Top 10 events in the cryptocurrency market in the first half of 2023

Top 10 cryptocurrency events in H1 2023.

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Author: Jesse Zheng, SUSS NiFT Researcher, Fishery Isla, Biteye Core Contributor

2023 is more than halfway through, and cryptocurrency is leading global risk assets. However, the process of rising is not smooth sailing, with ups and downs in the currency price that affects people’s hearts. What breakthroughs have there been in the industry in the past six months? What experience can we learn from them and find the next opportunity? In this issue, let’s review the top ten events in the cryptocurrency market in the first half of 2023 and find the answer.

• Wu’s Weekly Picks: HSBC launches cryptocurrency ETF, US SEC rejects spot ETF application, Azuki criticized by community, and top 10 news (June 24-30)
• US SEC: Applications for Bitcoin spot ETFs submitted by companies such as BlackRock and Fidelity are insufficient.
• Three days after listing, trading volume is lackluster. The first-ever leveraged BTC ETF in the US did not have a good start.

1. Shanghai Upgrade – A New Chapter in the Ethereum Network

The most important event for Ethereum in the first half of this year was the Shanghai upgrade. This is the last important step for Ethereum to transition from Proof of Work (PoW) to Proof of Stake (PoS).

Seven months after Ethereum’s “merge” upgrade, Ethereum upgraded to Shanghai and Capella on April 12 (allowing pledgers who did not provide withdrawal vouchers when depositing to provide vouchers and withdraw), bringing the pledging withdrawal function to the execution layer, allowing pledgers to withdraw their 18 million ETH locked since 2020 from the beacon chain to the execution layer, achieving optional full withdrawal or pledging income withdrawal, releasing the liquidity of pledging tokens, thereby enhancing investors’ confidence in Ethereum as an “Internet bond” and improving the security of the Ethereum network.

In addition, although the Shanghai upgrade cannot reduce gas fees, the implementation of EIP-3651, EIP-3855, and EIP-3869 reduces gas fees for Ethereum developers and block creators.

After the implementation of the Shanghai upgrade, although some early pledgers made withdrawal operations, the net inflow of pledging was still greater than the net outflow, and the amount of pledging and the number of validators showed an accelerating trend.

By steadily upgrading its technology, Ethereum has continued to improve its blockchain performance, giving users and investors confidence. The market has also started to build financial infrastructure around pledging Ethereum, and projects such as stablecoin issuance based on LSD, lightning loans, leverage, and yield enhancement have received widespread attention.

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However, Lido currently occupies 31% of the staking market share, and the Ethereum ecosystem needs to promote decentralized node technology and attract more excellent staking service providers to participate in order to reduce the risk of network centralization.

2. Layer 2 is the only way to achieve large-scale landing

On June 12th, Ethereum co-founder Vitalik Buterin pointed out in his latest blog post that if Ethereum wants to achieve long-term sustainable development, Layer2 expansion is one of the important technological changes. If Ethereum is a kingdom, then Layer2 is the city-state under this kingdom, and the development of the city-state is related to the rise and fall of the kingdom.

According to L2beat data, Arbitrum and Optimism have taken the lead with the more mature technology of Optimism Rollup, occupying about 64.55% and 18.58% of the market share in the L2 market respectively. On March 23, users welcomed the airdrop of Arbitrum, which further strengthened users’ confidence in the Ethereum community.

Other events worth noting:

1. Optimism has completed the mainnet Bedrock upgrade on June 7th, which further reduces transaction fees, shortens system latency, and improves node performance.

2. Coinbase launched the L2 Base based on the OP Stack, but does not plan to issue dedicated tokens, and plans to release the mainnet this year.

3. At the same time, another L2 expansion plan, Zero Knowledge Rollup, has also made important progress.

4. Type1 zkEVM: Taiko launched the Alpha-3 incentive testnet on June 7th, mainly testing the economic incentives of the protocol, interactions between proposers and certifiers, and interactions with the protocol and the initial layer (L3) of Taiko.

5. Type-2 zkEVM: The main projects in this track are Scroll, Linea, and Polygon zkEVM.

1) The Polygon zkEVM mainnet beta version was launched as scheduled on March 27th, using ETH to pay Gas, and MATIC tokens to do staking and governance.

