Pantera Capital: 6 Predictions for Cryptocurrencies in 2024.

Pantera Capital

23-12-21 14:00

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Original Title: "6 Predictions for Crypto in 2024: Pantera's Paul Veradittakit"

Original Author: Paul Veradittakit

Original Source: Coindesk

Original Translation: Kate, Huoxing Finance

The past year has proven that the blockchain industry is capable of recovering from the worst external conditions. Since the "crypto winter" at the beginning of this year, the overall market value of the crypto space has grown by 90%, reaching $1.69 trillion. Bitcoin has grown from its annual low of $16,000 in January 2023 to over $40,000 in December, more than doubling in value.

This article is part of CoinDesk's "Crypto 2024" prediction package.

In 2023, we continue to feel some aftershocks of the major collapse wave in 2022. The most notable events include the FTX trial and verdict in November, the Binance guilty plea agreement, and the brief decoupling of the USDC stablecoin during the banking crisis in March. At the same time, we continue to see breakthroughs in the industry, including Ethereum's Shapella upgrade to a full proof-of-stake network in March, the ruling in July that XRP (primarily) is not a security, the launch of PayPal's PYUSD stablecoin, and Grayscale's victory over the US Securities and Exchange Commission in August regarding a Bitcoin spot ETF. We also see the rise of innovative tokenized social experiences, such as Friend.tech.

Therefore, we are optimistic about the future path and entering the year 2024. The following are my main predictions for the cryptocurrency industry in 2024:

1. The Recovery of Bitcoin and "DeFi Summer 2.0"

In 2023, Bitcoin will make a comeback, with its dominance (the percentage of Bitcoin's market value in the cryptocurrency market) rising from 38% in January to around 50% in December, making it one of the most promising ecosystems to watch in 2024. There are at least three major catalysts driving its revival next year: (1) the fourth Bitcoin halving in April 2024, (2) the expected approval of several Bitcoin spot ETFs by institutional investors, and (3) the increase in programmable features, including base protocols (such as Ordinals), as well as layer 2 and other scalable layers (such as Stacks and Rootstock).

At the infrastructure level, we believe we will see a surge in Bitcoin L2s and other scalability layers to support smart contracts. The Bitcoin ecosystem should integrate around one or two Turing-complete smart contract languages, with the strongest competitors being Rust, Solidity, or the Bitcoin-native language Clarity. This language will become the "standard" for Bitcoin development, similar to how Solidity is considered the "standard" for Ethereum development.

We also see the fundamentals of the possible "DeFi Summer 2.0" for Bitcoin. The current market value and total locked value (TVL) of Wrapped BTC (WBTC) is about $6 billion, indicating a huge demand for Bitcoin in DeFi. Today, the market value of Ethereum is $273 billion, of which about 10% is TVL ($28 billion). As the Bitcoin DeFi infrastructure matures, we may see the total locked value (TVL) of Bitcoin DeFi rise from the current $300 million (0.05% of market value) to 1-2% of Bitcoin's market value (approximately $10-15 billion based on current prices). In this process, many Ethereum DeFi practices may be transferred and "naturalized" to Bitcoin, such as the recently emerged BRC-20 inscription and ideas such as staking in Babylon L2.

Bitcoin NFTs, such as those engraved with serial numbers, may become increasingly popular by 2024. Due to Bitcoin's higher cultural recognition and meme value, web2 brands (such as luxury retailers) may choose to release NFTs on Bitcoin, similar to Tiffany's collaboration with Cryptopunks to release the "NFTFi" pendant series in 2022.

2. Tokenized social experience for new consumer use cases

Web2 has shifted from social to finance, while Web3 is shifting from finance to social. In August 2023, friend.tech pioneered a new form of tokenized social experience on Base L2, where users can buy and sell "shares" of others' X (Twitter) profiles. It reached a peak of 30,000 ETH TVL (approximately $50 million at the time) in October, and inspired several "copycat projects" such as post.tech. It seems that friend.tech has successfully created a new token economic model for the SocialFi field by financializing Twitter profiles.

In the upcoming year, we look forward to conducting more experiments in the social field, where tokenization (whether it be fungible or non-fungible tokens) plays a crucial role in reshaping the social experience. Fungible tokens are more likely to take the form of points and loyalty systems, while non-fungible tokens (NFTs) are more likely to serve as personal profiles and social resources (such as trading cards). Both can be traded on the blockchain and participate in the DeFi ecosystem.

Lens and Farcaster are two leading web3 native applications that integrate DeFi with social networks. Projects like Blackbird will also promote token loyalty programs for specific vertical industries (such as restaurants), using a combination of stablecoin payments and token rebates to reshape the consumer experience and provide a blockchain-based alternative to credit cards.

