There was no shortage of storylines from 2023. Some of them were non-stories: Despite talks of regulating cryptocurrency in the U.S., the industry still has no working framework stateside. NFT prices cratered, but the digital assets showed surprising resilience. Overall, reports of crypto’s death were greatly exaggerated.
In light of that, there were three themes from 2023 that not only stood out but also are sure to feature in 2024. In no particular order:
[#1: Scandal 🦹]
Disgraced former FTX CEO Sam Bankman-Fried, who was arrested on fraud charges in December 2022, served as the public poster boy of crypto. Not a good look. 👁️ SBF had the distinction of uniting crypto enthusiasts and no-coiners around a common enemy; both camps rejoiced in November when he was found guilty on all seven criminal charges.
The (ironically) good vibes were short-lived. Just weeks later, Binance settled with the U.S. Department of Justice over charges that the world’s largest crypto exchange failed to control money laundering and terrorism financing via the platform. The exchange agreed to pay $4.3 billion, and CEO Changpeng Zhao stepped down.
Both of the former exchange chiefs face sentencing in 2024. Meanwhile, Alex Mashinsky, founder of the bankrupt Celsius, awaits trial, and Terra co-founder Do Kwon awaits extradition. And it’s not out of the question that other execs could get a knock on the door… 🚪
What We Said Then 🧑💻:
“This development is another obstacle for Web3 CEOs and founders, who are tasked with framing SBF as merely one bad actor in the space—not a representative of the entire industry” – Edition #84, August 17
“Hopefully with SBF’s conviction we will begin to have more opportunities to divert our attention to more important matters crucial for the maturation of the industry as a whole.” – Edition #96, November 9
“Binance became the largest crypto exchange by a wide margin— controlling over half of trading volume worldwide—in part by ignoring regulations. If this settlement hobbles the exchange, customers may be looking to trade elsewhere. Will Binance be able to retain market share or will competitors step up to fill a vacuum?” – Edition #98, November 23
Where Things Stand Heading into 2024:
Binance is as dominant as ever, while FTX remains D-E-A-D. 😵 But scandal remains a central part of the crypto conversation.
[#2: Ethereum Development 🧑💻]
While SBF sucked up most of the oxygen in mainstream and crypto media, Ethereum devs kept their heads down and built. 🦤
In April, the network’s Capella and Shanghai (Shapella, for short) upgrades went into effect, with the latter enabling people to withdraw staked ETH. (Users had been able to lock up ETH on the network since 2020 in return for token rewards—they just couldn’t get those funds out.)
Development extended beyond the main chain, as layer-2 blockchains competed to process transactions at scale. ⚖️ Existing optimistic rollups Arbitrum and Optimism batched transactions for processing on their own chains before placing much lighter data loads back on Ethereum. 💽 But newer scaling solutions, including zk (zero-knowledge) rollups that promise faster final settlement, are gunning for them. 🔫 Indeed, 2023 saw the introduction of several new scaling solutions in the top 10, among them Coinbase’s Base (#3) and Consensys’s Linea (#10), not to mention zkSync and Polygon zkEVM.
What We Said Then 🧑💻:
“The question now that the Shapella upgrade has gone live is: What happens next?” – Edition #66, April 13
“The Ethereum scaling roadmap has incorporated rollups for some time. Given their speedy finality, ZK rollups hold the potential to be even more transformative than optimistic rollups.” – Edition #77, June 29
“Ethereum by itself is slow and expensive. The various layer-2 blockchains built atop Ethereum all work to scale the latter to something that can handle loads of transactions all at once. And the likes of Polygon and Base are jockeying for devs to build apps on their chains, which could drive revenue back to them.” – Edition #89, September 21
Where Things Stand Heading into 2024:
Ethereum looks stronger than ever. Its token price is now higher than at the time of the upgrade while the amount of ETH locked into layer 2s is up about 30%, keeping gas prices well under their high-water mark.
[#3: ETFs 🏦]
While Ethereans were building, Bitcoiners were…waiting. A spot Bitcoin exchange-traded fund (ETF), long seen as a way to bring more retail investors into crypto because it essentially allows people to add BTC to their portfolios as easily as they might a stock, inched closer to approval. 📊
More accurately, the SEC’s defenses started breaking down. In August, a U.S. Appeals Court told the SEC it had used faulty reasoning when denying a spot Bitcoin ETF. 👨⚖️ That ruling (and the SEC’s decision not to appeal) handed a victory to Grayscale, which has been trying to convert its Bitcoin trust into a (more flexible and retail-friendly) ETF. But it also cleared the way for BlackRock and others to plan on ETF trading as early as January. ETF anticipation hit a high in December, when the price of BTC went above $45,000 for the first time in over 18 months. 📈
What We Said Then🧑💻:
“If the agency capitulates on crypto-centric Grayscale, it’s hard to see it denying TradFi behemoth BlackRock.” – Edition #86, August 31
“By approving a Bitcoin spot ETF, US regulators would legitimize an asset class that has been long viewed with scepticism and because Bitcoin is an industry leader, this could lead to greater adoption, more liquidity, and market growth for all of crypto” – Edition #94, October 26
“The continued upward movement for BTC and other coins suggests a shift from a bear market to a bull one.” – Edition #100, December 7
Where Things Stand Heading into 2024:
The SEC’s decade-long refusal to approve a spot in Bitcoin ETF appears to be all but over. The big question, though, is whether investors will actually be as hungry for ETFs as many believe. If they’re not, this fresh bull market could prove ephemeral.
[Tweet Of The Year]
Credit: @Oncotastic
[DeFi Definitions]
A segment exploring one particular aspect of DeFi.
This week: “Merkle Tree” by Andrew Wickerson.
Named after Ralph Merkle, who wrote a 1987 paper titled "A Digital Signature Based on a Conventional Encryption Function," Merkle trees organise and verify data using a tree-like structure and are invaluable to distributed systems and peer-to-peer networks because they can verify data very efficiently.
Merkle trees cut out extraneous work by exchanging compact hashes instead of entire files, minimizing network traffic. In blockchain systems like Bitcoin, Merkle trees ensure transaction integrity, allowing participants to verify entire blocks through the Merkle root - a single hash that serves as a concise representation of the entire set of data and sits at the top of the tree.
Another example of Merkle trees in action is Celestia’s Namespaced Merkle trees (NMTs). Celestia utilises NMTs modified hash function alongside data availability sampling to partition block data into distinct namespaces for applications, ensuring each application only downloads its relevant data.
The usual disclaimer: This newsletter collates the main themes and headlines of the week in DeFi/crypto/metaverse/Web3/NFT land and tries to provide unbiased context. It's aimed at anyone who wants to keep an eye on the space. It's put together by a team at YAP and doesn't contain any promotion of our clients (if one is mentioned, we'll flag that).
The team: Founder Samantha Yap and consulting editor Jeff Benson, Sam O'Donohoe, Ewan Brewster, Damian Alvarez, Andrew Wickerson, Tiffany Mac Sherry, Becky Corbel and Delon Chan. Your feedback is, as always, welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
This newsletter is prepared by YAP Global, an international P.R. Consultancy focusing on helping cryptocurrency, Decentralised Finance (DeFi) and Web3 brands through impactful storytelling. Find out more about us here.