2) Scroll and the Ethereum Foundation jointly open sourced the development of zkEVM, which is expected to be launched on the mainnet in the third quarter.

3) Linea is expected to launch the mainnet in July, with a focus on Multi Prover and Layer3 development.

6. Type-3 zkEVM: Kakarot has achieved 100% bytecode equivalence and is about to transition to Type 2.5. Kakarot is committed to deploying zkEVM as L3 on Starknet.

7. Type-4 zkEVM: The zkSync Era mainnet was opened to everyone on March 24th. Currently, the interaction fees are high and mostly dominated by native projects. Most blue-chip protocols have not yet been deployed. Another Type-4 star project, StarkNet, underwent a mainnet upgrade in June and officially activated Cairo 1, updated the sequencer, improved scalability and transaction delay, but overall user experience still needs to be improved.

From the data perspective, the lock-up volume of L2 priced in ETH increased from about 3.64 million at the beginning of the year to 4.82 million in mid-June, and the trend of transactions shifting to L2 continued.

However, the transaction volume of all L2s is currently lower than that of Ethereum. Apart from the top few L2s, most L2 transaction volumes are very low. Moreover, there are still many L2s planning to go online in the second half of the year. Whether the market needs so many L2s remains to be seen.

3. Move Public Chain Ecosystem, Rise or Fall

At the beginning of 2023, with the macro environment gradually improving, Ethereum also announced the confirmed time for the Shanghai upgrade, and the entire secondary market opened up a small bull market for nearly a quarter.

Since the first day of the new year, the total market value of cryptocurrencies has reversed its decline.

The opening market mainly revolves around the secondary market speculation of CEX, and the market compared to MEME and various first-tier markets is relatively dull. Move public chain Aptos has performed the most eye-catching in this wave of market, with a circulating market value of 500 million US dollars, and has risen to 3 billion US dollars in just 20 days, leading a wave of “unlocking and pulling up” market. After a brief rise, the subsequent Aptos market continued to decline, and like most shanzhai, it has returned to the level of FTX’s thunderstorm. Another star project of the Move system, SUI, went straight to the peak after going online, and the price has been falling since May.

Move public chain represents a different expansion and development direction from Ethereum Layer 2. The security and flexibility of Move are one of the main advantages of the new public chain. At present, the Move series is still in a very early stage. The projects that use the Move language include: Aptos, Sui, 0L Network, and Starcoin. All four projects have already gone online, so Move-related developers can receive real income, which helps attract more developers and reserve power for the next bull market. In addition, it should be noted that as a new technology, Move still needs time to prove its stability. Beosin recently discovered a severe-level vulnerability in Move VM, which can cause the entire network of public chains such as Sui and Aptos to crash. The vulnerability has been dealt with.

In the short term, the Move public chain has too many concentrated chips, large token unlocks, and volatile prices, which poses some risks. In the long run, Move has various advantages over EVM, and its market share should have a chance to increase significantly in the next bull market. As a new force, it will compete with those traditional public chains that have been verified by time for market share.

4. Blur and NFT market

The most noteworthy thing in the NFT market in February was the launch of the BLUR token. The bidding mining mechanism of BLUR not only allowed a large wave of users to receive BLUR airdrops, but also injected great liquidity into the NFT market, ushering in a small spring of the NFT market, and has far-reaching effects on the subsequent NFT track.

The biggest impact is that due to the intensive bidding orders, it provided early whales with an opportunity to exit. These whales previously held a huge amount of blue-chip NFT series at very low costs, but due to the lack of liquidity during Opensea’s market monopoly period, the exit cost was very high. A large number of sales not only had high friction costs, but also could potentially collapse the entire NFT market. Therefore, BLUR provided a good exit opportunity for these whales. These whales may include large institutions, KOLs, etc. As they exit, the interest correlation decreases, and the publicity heat of BLUR has also declined.

After this small spring, with the change of mentality of new NFT holders, the reduction of BLUR bidding mining income and other factors, the liquidity of the NFT market once again began to shrink. Later, there was also the saying of “NFT Three Silly (Doodles, Clone X, Moonbirds)”, which is also a microcosm of the entire NFT bull market. In such a depressed NFT market, the market is also particularly sensitive to the actions of the project party. Originally, Azuki, which was firmly listed as a blue-chip, was removed from the blue-chip list in the last week of the first half of the year due to the poor quality of the new series Elementals, which affected the main series and the price fell below two digits.

