Now that we’re halfway through the year, I wanted to check in on my 2023 predictions and share what I’m looking forward to most through year-end.
Key Takeaways
- Most of my predictions are on track to be accurate by the end of the year.
- The three areas I’m closely following through year-end:
- Growth of ecosystems surrounding layer-2 (L2) solutions. The more they grow, the more likely L2s are to gain significant users, easing fee pressures on Ethereum mainnet.
- U.S. regulatory and law enforcement developments. Rightly or wrongly, this will influence market performance for the rest of the year.
- Major project upgrades, mainnet launches and UX improvements. Bull or bear, the builders keep on building. Plenty of exciting releases scheduled before the year is out.
- (Heads up, my next post will focus on how I’m seeing the market and what my investment strategy is through year-end.)
Contents
Mid-Year Review of My 2023 Predictions
At the start of the year, I shared my yearly predictions related to the market, altcoins, investment narratives and more. Below, I list these predictions and briefly comment on their status. I’ve ranked them from best to worst.
Prediction #1: “2023 will be the year of staking.”
Analysis: On track. The staking category has grown rapidly so far this year, and this should continue over the months ahead. This growth noticeably accelerated after Ethereum’s Shapella upgrade in April. This upgrade allowed for staked ETH to be withdrawn from Ethereum, significantly lowering risks associated with staking.
As we’ve been covering in our monthly Market Reports and elsewhere, demand to stake ETH has soared since Shapella. (The wait time to become a validator is currently 35 days.) As predicted, other staking-related developments—such as liquid staking, restaking and distributed validator technology (DVT)—have also captured the market’s attention this year.
Prediction #2: “Tokens native to liquid-staking protocols and distributed staking protocols will outperform the market.”
Analysis: On track. This has been correct so far this year, but only just. The year-to-date returns of the leaders in these categories—LDO (+88%), RPL (+63%) and SSV (+82%)—are only slightly above those of BTC (+80%) and ETH (58%). However, of all the altcoin categories, these have arguably been the best-performing so far this year, and I expect this to continue through year-end.
Prediction #3: “This year, BTC will spend most of its time at $20,000–$30,000, and ETH at $1,200–$2,200.”
Analysis: On track. While this prediction has held so far this year, BTC has traded above $30,000 in recent weeks. If this continues through year-end, my prediction will be incorrect.
Prediction #4: “Blockchains will continue to modularise.”
Analysis: On track. This (admittedly very broad) prediction has unfolded as expected, which isn’t surprising given the pro-modularisation momentum that built up last year. As I noted in my 2023 predictions post, it’s not just layer-1 blockchains like Ethereum that are modularising, but also the layer-2 (L2) solutions building on top of Ethereum.
Whether it’s Arbitrum’s Orbit, Optimism’s OP Stack or zkSync’s ZK Stack, these modular pieces of software let builders assemble custom blockchains that cater to the needs of their target users. (This is as opposed to a monolithic design, where builders would be forced to adopt a single, pre-defined architecture.)
Prediction #5: “Regulation and exploits may affect prices but are incredibly difficult to predict.”
Analysis: On track. While this prediction was very non-committal, I wanted to include it to emphasise how certain factors can affect the crypto market’s short-term movement. We even saw this last week with the SEC v Ripple ruling causing the markets to rally. Other times this happened in recent months was when the SEC sued Binance and Coinbase on consecutive days. In terms of exploits and hacks, while there have been many so far this year, none have been at a scale that has tanked the entire market.
Prediction #6: “I expect MATIC to outperform this year.”
Analysis: Wrong. This has been very wrong so far. Year to date, MATIC has fallen by 2% while BTC and ETH have both soared by 80% and 58%, respectively. While I still think MATIC can do well through year-end, I’d be shocked if it ended 2023 ahead of BTC and ETH in terms of percentage return. (Our next monthly Altcoin Report will include Polygon, which has had major updates recently.)
Prediction #7: “The NFT market will continue to be a war for attention. NFTs tied to elite content creators and community growers will outperform ETH.”
Analysis: Wrong. While the NFT market is still a war for attention, the battlegrounds are littered with fallen soldiers. Only a few battered and bruised troopers remain. Indeed, year to date, the NFT market has been down only in USD and ETH terms.
