2024 Crypto Predictions That Matter

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Programming note: Chain Venturer interview series will be back next week.

We’re still ramping up our guest list for 2024, so if you know anybody who might be interested in participating, please DM me on telegram (@marcomanoppo).

Hi folks 👋,

Welcome to my annual crypto predictions. It’s cliche, I know.

Many investment firms, crypto Twitter influencers, and research shops have published their 2024 outlook — so why should you read this one?

As a consumer of these annual predictions myself, my biggest pet peeves are:

• They’re too damn long

• They make obvious statements

• They don’t have a strong stance on issues/topics

To me, predictions aren’t meant to be “safe”, nor am I optimizing for “being right” all the time.

These predictions obviously need to be grounded on facts and analyses, but the purpose is to catalyze conversations on things that matter.

With that said, let me get straight into it :)

2024 PREDICTIONS

Key Takeaways

I’m going to give you the meat straight away 🥩

If you’re busy (we all are in this bull market). Here are the quick takeaways:

1. Total crypto market capitalization regains $3T.

2. Decentralized exchange consolidation.

3. Re-staking blowups or exploits hit $500M before EOY.

4. RWA Tokenization moves offshore or fails to see traction.

5. Stablecoin supply hit $250B.

6. Alt L1s continue to outperform ETH L2s.

7. De[PIN, SCI, etc] projects remain underwhelming businesses.

Honorable Mentions

1. Worldcoin inspired a new wave of web3 consumer privacy products

2. BRC-20 mania (and Bitcoin DeFi) becomes popular

3. One jurisdiction approves tokens as pseudo-equities

4. Asia continues to lead crypto development

5. Token bonds emerge as an asset class

6. DeFi remains a non-US phenomenon

7. One crypto mobile game hits 100k DAUs consistently

8. Regulated products (ETFs/ETPs) issuers will go further down the risk curve

9. Crypto remittance use cases remain lackluster

10. Tether settles with the DOJ

For those of you who want the potatos and the veggies, keep on reading 🥗

2024 PREDICTIONS

1. Total Crypto Market Capitalization Regains $3T

The crypto market last peaked at $3T market cap. I believe we’ll regain that level given the numerous developments that are currently happening and will happen in 2024. Fun fact: Microsoft’s market cap is 2.89T.

First, the global macro outlook, at least on the Fed liquidity side, is looking positive. Whether or not the act of printing money can be seen as “positive” given how it will continue to widen the wealth gap and cause other social issues is above my pay grade, but I digress.

In general, we can all agree that more liquidity is good for risk-on assets.

On top of the Fed’s action, we have the Bitcoin halving and the just-approved spot Bitcoin ETFs. Both events are like pouring oil on the flames. The halving will further cement BTC as a hard asset, and the spot Bitcoin ETFs will make it easier than ever for BTC to be integrated with the global financial systems.

There are many firms out there that have done a great job at predicting potential Bitcoin ETF inflows, but here’s one that I particularly like:

Outside of Bitcoin, a separate development that will contribute significantly to the total crypto market cap growth is the Ethereum restaking ecosystem, as well as stablecoin yield. Ethereum is currently stuck. It’s not large enough for global macro managers to allocate a percentage of their capital without substantially impacting the market, and it’s not small enough for crypto-native funds to generate outsized returns.

I believe the upcoming spot Ethereum ETFs and the ongoing restaking meta will propel ETH into the limelight. ETH staking yield and its restaking ecosystem (LRT, LST-backed stables, etc.) will continue to become the “risk-free” rate of crypto (whatever that means) — potentially increasing its market cap so that it becomes large enough for multi-asset managers to allocate to.

2. Decentralized Exchange Consolidates

Charging fees for facilitating value transfer is a business model as old as human history itself. In the modern world, exchanges are considered picks and shovels businesses because they’ll profit regardless of what happens.

At a glance, it seems obvious that DEXs possess the same characteristics. After all, Uniswap is still the most dominant DEX for EVM, and Jupiter is positioning itself to become the kingmaker of Solana. All this, however, is overlooking one extremely critical point.

Open source is not good for exchanges.

