Real-world assets, AI and modular blockchain designs are popular themes that are expected to build on their momentum, while Bitcoin’s dominance could continue to rise on institutional flows.
With 2023 coming to a close, analysts and actors from across the web3 ecosystem are eagerly publishing predictions for what trends and narratives will dominate the crypto sector in 2024.
Many analysts expect Bitcoin will continue to build dominance over the broader crypto market are abundant, with researchers pointing to historical trends surrounding Bitcoin’s past quadrennial halving events. The fourth halving is expected to take place around April 2024, reducing the rate of new BTC issuance by 50%.
Analysts representing Bitfinex, a centralized crypto exchange, suggested investor sentiment to enter into a phase of “extreme greed” should Bitcoin test its previous all-time highs, tipping that institutional entities may lead the charge and extend BTC’s current market momentum. BTC is already up 160% in the past year, outperforming many leading digital assets.
“It is anticipated that institutional investments will continue to predominantly favor Bitcoin, at least through the first half of 2024,” Bitfinex said. “Among the top 10 crypto assets by market cap, Bitcoin has emerged as the third best-performing asset this year, trailing only behind LINK and SOL.”
“We believe institutional flows will remain anchored on Bitcoin at least through the first half of 2024 — helped, in part, by pent-up demand from traditional investors seeking to enter this market,” said Coinbase.
Expectations that the U.S. Securities and Exchange Commission (SEC) may soon approve the country’s first spot Bitcoin ETF are also fuelling bullish premonitions for Bitcoin.
“The approval of a Bitcoin ETF will offer a familiar entry point to crypto for those who have been watching from the sidelines,” Bobby Zagotta, the U.S. CEO of Bitstamp cryptocurrency exchange, told The Defiant.
“If the ETFs [are] approved, we expect to see much broader adoption of crypto assets,” said Eli Ben-Sasson, the co-founder and president of Starkware.
Some analysts expect investors will turn their attention to Ether should spot Bitcoin ETF receive approval, with many front-running ETF applicants also having filed to launch exchange-traded funds investing in ETH, including BlackRock and Grayscale.
“Following [Bitcoin], approval for an Ethereum ETF is anticipated,” Gracy Chen, managing director at Bitget trading platform, told The Defiant. “The Ethereum Cancun upgrade is scheduled for the first quarter, during which Ethereum and L2 ecosystems will further unleash their potential.”
Inclusive regulations could turbo-charge web3 growth
Many commentators believe the evolving regulatory landscape for digital assets may be the determining factor for whether crypto assets can continue on their current growth trajectory throughout 2024.
“Crypto is political now, and 2024 will prove just how much so,” said Messari, a web3 analytics provider. “The industry needs to remain steadfast and understand that regulators, in the U.S. and worldwide, hold tremendous power to make or break essential crypto functionality, and win or lose this industry for their respective nations. The U.S. is crypto’s most important and winnable battleground, if enough industry leaders have the will to fight.”
Some analysts also point to increasing competition between nations seeking to develop inclusive regulatory apparatus for digital assets as a bullish force for crypto.
“While US regulation continues to be top of mind, strategic global expansion will also be a key focus for many successful crypto firms,” Gavin Michael, the CEO of Bakkt, told The Defiant.
“Outside the U.S., there are many vibrant contenders for top crypto hubs across the globe, and companies committed to compliance and security in all regions are best positioned for success during crypto’s next growth cycle.”
The co-founders of Swarm Markets, an institutional decentralized finance platform, tip that DeFi developers will seek to meet the criteria for “decentralized” protocols according to the EU’s incoming Markets in Crypto-assets Regulation (MiCAR) legislation. MiCAR, which is scheduled to take effect on Dec. 30, 2024, specifies that “European regulators will not have regulatory oversight over applications that are sufficiently decentralized,” according to Swarm.
“Truly permissionless DeFi requires no regulation because the code makes it self-regulating. It is completely inclusive and automated without the need for a middleman,” Swarm said. “In the view of the regulator, it is these middlemen they have the purview to oversee. If they aren’t there, then there’s no requirement for oversight, and activity is conducted in a totally decentralized manner.”
Messari also argues that increasing regulatory clarity for decentralized finance protocols provides the DeFi sector with significant headroom for growth in the coming years. “The move towards a more regulated DeFi landscape will ignite the beginning of a gradual, multi-decade technical upgrade, not dissimilar to how financial firms adapted to the internet,” Messari said.
Tokenization and real-world assets to drive mainstream adoption
Researchers anticipate that the increasing tokenization of real-world and traditional financial assets will continue to gather momentum as a major narrative within web3 in the new year.
Felix Xu, the CEO & co-founder of ARPA Network, points to the increasing number of major financial institutions overseeing pilots exploring tokenization as a signal that real-world assets will be at the forefront of driving mainstream web3 adoption.
“Already, an increasing number of TradFi companies like JPMorgan Chase, Goldman Sachs, BlackRock, and Fidelity are progressively recognizing the advantages of this technology,” Xu said. “While the focus has been predominantly on credit markets, there’s a growing potential for tokenization to extend its reach to other asset classes, including equities, art, automobiles, commodities, and real estate.”
“Tokenization is poised to streamline processes, reduce administrative burdens, and pave the way for efficient asset trading… allowing for faster settlement times, increased book size, and reduced operational costs,” said Farooq Malik, CEO and co-founder of crypto payments firm Rain.
AI’s emergence highlights blockchain use cases
The increasing convergence between blockchain and artificial intelligence emerged as a common thread among year-end predictions from crypto commentators.
Andreessen Horowitz, a leading venture capital firm active in the crypto sector, argued that “decentralized blockchains are a counterbalancing force to centralized AI.” A16z continued that distributed ledger technologies are uniquely positioned to address many of the challenges associated with the accelerated advancement of AI.
Nansen, a crypto data provider, predicts that the emergence of a world in which AI agents are the “primary users” of blockchain technology is not far away.
“AI agents can help process transactions, hold things of value, and exchange value, on behalf of users,” Nansen said. “We could foresee a world where AI agents become a primary category of users on the blockchain.”
Within this context, Nansen also argues that cryptography-based identification verification will emerge as a crucial mechanism for distinguishing human beings from AI agents online.
Uri Kolodny, the co-founder and CEO of Starkware, agrees that web3 technology will emerge as an important mechanism for combating the threats associated with generative AI.
“Web3 and crypto will really come into its own here and we will start to see developments where blockchain technology can be used to counteract potentially unsafe AI-generated content that could undermine our democracies such as bots and deep fakes,” Kolodny said. “I am also excited to see how the Web3 ethos could be used to democratize AI development and create decentralized AI networks.”
The rise of modular blockchain architecture
Industry insiders are tipping that modular blockchains will continue to gain popularity in the new year, building on the early success of Celestia, EigenDA, and Mantle.
Abdelhamid Bakhta, a core Ethereum developer, commented that the emergence of an increasing number of “hybrid” scaling solutions has consolidated the thesis for modular blockchain architectures.
Coinbase noted the recent proliferation of Layer 1 protocols seeking to “fulfill one or more core blockchain components including data availability, consensus, settlement, and execution. However, Coinbase is skeptical that monolithic blockchain designs are going away anytime soon, noting the explosive resurgence of Solana in late 2023.
Paul Veradittakit of Pantera Capital expects zero-knowledge proofs (ZKPs) will propel the growth of modular designs in 2024, tipping that ZKPs will serve as “an interface” between different components of the modular blockchain stack. “This provides developers building DApps with a far greater flexibility for providers and reduces the barrier to entry for the blockchain stack,” he said.