Review in English： Blessing
The dramatic events of 2022 will shape the crypto landscape for years to come. One major event in the year was the collapse of FTX, a bankrupt cryptocurrency exchange company headquartered in the Bahamas. What will the state of the landscape of digital assets look like in 2023?
In their 2023 crypto market outlook report, the research team from Coinbase Institutional provides an in-depth analysis of the state of digital assets. We should expect three key themes to prevail in the digital asset market in 2023.
Firstly, institutional investors will transition toward high-quality digital asset selection. It implies that investors will favor high-quality tokens with mature ecosystems. User and developer activity will combine to a small number of chains in 2023 compared to 2022. Secondly, creative destruction will lead to new opportunities in the market. For instance, the highly stressed economic environment might force an increased number of uneconomical bitcoin miners to shut down or be acquired by well-capitalized players. Therefore, the bitcoin mining industry might consolidate further in 2023. Thirdly, foundational reforms will usher in the next cycle. The 2022 turmoil in crypto markets gave a sense of urgency among lawmakers to define the roadmap for crypto-asset activities.
The report gives an in-depth analysis of the state of these digital assets; Bitcoin, Ethereum, Stablecoins, and NFTs. It also provides the layer 1 (L1) and layer (L2) landscape. Finally, the market outlook report outlines the current state of global digital asset regulation.
The adoption of the Bitcoin network in developing nations could result from the asset’s utility as a medium of exchange. However, bitcoin’s scalable L2 infrastructure development will be critical for this adoption to become a reality. L1 combines the computing and consensus layers of the blockchain. When the number of blockchain users grows, this layer gets strained. L2 addresses the scalability issues of L1. There is healthy user demand for solutions that address scalability issues, speed, or transaction fees. Ethereum transitioned from proof of work (PoW) to proof of stake (PoS) when it merged its consensus and execution layer in September 2022. As a result, the network’s energy efficiency increased and reduced the growth of ETH supply in the process. The demand for stablecoins will grow over the long term. Stablecoins could represent immense opportunities in the crypto ecosystem since they play a crucial role in enabling market participants to price assets in a common currency and retain assets on-chain during periods of high market volatility. Corporations have started utilizing NFT technology to provide digital verification of physical goods. In addition, businesses are connecting in more authentic ways with their audiences through the use of NFTs.
One outstanding regulatory issue is the critical question of how to classify a digital asset. There has been more regulatory progress in Europe relative to the US. In 2023, the UK government and regulators will develop more detailed rules for crypto. The UAE’s independent regulator for virtual assets is developing regulatory frameworks for investors and businesses in the digital asset space. Meanwhile, Africa’s digital regulatory environment remains highly diverse. About a quarter of African countries regulate crypto with some restrictions. Some African countries have explicit bans, while others have implicit bans on digital assets. The regulatory approaches in Asia are still fragmented and exhibit two extreme ends of digital asset innovation. China still has the strictest approach to crypto regulation globally, and Singapore continues to be the organic hub for digital asset innovation.