Review and Outlook of Shenfish: What to Watch for After Bitcoin Spot ETF in 2024?

^Author | Shen Yu^

Original link:

https://mp.weixin.qq.com/s/2zL_rwwGJcgO6XwvdmwsLQ

What to pay attention to after the BTC ETF is approved?

What events in terms of regulation and compliance should we focus on in the future?

The first focus is the approval of the BTC ETF.

In March 2023, many North American banks cut off their channels with Crypto, and early 2024 will mainly focus on the approval of the ETF, which will bring new channels for traditional financial funds to enter the crypto industry in compliance.

In 2024, we need to pay attention to how the asset scale will change after the ETF is approved; what ETF-based derivatives will emerge after approval; and how asset management will land and develop in various countries after the ETF is approved.

In addition, we also need to pay attention to whether the approval of the ETF will expand from Bitcoin ETFs to other cryptocurrencies like Ethereum. The occurrence of this situation releases a clear positive signal, indicating that major blockchain assets like Bitcoin and Ethereum have been accepted like traditional assets and are beginning to enter balance sheets.

In addition, there are several key events to watch in 2024:

1) The effectiveness of the cryptocurrency accounting rules by the Financial Accounting Standards Board of the United States, expected to occur by the end of 2024, will have a significant impact on banks and enterprises, meaning that crypto assets can be included in the balance sheet.

Once the crypto financial standards take effect, the crypto assets held by enterprises can be accounted for at real-time value in the liability balance sheet, better reflecting the true value of crypto assets. This will strengthen the willingness of companies and enterprises to hold digital assets.

In fact, during this round in 2021, some traditional companies began purchasing Bitcoin and Ethereum as part of their own capital holdings, but digital assets could not yet be included in the balance sheet and could only be calculated in some other ways, making it difficult to reflect the company's revenue and changes in real-time.

If this trend continues to expand, we will see an impact on the banking side, meaning banks can also hold digital assets as alternative assets or support collateralized lending—borrowing fiat currency against crypto assets, providing a better off-exchange leverage function, rather than the current large amount of on-exchange leverage.

2) Pay close attention to the digital asset reserve trends of some small countries. In particular, whether the central banks of small countries have begun to reserve digital assets (as a substitute for gold) could be a significant trend in the near future.

3) Focus on the daily cryptocurrency usage status of ordinary people in third-world countries and regions with high inflation. Ordinary people, especially the new generation born after 2000, have already begun to use digital assets in their daily lives. Whether this trend will further strengthen, and whether it will face new regulatory risks and challenges if it develops, are very important.

Economic Cycle: How is this different from the previous cycle?

There is no essential difference from the previous cycle, but there are differences in specific manifestations:

1) In this cycle, the speed of bubble elimination is faster, leading to the rapid bankruptcy of many companies and institutions.

Although many U.S. companies go bankrupt in every bear market, the speed of bankruptcy in the 2022 bear market was faster, and the way bubbles were eliminated was different from the past. The reason is that many companies were overly optimistic in the previous bull market (the so-called eternal bull market), leading to a more aggressive mentality, which caused the bubble to burst much faster than before. For institutions or companies, this will have an impact, leading to the rapid bankruptcy of many institutions. Of course, for practitioners, the past year and more has not been easy.

2) In addition, this is the first time the crypto world has encountered a rate hike cycle. From the birth of Bitcoin to last year, it has been an inflation cycle, and this is the first time encountering a counter-cyclical situation, and it is our first experience of the impact of macro rate hikes on the industry.

3) From a personal perspective, the last bear market was not as cold as previous cycles, nor as despairing.

As a co-founder of Cobo, what insights do you have on how to survive the long bear market winter?

The focus of the bear market is mainly on risk management and control. Specifically, it is about managing cash flow and being fully prepared for black swan events, rather than having a mentality of an eternal bull market.

DeFi vs Traditional Finance

Is decentralized finance, as a brand new financial model, simply replicating the development cycle of traditional finance?

Basically, yes.

DeFi is rapidly replicating the relatively mature products developed in the traditional financial market over the past 200 years in a decentralized manner, quickly iterating and experimenting on-chain through this crypto-native composability.

What is different from traditional finance?

Compared to traditional finance, DeFi is much more efficient and completely transparent.

The high efficiency means a faster iteration speed, roughly 50 to 100 times that of traditional finance. The modern financial history of the past 200 years can be quickly experimented with in the crypto industry in just two or three years.

Moreover, since DeFi is based on blockchain, all its code is open-source, equivalent to a transparent box. In contrast, traditional finance is a black box, and each company's internal operations are also black boxes, making it difficult to understand how the entire financial system operates. DeFi is completely transparent; anyone interested can understand its operating principles if they spend time on it.

Therefore, if there are bubbles or problems in DeFi, they will be exposed more quickly, and the bubble will burst faster, allowing for rapid experimentation.

Future Outlook: Promising Tracks and Trends

Which tracks and trends do you see as promising in the future?