Take a look at the chart below. There are approximately 80 major stock exchanges in the world, with a combined value of $110.2 trillion. I wouldn’t be surprised if there are already more DEXs in the crypto space.

Out of these conventional stock exchanges, only the top 18 have a market capitalization larger than crypto (above $1.6T) as of August 2023.

This is because exchanges’ primary moats are regulatory and access.

• It takes a long time to establish a new exchange. Take a look at the Long Term Stock Exchange (LTSE). It took Eric Ries (author of The Lean Startup and Silicon Valley’s veteran) nine years from ideation to creation. You need to apply for the right licenses, get appropriate regulations, etc. — no matter what your views are on financial markets regulation, it’s imperative to admit that the lack of it also means more commoditization of the business model.

• Companies usually choose to be listed on one exchange. Yes, you’ll find some companies that are listed on multiple exchanges, even in multiple countries. But there are fees and other factors that must be considered.

Alas, thanks to open-source (which is a double-edged sword for business models), both moats are non-existent for DEXs.

Tomorrow, I can pay a Solidity developer $10,000 per month to fork Uniswap and list all of the shitcoins that people want to trade. Sprinkle some degen tokenomics on top, do guerilla marketing with KOLs, and voila! Ironically, this is also why DEX tokens have been underperforming.

But will the founders of these DEXs become rich? Absolutely.

Forking a DEX is probably the most sure-fire way to achieve a low 7-figure exit. As I’m writing this I realize I should probably act instead of pontificating, but I digress.

We’ll continue to see consolidation in the space, with smaller DEXs either getting out of business or getting “acquired” (we have yet to see what that means for protocols).

3. Re-staking damage hits $500M before EOY

This one shouldn’t be surprising. If there’s one thing that we have learned about human nature by being in the crypto space is that greed is limitless and it always returns.

Game theorizing how EigenLayer itself can cause a rehypothecation bomb is slightly above my pay grade, but I can assure you that builders will find ways to facilitate degens to speculate on ETH staking yield on leverage, tie that into stablecoins, and cause another “mini” Terra-like scenario. I said mini because at least the ETH restaking mania is not based on endogenous collateralization like Terra.

Prediction: We’ll see $500M worth of “value destruction” either via an exploit (courtesy of North Korea) or by an ETH staking/restaking-related de-pegging event that caused cascading onchain liquidations.

4. RWA Tokenization moves offshore or fails to see traction

As the global financial markets re-enter the risk-on environment, I believe most of the RWA tokenization effort will either fail or move offshore. Tokenization is a great concept for giant incumbents such as BlackRock, as it’s arguably an improvement to the existing ways we wrap assets (such as ETF).

If tokenization saves 1% in fees by streamlining the entire workflow of asset managers, that can easily result in multiple billions for the large incumbents.

Other than the giant incumbents, onshore RWA players will have difficulty growing beyond a great 8-figure business. However, offshore RWA players will have an edge by facilitating non-US persons access to certain types of assets.

For startups in the RWA space, there will be a limited number of winners.

Most will be service providers that cater to the needs of these large incumbents, instead of new RWA-focused blockchains or protocols that try to cater to the crypto-native audience.

5. Stablecoin supply hit $250B

This one is pretty straightforward. Stablecoins market capitalization currently sits at ~$135 billion. I believe this number will almost double to $250 billion. There are two primary reasons:

• Many founders are going to go after the margins that Circle and Tether have for USDC and USDT. Mountain Protocol is already doing this by issuing a USD stablecoin backed by short-term US Treasuries. It’s being done by incorporating offshore and multiple legal strategies.

• The rise of LST and LRT will inspire a new class of Maker-esque stablecoin protocols on Ethereum (as well as other chains), as protocols and ecosystems realize that stablecoins will continue to be the number one killer app for crypto.

I also predict that USDC’s market share will continue to decline as the interest rate goes down. It’s also seen as a US-centric USD stablecoin with over-the-top compliance, when Money innovation, especially digital offshore US dollar (the appropriate name for USD stablecoins), will always start offshore.

Take a look at the chart below. The entire stablecoins market cap is not even larger than France’s eurodollar market as of January 2023.

