"The first half of 2023 was a turbulent period for the maturing crypto industry. We witnessed the intensification of both regulatory scrutiny and institutional adoption. Despite 2023’s challenges thus far, the industry has shown resilience, with total crypto market capitalization growing over the last six months," reads the recent half-yearly reports of Binance Reasearch on the state of crypto.
Pursuant to the authors of the report, "crypto is a rapidly evolving industry, which necessitates periodic examination of the most significant market developments. Crypto markets hit a peak in late 2021, and we are now approaching the two-year mark since then. In light of this milestone, it is timely to take a step back and examine the state of the markets and key developments that have unfolded in various sectors of the Web3 space."
The Past Year in Crypto
Looking broadly at crypto markets over the past year, H1 2023 was marked by recovery compared to the weaker performance of H2 2022.
Closing at $1.17T on June 30, 2023, the total crypto market capitalization rose 30.3% from $0.90T a year ago. Despite ongoing macroeconomic uncertainties, the industry has enjoyed considerable upswings, with a 47% growth in Q1. Overall, the total crypto market capitalization has grown 47.6% since the start of 2023.
The Layer-1 Landscape
Bitcoin dominated the layer-1 (L1) landscape in the first half of the year. Driven by technological developments, including the advent of ordinals, the Bitcoin ecosystem has witnessed a resurgence in energy and excitement, with on-chain metrics indicating positive market sentiment and increased user engagement. Throughout H1 2023, the crypto pioneer has regained a majority market share, increasing its dominance from 40.4% to 50.5%.
Apart from ETH and XRP, which showed slight increases in market dominance, the majority of other top cryptocurrency assets declined. Combining this with the fact that the overall crypto market capitalization grew across H1 2023, it could indicate that money moved from alternative assets into BTC.
While Bitcoin has had an eventful start to the year, the other major L1s have also been innovating at a rapid pace. Financial metrics show that Ethereum remains the leading L1 network behind Bitcoin, beating the others in market capitalization, trading volume, and revenue generation by a considerable margin.
The Layer-2 World
The layer-2 (L2) sector has experienced multiple strong points over the last year and touched new heights in 2023. Focusing on Ethereum’s L2 scaling solutions, a number of high-quality projects are now fully functioning below the base L1 chain. While optimistic rollups have retained their market dominance, zero-knowledge (ZK) competitors are catching up fast.
Stablecoins
The stablecoin market contracted this year, largely due to a shifting regulatory landscape. Despite a modest decline of 7.0% since the start of 2023, the stablecoin sector retains a total market capitalization of $128.1B.
In this competitive landscape, centralized stablecoins remain dominant, comprising over 90% of the overall market. In particular, Tether’s USDT has consolidated its market position amid the decreasing stablecoin market value, primarily at the expense of other competitors.
Decentralized Finance
Despite a mixed 2022, decentralized finance (DeFi) has seen steady growth in 2023. Since the start of the year, the total value locked (TVL) in DeFi increased 16.7% to $44.2B. Today, DeFi is embedded throughout the entirety of the crypto industry. Though still in its early stages, DeFi is projected to reach a revenue milestone of $231.2B by 2030.
DeFi products continue to attract a significant number of users, with transaction activity painting a promising picture. The trend for this year has shown a positive shift in user engagement for DeFi protocols, with the number of unique monthly users climbing 42.5% from an average of 2.5M to 3.6M.
Non-Fungible Tokens
Non-fungible tokens (NFTs) have had a challenging year thus far. Sales peaked in February 2023 before seeing a general decline over the next few months. NFTs recorded $5.3B in sales volume in the first half of 2023, representing a decrease of 75.9% since the previous year.
The sharp fall in NFT sales over the last year was accompanied by a 74.9% decline in average NFT sale prices. Nonetheless, some underlying metrics have improved. Specifically, transaction volume has increased, with the total number of transactions on a yearly and half-yearly basis being 0.6% and 41.8% higher, respectively.
Gaming
Compared to the excitement of previous years, retail interest in gaming and Metaverse sectors has been significantly lower so far this year. Despite this, the market capitalization of gaming-related tokens has grown, and developers remain committed to building. In H1 2023, the gaming landscape was led by three major blockchains, with over 67% of games built on BNB Chain, Ethereum, and Polygon.
The market capitalization for gaming-related tokens has increased 48% over the last year, ending the first half of 2023 at $12.1B. Gaming-related tokens have benefited from the broad-based recovery in the crypto market.
Institutional Adoption
Throughout 2023, blockchain innovations have increasingly attracted institutions from traditional finance (TradFi) as they embrace the technology. Many are exploring its potential benefits with increased experimentation and expanded accessibility.
CBDC pilots
Central banks have continued to launch and expand their pilot programs for central bank digital currencies (CBDCs) to enhance payment services and build a more integrated financial system. Major developments in this space have included the following:
China has made a significant push to roll out its digital yuan (e-CNY), including initiatives with public transport and salary payments.
Hong Kong announced its e-HKD pilot program in May as part of the city’s exploration of a possibility to implement a retail CBDC.
The Colombian central bank partnered with Ripple to leverage its CBDC platform for piloting use cases and improving its payment system.
The Bank of Japan has also joined the ranks of those unveiling their CBDC pilot projects, announcing in April its plan to test the use of a digital yen.
Thailand launched its retail CBDC pilot in June with three payment providers, aiming to involve up to 10,000 users in its regulatory sandbox through August.
Crypto accessibility
Traditional financial institutions have started offering the opportunity to trade cryptocurrency assets. Significant developments in this field included the following:
BlackRock, the world’s largest asset manager, filed for a spot Bitcoin exchange-traded fund (ETF) on June 15. If approved, Coinbase will serve as its custodian.
EDX Markets, a new digital assets exchange backed by prominent financial institutions such as Citadel Securities, Fidelity Investments, and Charles Schwab, was launched on June 20.
Germany’s DZ Bank announced plans to offer BTC trading in February. This was followed by the DWPBank in March, which launched its own platform.
The Chicago Board Options Exchange has been approved to provide access to digital assets by the Commodity and Futures Trading Commission (CFTC).
Previously only available to institutions, Fidelity Investments has released its Fidelity Crypto platform to enable BTC and ETH trading access for retail users.
Hong Kong’s Securities and Futures Commission implemented a new crypto licensing framework, with investors allowed to trade digital assets from June 1, the report states.