3. Increase TradFi-DeFi "bridge", such as stablecoins and mirrored assets

In 2023, there were many legal disputes in the encryption industry, including several high-profile victories such as the XRP ruling and the victory in the Grayscale ETF lawsuit, as well as the exposure of financial fraud by Binance and FTX. At the same time, institutional interest in Bitcoin and Ethereum, as well as the potential approval of ETFs, also increased significantly.

By 2024, we expect institutional adoption rates to increase significantly, as they seek not only ETFs, but also tokenized real-world assets (RWA) and TradFi financial products. In other words, TradFi assets will be "mirrored" in DeFi, while crypto assets will increase their exposure in the TradFi market, creating a TradFi-DeFi "bridge" that brings these two worlds closer together, increasing liquidity and diversification for investors.

Stablecoins will become one of the most important links between the TradFi and DeFi worlds. Stablecoins such as USDC and PYUSD will be more widely accepted as portfolio choices and payment tools. As Circle considers an IPO in 2024, we may also see an increase in the issuance and use of non-dollar stablecoins, especially euro-backed stablecoins such as Circle's EURC, as well as pound, Singapore dollar, and yen stablecoins. Some of these stablecoins may be launched by state-backed participants. This may also lead to the growth of on-chain fiat currency exchange markets. Tokenized government bonds have already raised $800 million through platforms such as Ondo.

4. Modular Blockchain and Zero-Knowledge Proof Integration

In the past year, the concepts of modular blockchain and ZKP have become very mature, such as the recently launched Celestia mainnet, Espresso's Arbitrum integration, RiscZero's open source Zeth prover, and Succinct's ZK market. An interesting trend is how these two narratives are being merged together, with companies in the ZK field "modularizing" by focusing on specific verticals such as co-processors, privacy layers, proof markets, and zkDevOps.

In the coming year, I expect this trend to continue, and zero-knowledge proofs will become the interface between different components of the modular blockchain stack. For example, Axiom's ZK coprocessor uses zkp to provide historical state proofs, which developers can then use to perform calculations in dapps. As zkp becomes a common interface between these different providers, we will see a new era of smart contract composability. This provides developers with greater flexibility in building dapps and lowers the entry barrier for the blockchain stack. On the consumer side, zkp may be seen as a way to protect identity and privacy, for example, in the form of zk-based decentralized IDs.

5. More computationally intensive applications will be put on the chain, such as AI and DePIN.

There has been a significant amount of time, effort, and funding invested in the scalability issues of decentralized applications. Today, most scalability issues have been resolved - gas fees for Ethereum L2s are less than $0.02 (compared to $11.5 for the Ethereum mainnet), and on Solana, fees are even lower by 3-4 orders of magnitude.

As this trend continues into next year, we believe that high-cost applications (applications that can use gigabytes of RAM) will become more economically feasible on the chain in the near future. This includes vertical applications such as on-chain artificial intelligence systems, decentralized physical infrastructure network (DePIN), on-chain knowledge graphs, and fully on-chain games and social networks. All of these have the potential to fundamentally reshape the on-chain data economy, greatly improving the experience for users and developers as they are freed from heavy gas fees and strict limitations on computing power.

You can use this cheaper on-chain "computation" to tackle computationally expensive projects. Examples include Hivemapper creating a decentralized Google Maps on Solana, Bittensor creating a decentralized machine learning platform, Modulus Labs' efforts in ZKML and AI-generated NFT art, The Graph's on-chain knowledge graph initiative, and Realmsverse creating an on-chain gaming world and legends on Starknet.

6. Integration of the public blockchain ecosystem and application chains in a "central radiation" model

In the past few years, there has been a surge in infrastructure projects. Despite the common technical classifications of Layer 1 (L1) and Layer 2 (L2), there is not much difference from a user experience perspective. This is especially true for general public blockchains. Today, L1s like Solana or Avalanche are direct competitors to L2s like Arbitrum or zkSync in terms of users, projects, and capacity.

With this homogeneity, liquidity becomes the central force of universal public blockchains, benefiting larger existing players such as Arbitrum, Optimism, and Solana, which currently account for around 90% of the total value locked (TVL) in the top four ecosystems. Smaller ecosystems must focus their energy on specific verticals (such as social, gaming, DeFi) to maintain an advantage and effectively become "application chains" or "specialized chains". Among the top 10 L2s in terms of TVL, three (dydx, Loopring, Ronin) are actually application chains focused on a single vertical. The TVL "intrusion" of smaller and newer L2 chains (such as Base and Blast) also heavily relies on the establishment of a single "killer application" (such as friend.tech and Blur) to build a large user base.