The only strength that USDC has is its position as defacto onchain trading pairs for most crypto assets. USDT and other crypto-collateralized stablecoins have been aggressively going after this position. We’ll continue to see rising competition from Ethena Labs, Frax Finance, Curve, Aave, and many more.

6. Alt L1s continue to outperform ETH L2s

Show me the incentive and I’ll show you the results.

The reason why the alt L1 rotation trade will continue to work well and even outperform ETH L2s is because that’s what Venture Capitalists are incentivized to do.

L1s are the least risky assets in terms of regulatory perspective. It also has the most significant upside as you’re betting on the underlying infrastructure and ecosystem of the L1s, instead of individual applications. Moreover, most of the vested tokens are also “hedgeable” either by doing certain OTC deals or by selling the staking rewards of your vested staked tokens.

On the L2 front, I believe it’s unreasonable to expect 25 different L2s to capture a multi-billion dollar market cap. This is because the technology to create a new L2 gets easier with time and it will eventually be commoditized. The value will be on the underlying applications that decide to also have an L2 (see: Aevo, Zora) — not on the generic L2 itself.

There will be a few L2 winners that can compete with the successful alt L1s, but in general alt L1s as a basket are more poised to win in the next bull market.

Here’s a thought experiment. See the chart below. Arbitrum made $235,000 per week or $940,000 per month. Blockworks made $20M in 2022.

7. De[PIN, SCI, etc] remains underwhelming businesses

The concept of De[insert three letters] makes sense to me. At its core, De[XYZ] aims to democratize and decentralize the effort that it takes to create a network. To achieve this, De[XYZ] projects create economies within their ecosystem to incentivize all parties involved.

In theory, this is a great idea. You can extend the concept to decentralized ride-sharing, cloud services, physical infrastructure, science, energy grid, and many more. However, balancing token inflation and the value of said tokens remains the most important challenge that most De[XYZ] projects have failed to solve.

This requires a complex incentive model that can result in the underlying token’s dilution of value, which will reflexively impact the network growth to the downside. Perhaps unsurprisingly, this problem persists because it’s unclear where values will accrue, and will the tokens actually capture those values.

If I’m the creator of a DePIN project that maps air quality data and then I sell those data to an air purifier maker, who gets to book the revenue? Is it the DAO/tokenholders, or the underlying company behind the DePIN project?

Same old problem, taken into a new sector.

My prediction: We will continue to see cool initiatives revolving around the De[XYZ] concept, but they will remain underwhelming businesses.

Now, that doesn’t mean that none of them will be able to capitalize on the narrative and make their tokens extremely valuable, just like Helium did in late 2021. Some of them might be able to, but the values will not be rooted in actual business metrics.

Honorable Mentions

The following are additional predictions that I think will happen in 2024.

Mind you, these are my stream of consciousness. I don’t have a complete thought in my head as to how they will play out, and I might turn each into a longer essay throughout the year.

1. Worldcoin inspired a new wave of web3 consumer privacy products, especially to combat data ownership in the AI world

2. BRC-20 mania (and Bitcoin DeFi) becomes popular as Bitcoin miners realize that the halving is starting to become damaging for their business model

3. One jurisdiction approves tokens as pseudo-equities — starting with Japan allowing startups to raise via tokens

4. Asia continues to lead crypto development (year of the dragon) — Asia is the “rising region” and there’s a massive appetite for a new technological and financial ecosystem (onchain) that’s outside of the US control

5. Token bonds emerge as an asset class — which will help the development of the DeFi credit ecosystem, fixed income, etc.

6. DeFi remains a non-US phenomenon

7. One crypto mobile game hits 100k DAUs consistently

8. Regulated products (ETFs/ETPs) issuers will go further down the risk curve and include staking yield to attract customers

9. Crypto remittance use cases remain lackluster, beaten by regional QRIS technologies

10. Tether settles with the DOJ

2024 will be an exciting year for crypto. That said, we still have a lot of work to do. It has become apparent to me that the majority of market participants haven’t learned from the 2021-2022 era. Ponzonomics-like incentive structures are still rampant, speculative use cases particularly around excessive yield are still the number one growth hack strategy, and no significant consumer apps have been useful for those outside of crypto.

To truly make it this time, we need to learn.

Until next time,

-Marco

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