Compared to other NFT categories, those tied to elite content creators and community growers have generally outperformed. But that’s no cause for celebration, as outperformance here just means these NFTs haven’t fallen as sharply as others.
The NFT market won’t come roaring back any time soon, in my opinion. While I’m confident that it will eventually, I think it’s most likely to happen once we’re deep into a crypto bull market.
The 3 Areas I’m Watching Most Closely Through Year-End
1. Growth of Ecosystems Surrounding Layer-2 Solutions
I’m excited to see L2 solutions becoming their own independent ecosystems of apps that can seamlessly interoperate. For Optimism, the first OP Stack chain went live last month by way of Zora Network. As covered in our most recent Altcoin Report, more OP Stack chains will launch soon, such as Base, Aevo, Kinto, Manta Pacific, Loot Chain and PGN.
As for Arbitrum, Xai and Syndr Chain are the only Orbit chains to be announced so far. The teams behind each are planning to launch later this year. From an adoption standpoint, I’ll be watching closely to see if OP Stack can maintain its early lead over Orbit.
With other L2s being less mature than Optimism and Arbitrum, it’ll take longer for their respective ecosystems to grow. That said, for nearly every L2, the groundwork is clearly being laid for builders to easily launch custom networks.
Examples include zkSync’s ZK Stack and the Starknet Stack. (While Polygon also has something similar called Supernets, chains built with this software are connected to Polygon PoS, a sidechain that is not directly tied to Ethereum. Currently, you can’t build a chain on top of Polygon zkEVM, an L2.)
Speaking of Polygon, it’s worth mentioning them here because, as of earlier this year, they now have an L2 that sits on top of Ethereum. While this is exciting, I’m still categorising the overall Polygon project as a sidechain. Ultimately, Polygon PoS is where the vast majority of Polygon’s activity, users, and economic value resides. I expect this to slowly change as Polygon zkEVM becomes more developer- and user-friendly. (Next year, Polygon PoS may become more closely linked to Ethereum.)
2. U.S. Regulatory & Law Enforcement Developments
It’s boring. I get it. However, in reality, the increasingly hostile attitudes of U.S. regulators towards crypto is an extreme headwind that’s capping the growth potential of this asset class and industry. If the situation in the U.S. improves, I can much more clearly see crypto entering a prolonged bull run. (Say what you want about the U.S. having a disproportionate say over the future of crypto, but the reality is that this is the elephant in the room that’s holding back crypto in so many ways.)
Hopefully, last week’s SEC v Ripple ruling helped lawmakers in Congress understand the need for legislation that clarifies, among other things, how cryptocurrencies are classified. Time will tell whether it did. All we can do is continue monitoring the situation. Regardless of what happens, this will absolutely affect crypto markets over the coming months.
3. Major Project Upgrades, Mainnet Launches & UX Improvements
The second half of this year is packed with major project upgrades and mainnet launches. Below, I’ve listed the ones I’m looking forward to the most. (I’ve omitted L2s—all of which have stacked short-term roadmaps—because I touched on them above.)
More generally, it’d be nice to see developments in user experience (UX). Frankly, UX needs to significantly improve if crypto is to have any chance at achieving mass adoption. By year-end, I expect more teams to leverage the UX improvements that were unlocked by a recent Ethereum upgrade.
(For those interested, this upgrade enabled something called account abstraction. I suggest watching this presentation on paymaster smart contracts, which were included in this upgrade. Paymasters can alleviate some of the many UX issues that have long plagued Ethereum and other blockchains. An example of these issues is the fact that a new user must own some ETH before they can do anything—because you need it to pay for gas. Such a pain! Even the likes of Visa are experimenting with paymasters on an Ethereum testnet.)
Recap
Of my seven predictions for the year, five of them are tracking well. The second half of 2023 will be particularly eventful for (i) ecosystems building around individual L2 solutions, (ii) developments related to how U.S. regulators and enforcement agencies are treating crypto, and (iii) several projects that are deploying major upgrades or launching on mainnet.
By the end of the month, I’ll post about my investment strategy for the rest of the year. This year, I’ve been accumulating BTC and ETH. My decision to avoid altcoins has proven the right one, as nearly all of them have underperformed BTC and ETH so far this year.