Of course, there were also some local markets in the NFT market in the past six months. The most surprising performance was from Milady Maker and Pudgy Penguins. The common point of these two projects is that the community is very active and there are always people doing things. Community culture is the core of NFT, and it can be seen that the market still recognizes NFT community narratives. The decline of this wave of NFT market has successfully screened out a batch of project parties that are “doing things”, clarified the development direction of NFT, and promoted the long-term development of the industry.

5. How AI products like ChatGPT affect Web3

Since the appearance of ChatGPT at the end of last year, AI has once again become a hot spot in the technology and venture capital circles. The upstream funding sources of Web3 investment institutions have some overlap with the funding sources of AI, which means that if AI continues to be popular, it will produce a siphon effect, and the funding of Web3’s major tracks will relatively decrease. Therefore, Web3 project parties are trying to approach the narrative of AI as much as possible, or use AI technology to improve team production efficiency.

Therefore, how to use AI will be a topic that Web3 teams cannot avoid in the future. Here are some trends that are happening:

1. Smart contract AI audit

Before the launch of Chatgpt, some smart contract auditing teams used AI technology to complete preliminary audits of customer contracts to discover some basic vulnerabilities. However, these audit teams only let AI complete the preliminary audit, and ultimately, humans still need to complete the entire audit report.

ChatGPT is more powerful than any other AI before, so many people have rekindled hope that AI can complete a highly reliable smart contract audit. OpenZeppelin recently conducted an experiment to compare ChatGPT with 28 Ethernaut challenges to see if it could identify smart contract vulnerabilities. Among the 23 challenges introduced into the Chatgpt training data before September 2021, GPT successfully solved 19. Although this result is impressive, GPT performed poorly on the latest level of Ethernaut, failing 4 out of 5 questions. This indicates that although AI can be used as a tool to discover certain security vulnerabilities, there is still no substitute for the need for human auditors.

2. AI replaces positions in Web3 teams

Just as the emergence of ChatGPT has made many people worry about their positions being completely replaced by AI, practitioners in Web3 teams also have the same concerns. Although it is cruel, from the perspective of Web3 industry investors who like to try new things and lead trends, the trend of using AI to replace Web3 team members may be faster than imagined. On April 23, digital artist Rhett Mankind tweeted that he provided instructions and a budget of $69 to ChatGPT, allowing Chatgpt to independently issue a memecoin. At the same time, the author detailed the process of AI tools making decisions about the name of the memecoin in a YouTube video. In addition, the AI tool also wrote the smart contract code for the project. The market is very interested in this topic, and after several days of hype, the project’s market value once exceeded $50 million. Although the experience of this Meme project may not be replicable, it can also inspire us to optimize Web3 project positions through AI.

6. US Crypto-Friendly Banks Collapse, Highlighting the Value of Bitcoin

In March of this year, the US banking industry suffered a severe run on deposits, causing stock prices to plummet. Crypto-friendly banks Silvergate Bank, Silicon Valley Bank, and Signature Bank all collapsed, with the collapses of Silicon Valley Bank and Signature Bank being viewed as the second and third largest bank failures in US history.

Silvergate suffered a run on deposits after accepting too many deposits from the cryptocurrency industry in the wake of the FTX collapse. Silicon Valley Bank bought a large number of long-term bonds during a period of low interest rates, but the discount on these bonds during the rising interest rate cycle forced the bank to sell them at a discount, turning unrealized losses into real ones. Signature Bank, on the other hand, had been the target of multiple investigations in the past, and entering the crypto market subjected it to even stricter scrutiny.

On March 11th, stablecoin service provider Circle admitted that some of its funds were held in Silicon Valley Bank, causing market panic, de-pegging USDC, and causing a sharp drop in the price of cryptocurrencies. Regulators have long been concerned that the development of crypto assets could have an impact on traditional financial markets, but this time it was a sneak attack by traditional financial markets on crypto assets, ringing alarm bells for practitioners in the crypto industry about risk isolation.