First, the core is Layer 2. How to make Layer 2 run better, whether it is Ethereum's Layer 2 or Bitcoin's Layer 2, is a core issue we need to solve in the long term, which is to provide better underlying basic services while reducing costs.

The second point is solutions based on smart wallets, AA wallets, and MPC wallets, which can allow users to use blockchain technology asset protocols with lower barriers. Especially the combination of AA wallets and PassKey may be a problem that must be solved in the future.

The third point is a bit further out, which is the next stage that needs to be addressed after solving the first two issues.

I believe that the crypto industry may not see the scenario we expect: the widespread use of on-chain wallets. Instead, it may be AI, robots, and IoT devices that are using them, which will be associated with some addresses holding digital currencies and authorized to use part of the asset permissions. This process will generate data exchanges and obtain human authorization for some transactions. This stage is expected to be further out; the development of AI and IoT relies on the development of blockchain middleware and underlying infrastructure, which requires cycles and time. I estimate that it will take about 1 to 2 more cycles to reach this stage.

In the next 5 to 10 years, the above three tracks are what I am most concerned about.

What challenges do you think cryptocurrencies will face in the future? Or what challenges will there be in 2024?

Currently, the biggest challenges are mainly two.

One is the outbreak of applications, highlighting the performance bottlenecks of the chain, which will make everyone discover and solve problems.

This will be the main line of the next cycle—solving scalability issues, and the answer is obvious: adopting Layer 2 networks as a lower-cost scalability solution. Regarding Layer 2 scalability, I believe we are currently in a deliverable state, in the early validation stage. Then, in terms of market choice and route selection, who will take over the entire market will become the most critical issue at this stage.

In the next stage, when the infrastructure is ready and performance is optimized and improved, we will welcome large-scale application scenarios.

It can be confirmed that large-scale application scenarios will inevitably come. What is uncertain is, "In the next stage, among so many application scenarios, which one will be the killer application?" and the timing of its emergence, "Will it start to emerge in the next year or two?"

How do you view the revival of the crypto industry brought by Solana memes and the statement that 'Solana will flip Ethereum'? What do you think of the DePIN narrative?

Although Solana was significantly impacted by the FTX incident, my intuitive feeling about the Solana ecosystem over the past year is that there are a group of people continuously building on it. Regarding the future development of the Solana ecosystem and whether it can flip Ethereum, I think we need to continue observing whether this trend will be maintained and whether the Solana ecosystem can develop better.

Recently, the popularity of the Solana ecosystem is mainly due to short-term price behavior, which is essentially normal market trading behavior, and I won't comment on that.

As for the DePIN track, I personally am not that optimistic. Of course, if this can be done well, it is valuable, but the current gameplay or stage seems to be still in the early phase.

If it is to be implemented, I think DePIN faces at least two major challenges:

First, to land, DePIN must form a network effect, which is still in the early stage, making it difficult to form a network effect. Whether it can form a certain network effect in the future remains to be seen.

Second, if a network effect is generated and the scale expands, it will inevitably come under regulatory scrutiny, leading to more complex regulatory issues.

In summary, I think DePIN is currently in a somewhat "meme" stage.

What is the likelihood of a multi-chain dominance? Besides Ethereum, do you see potential in other public chains or ecosystems?

Ethereum mainly revolves around Layer 2, including the subsequent application landing scenario iterations, which are all expected.

However, the performance of the Bitcoin ecosystem in this round has somewhat surprised me, especially the bottom-up drive and innovation occurring within this ecosystem. Therefore, I may pay attention to some attempts and innovations in the Bitcoin ecosystem, hoping to see breakthroughs and developments in this market round.

What is the reason for focusing on refining the trading module in the next stage?

In my view, there are currently three types of users in DeFi.

The first type is asset management users, who mainly use DeFi as a transparent asset management tool, allowing them to obtain transparent investment returns.

The second type of users are market makers who provide liquidity and arbitrage for the trading functions of DeFi underlying protocols. This type of user has a demand for a good tool to manage liquidity on-chain.

The third type of users directly use DeFi as a relatively mature financial tool, primarily ordinary users focused on trading and lending modules.

Our first module is basically aimed at DeFi asset management users, which is also the biggest demand of Cobo Argus.

As the number of asset management users and their TVL expands, users who engage in market making, provide liquidity, and arbitrage in DeFi are also starting to grow. They will arbitrage between centralized and decentralized platforms. Consequently, the demand from these users arises—they need decentralized tools for permission management, which falls under trading-side permission management, requiring more precision, down to the function level.

Please recommend a book you found impressive in the past year.

"The Currency Pyramid," this book is relatively thin and serves as a popular science reading, which can open up thinking and broaden horizons, providing a forecast for the future. This book mainly discusses the evolution of currency and presents a thinking framework on how future cryptocurrencies will derive credit currencies as a top-tier currency. I personally strongly agree with this viewpoint in the book, and I believe the future is moving in this direction.