516 million (386.79%) from 2021 to 2023, with emerging economies like Turkey, Nigeria, Argentina, Egypt, and Pakistan showing significant adoption. Assessing leading blockchains by ecosystem activity, BNB Chain has the highest number of secondary projects, Arbitrum exhibits a 431.56% growth rate, and Ethereum has a growth rate of 50.31%.

The chapter also includes a conversation with Ryan Mueller from Phantom Compliance on cryptocurrency regulation. Mueller discusses the impact of Central Bank Digital Currencies (CBDCs) on private stablecoins, emphasizing the need for regulatory clarity that balances consumer protection and innovation. The conversation explores tokenization of real-world assets, skepticism in the market, and global crypto policies introduced in 2023, foreseeing challenges for private stablecoins and increased regulation in the future.

Chapter 05. M&A Activity

In 2023, the crypto sector experienced a dynamic M&A landscape, recording 54 transactions in Q1, which declined to 26 deals in Q3, reflecting a 26% decrease compared to the same period in 2022. Notably, Investing & Trading Infrastructure, Brokers & Exchanges, Data & Data Analytics, and DApps: Enterprise Use Cases comprised 66% of total M&A transactions. Investing & Trading Infrastructure saw a significant increase, Brokers & Exchanges remained active, Data & Data Analytics observed growth, and DApps: Enterprise Use Case demonstrated a slight rise. Despite the overall decrease in deals, the proportion of Bridge Transactions and Intra-Crypto Transactions remained consistent and increased, respectively. The total value of publicly announced deals in 2023 amounted to $1,146.68 million, compared to $8,340.01 million in 2022. The Bitcoin ATM sector witnessed strategic moves for market consolidation, with key players like Bitcoin Depot, Genesis Coin Inc., and RockItCoin acquiring assets to strengthen their positions. As the Bitcoin mining industry prepares for the 2024 halving, companies aim to enhance financial resilience, with those burdened by high debt becoming potential acquisition targets. Overall, the trends suggest a shifting landscape toward industry consolidation and strategic positioning.

Chapter 06. Mining

In 2023, Bitcoin mining saw substantial growth with a 100% increase in network difficulty, reaching 72T. This reflected the competitive landscape among miners and ongoing investments in hardware to secure the blockchain. The surge in Bitcoin network fees, exceeding $37, marked the highest since April 2021, driven by increased user transactions and limited block space, fueled by factors like speculation around the Bitcoin ETF, regulatory clarity, and innovations like Bitcoin NFTs.

Miners, verifying transactions, now generate approximately $63 million in daily income from fees, nearly four times the two-year average. The trend in network difficulty and hash rate underscored the consistent growth in computational power dedicated to mining, reinforcing the upward trajectory of the Bitcoin network.

In interviews with industry leaders, such as Scot Johnson of Digital Shovel and Spencer Marr of Sangha Systems, key topics included miner consolidation, hardware innovation, mining regulation, and the impact of technology on mining efficiency. Johnson highlighted a significant industry shift in 4Q 2023, with increased interest and larger project quotations leading up to the halvening. Marr emphasized Sangha Systems’ focus on low-cost, strictly renewable energy for a competitive advantage.

Both interviews discussed industry trends, equipment efficiency, liquid solutions, immersion cooling, and the impact of China’s crypto ban on mining equipment. Johnson also addressed technological advancements, North America’s competitive edge, ongoing lobbying efforts for mining regulations, and anticipated challenges like equipment cost spikes. Marr envisioned a future where Bitcoin mining integrates vertically with energy sources, leading to decentralization, and expressed hope for Bitcoin’s role in fostering a more equitable society.

Overall, the mining sector is experiencing dynamic growth, with increased competitiveness, regulatory considerations, and innovations shaping its trajectory.

Chapter 07. Emerging Markets

In 2023, Avalanche (AVAX) emerged as a promising altcoin, backed by strategic collaborations with entities like Amazon Web Services, J.P Morgan, and Apollo Global. The introduction of Stars Arena, a social application rivalling Base Network’s Friend Tech, boosted Avalanche’s performance, resulting in a surge in transactions and an annual revenue of $60 million. Decentralized exchanges (DEXs) like Uniswap, 1inch, Curve, and PancakeSwap witnessed substantial growth, with Uniswap maintaining a considerable share of the market volume.

Mike Grantis, Managing Director of Contango Digital Assets, discussed disruptive trends for 2024, emphasizing novel ways of regulating digital assets and unique altcoin analysis metrics. Contango shifted its investment strategy to GameFi and decentralized AI in 2023, focusing on socio-economic considerations. Grantis anticipates real-world assets coming on-chain, the role of AI, and the impact of ETFs on Web3. Regarding regulation, he highlights the evolving authority within crypto networks.

Graeme Moore, Head of Tokenization at Polymesh, discussed the tokenization of real-world assets and Polymesh’s role in addressing regulatory challenges. Moore sees significant shifts in traditional financial markets with tokenized assets, especially in real estate and debt. He also discussed NFT market insights for 2023. Public token launches witnessed a shift in investor behavior, with the average raise amount declining. The NFT market experienced slow growth but surged in Q4, with Ethereum leading in transactions.

Tom Nguyen, Executive Lead of Metis Layer 2, discussed Layer 2 innovation and Metis’s Smart Layer 2 technology. Challenges beyond scalability, such as user experience, interoperability, and security, are crucial for Ethereum’s sustained growth. In a conversation with Darius Tabatabai, CEO & Co-Founder of Vertex Protocol, the focus was on blurring the lines between DeFi and CeFi, Layer 2 innovation, challenges facing DEXs, and major innovations in POS ecosystems. Vertex, a cross-margined DEX on Arbitrum, emphasizes self-custody and on-chain clearing advantages. The interview covers trends like the convergence of DeFi and CeFi, liquid staking tokens, and the launch of Vertex’s native token.

SDM Financial collaborates with clients for derivatives strategies, operating as a US CFTC regulated entity with a focus on intelligent speculation and risk management. The firm offers flexibility in creating structured products and emphasizes a streamlined process for onboarding, depositing, trading, and settling digital asset transactions.

The full report can be downloaded here.