Interestingly, this banking crisis has once again reminded insiders and outsiders in the crypto industry of the reason why Satoshi Nakamoto invented Bitcoin: “Banks must make people trust that they can manage money well and allow these assets to circulate in the form of electronic currency, but banks use currency to create credit bubbles, causing private wealth to shrink.” Clearly, 15 years later, these banks have proven Satoshi Nakamoto’s foresight to the world with their repeated collapses, showing that banks are indeed struggling to manage users’ money. On March 10th, the collapse of Silicon Valley Bank led to a flow of funds of up to $397 million into the ARK Innovation ETF, which is the largest inflow of funds into the fund since April 2021. Positions in USDC were partially converted to other stablecoins by cryptocurrency investors in the market, and some were directly purchased in Bitcoin and Ethereum, driving up prices and starting another small bull market.

7. MEME Craze and Shiba Inu Chaos

From late April to early May, the entire market was purely a showcase for memes and Shiba Inu, while the overall market surged and then fell back.

The total market capitalization of cryptocurrencies started to rise after the MEME market became active in mid-April (green arrow), perfectly proving the old saying that “Chinese dogs go crazy last in the market.”During this period, there were two most prominent projects, and after their success, a batch of imitators followed them.PepeThe Pepe project released its first tweet on April 5th and launched the PEPE token on April 15th. Pepe’s official Twitter stated that they hoped to redefine memecoins and change the status quo of many derivative meme tokens in the market.The specific mechanism of the Pepe project includes several aspects. First, Pepe tokens were not pre-sold, meaning that everyone had an equal opportunity to participate in the project. Second, Pepe tokens do not have a burning tax, which means that no tokens will be destroyed during the transaction process. In addition, Pepe gave up contract permissions, making token issuance and trading more decentralized. Most importantly, Pepe’s market-making team was well-funded and well-connected, attracting the attention of the entire market through hype and ultimately going live on Binance on May 6th, reaching an all-time high price, and gradually falling afterwards.AIDOGEAIDOGE went live on April 15th and attracted widespread attention from the market at the beginning of its launch. AIDOGE’s project team grasped investors’ preferences and planned to launch an AI NFT series for training, creation, and production. In addition, AIDOGE’s operation was very powerful and successively launched centralized exchanges such as Matcha and Bitget.AIDOGE’s success is mainly reflected in several aspects. First, it has a decreasing “fair” launch, in quotation marks because the team can rely on insider information to obtain a huge amount of chips at zero cost in the early stage for future manipulation. Second, AIDOGE can achieve a higher yield than the normal market level when providing liquidity and calculating compound interest. In addition, when users purchase AIDOGE tokens worth 100-1000 on the chain, they can participate in a lucky draw once every half an hour. This frequency and probability stimulate users’ gambling instincts and increase market games.Compared with PEPE, AIDOGE lacked the coin price effect of going live on Binance and peaked on April 30th, followed by a continuous decline.

From these two representative local dog /MEMEs, it can be seen that the degree of retracement of such projects is huge after the popularity reaches its peak, and the secondary risk is very high. Don’t forget the old saying, “one hero is exhausted,” and the trend of successful MEMEs is like this, with millions of imitators behind them, and the risk of taking over is even higher. If you want to invest in such projects, please be prepared to lose all your capital in advance.

8. Bitcoin ecology rejuvenates in spring

Bitcoin is very unique. Whenever a hot topic is discussed, it is always present, which is also the value of BTC. There is a group of pure developers who silently contribute and generate electricity with love, rather than relying on financing or team initial shares to maintain operation like the vast majority of projects.

Unlike the familiar Ethereum /EVM ecological projects, the BTC community is very open and there is no paid small group or Ethereum Foundation. Any new developments in the BTC ecology will be published in public forums, but these community developments are slow to spread to the outside world. Especially in the Chinese-speaking circle, for some of the top-level developments in the BTC ecosystem, the Chinese-speaking circle is the last place to realize it.

Nostr is such a project. As early as last year, when Twitter’s former CEO Jack tweeted his support for Bitcoin’s Layer 2/Social Layer Nostr, almost no one in the Chinese-speaking circle paid attention, only Biteye published an original article last year introducing Nostr’s pioneering work. It was not until February of this year that the Chinese-speaking circle gradually realized the importance of Nostr and its social app Damus, triggering a wave of mutual attention. In the past week, Damus has once again taken the forefront of the wind and waves. On June 13th, Apple’s App Store threatened to remove Damus, the news of the world’s largest tech giant’s suppression, inevitably made the community worried about Nostr’s future prospects. The reversal also came very quickly. Only one day later, after the communication meeting between Damus and Apple ended, Damus stated that as long as the Zaps function is adjusted, it can continue to stay in the App Store. It is amazing that a decentralized application can communicate with Apple so smoothly. This is consistent with Biteye’s judgment in the article half a year ago. As an investor in Nostr, Twitter’s former CEO Jack conscientiously helped Nostr’s ecology coordinate resources between Web2 and Web3. The plot of this wave of “new hope in the dark” is believed to attract more people’s attention to Nostr and raise their expectations for the BTC ecology’s social competition track.

One of the hotspots of the BTC ecosystem in the first half of the year was the ordinal theory, which led to the creation of the market-igniting Brc20, followed by the Orc20, GBRC721, and Stamp, all of which received great attention. Although Ordinals does not have a complete decentralized solution yet, and its technology needs to be improved, it still allows users who frequently pay attention to the BTC community and are willing to try new things to reap rich rewards.

This market trend has taught us that BTC community information cannot be ignored, and any innovation is worth trying. We must pay attention to the BTC ecosystem.

9. Hong Kong Takes a Big Step Towards Web3

Hong Kong used to be the headquarters of many important Web3 institutions, but the policy has been fluctuating, causing some projects to move their headquarters out of Hong Kong. During the bear market last year, various cryptocurrency exchanges and lending platforms went bankrupt, and regulations tightened in countries such as the United States and Singapore, leaving many practitioners and investors feeling discouraged and thinking that the future was bleak. However, in November 2022, during Hong Kong Fintech Week, the Hong Kong government released a “Policy Statement on the Development of Virtual Assets,” stating that it holds an open and inclusive attitude towards virtual asset practitioners, recognizing that Web3 and distributed technologies have the potential to become trends in the future development of finance and commerce. This has been interpreted by the industry as the beginning of the Hong Kong government’s renewed embrace of Web3, and policy support has eased the minds of practitioners somewhat.

In April of this year, Hong Kong held a Web3 carnival, which became the largest cryptocurrency enthusiasts’ exchange event in Asia after the epidemic. During the carnival, the Hong Kong government announced a number of policies to support the development of Web3, including a budget of HKD 50 million for industry development, a stockbroker student financial technology internship program, and encouragement for more outstanding talents to join the financial technology industry.

Compared to Singapore, which discourages retail trading, Hong Kong takes a more proactive attitude, allowing exchanges to apply for retail digital asset trading licenses starting from June 1. Cryptocurrency promotion slogans can be seen in public places in Hong Kong. In addition, Hong Kong has issued tokenized government green bonds and is expected to launch a stablecoin regulatory framework by the end of 2024.

According to Zippia’s data, about 44.3 million people in the United States hold cryptocurrencies, accounting for 13.22% of the total population, making it a highly accepting country for cryptocurrencies. SEC’s recent raid on the crypto community prompted some market makers to sell off altcoins, causing a sharp drop in market liquidity and heavy losses for investors. Regulators should balance their regulatory and development functions, and applying outdated regulatory frameworks to innovative asset classes is lazy and irresponsible. We can thus predict that practitioners in the United States will consider relocating to more crypto-friendly countries and regions due to regulatory pressure.

What we need to be clear about is that tokenization is not about evading securities laws. It is a product of blockchain technology in real-world applications, improving traditional organizational systems. The decentralized nature of blockchain makes it more resilient to attacks than any centralized system. If one node is attacked, there are thousands of others running. Some governments are cracking down, while others are supporting. The completely opposite regulatory attitudes of the United States and Hong Kong make us wonder if this might be the beginning of a shift from west to east.

Summary

The financial market may have bubbles, but technology does not. The Bitcoin and Ethereum ecosystems made significant progress in the first half of this year. As the crypto market expands, it will also face comprehensive regulation. Regulation is not necessarily a wolf coming, but rather to make the market more standardized and prepare for large-scale applications. Let us continue to participate in the construction of the crypto market, leading more people towards Web3 and enjoying a better internet.

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