Looking back at the Web3 industry in 2023, blockchain technology and the encrypted assets built on it are still in operation and have initiated a new round of expansion.
In Asia, as Singapore's policy towards encrypted assets shifts from openness to conservatism, Hong Kong is gradually becoming the new capital of Web3. Regulators led by the Securities and Futures Commission (SFC) in Hong Kong are actively implementing the Virtual Asset Service Provider (VASP) license, attempting to regulate the encrypted asset trading market institutionally.
In the United States, compliance is warning Web3 practitioners in the form of "penalties." The FTX scandal concluded with its founder, Sam Bankman-Fried (SBF), being convicted, and the world's largest encrypted asset exchange, Binance, reached a $4.3 billion settlement agreement with the US Department of Justice and other regulatory agencies.
On the path of Web3 development, "compliance" has become an eternal theme. The hot topic of Bitcoin spot ETF also needs to continue under compliance, and the Bitcoin ecosystem has gained new vitality due to the emergence of "inscriptions." Blockchain networks such as Ethereum, Polygon, and Solana are supporting the value of new and old DApp applications, retaining the value of smart contracts.
Compliance
In 2023, the capital and talent heat in the encrypted asset market continued in two regions. Asia is dominated by Hong Kong, while the core focus is on the United States. These two regions are sounding the horn of "compliant development" of Web3 and the encrypted market in different ways.
When the Monetary Authority of Singapore began restricting retail customers from using leverage or credit for cryptocurrency trading in 2022, the Hong Kong SAR government issued the "Policy Statement on the Development of Virtual Assets in Hong Kong," prompting some Web3 talents and companies to move to the new promising land.
On June 1, 2023, Hong Kong fulfilled its declaration and issued the "Guidelines for Virtual Asset Trading Platform Operators," officially implementing the virtual asset trading platform licensing system.
Currently, HashKey and OSL have obtained Class 1 (securities trading) and Class 7 (providing automated trading services) licenses, becoming industry benchmarks.
More institutions are actively applying for virtual asset trading platform licenses (VASP). In the "Virtual Asset Trading Platform Applicant List," there are already 10 platforms listed, including OKX, BGE, HKbitEX, HKVAX, VDX, Meex, PantherTrade, VAEX, Accumulus, and DFX Labs.
With the publication of the "4+1 List," which includes the "Licensed Virtual Asset Trading Platform List, Closed Virtual Asset Trading Platform List, Authorized Virtual Asset Trading Platform List, Virtual Asset Trading Platform Applicant List, and Suspicious Virtual Asset Trading Platform List," information disclosure will become more and more comprehensive.
In the United States, compliance also became a frequent hot topic in the second half of the year. On November 2, the FTX scandal concluded, and after a month of trial, the Manhattan Federal Court convicted FTX founder Sam Bankman-Fried (SBF) of seven charges, including wire fraud, conspiracy to commit fraud, and conspiracy to launder money.
In this case, about $8 billion in customer funds were stolen, making SBF's misconduct one of the largest financial frauds on record. However, for the cryptocurrency industry, more regulation may provide a long-awaited opportunity for industry development.
On November 21, Binance and its CEO, Changpeng Zhao (CZ), admitted guilt to criminal charges of money laundering and violating US sanctions and reached a settlement with US regulatory agencies. As part of the settlement agreement, Binance agreed to plead guilty and pay a $4.3 billion fine, and CZ resigned.
Subsequently, Binance's new CEO, Richard Teng, proposed close cooperation with global regulatory agencies and global partners to promote the commitment to Web3 adoption. He predicted that compliance would become the global theme of the cryptocurrency industry.
Analysts believe that the settlement agreement between the US Department of Justice and Binance makes the "game more fair," and the Web3 industry will usher in new development opportunities based on compliance. For cryptocurrency investors, the prospect of the settlement also eliminates potential systemic risks, and the cryptocurrency industry has taken an important step towards compliance with basic legal and security standards.
Bitcoin ETF
On June 15, 2023, iShares, a subsidiary of BlackRock, submitted an application to the SEC for a Bitcoin spot ETF. Considering BlackRock's position in traditional finance and its almost unblemished record of ETF applications, iShares' application for a Bitcoin spot ETF is optimistically interpreted by many as a turning point for traditional funds entering the cryptocurrency market on a large scale.
There are many applicants for Bitcoin spot ETFs, and they have been in a back-and-forth struggle with the SEC for several years, but the SEC has never approved them.
However, in October, a federal appeals court in the United States officially confirmed Grayscale's victory. Grayscale attempted to create a Bitcoin ETF under the opposition of the US Securities and Exchange Commission (SEC). The court's ruling overturned the SEC's decision to refuse Grayscale's proposal to transform the trust into an ETF.
In December, SEC Chairman Gary Gensler acknowledged the impact of the court's ruling and stated that the SEC would "reassess" its position and take a more cautious and favorable approach to Bitcoin ETFs.
In January of this year, the 13 institutions applying for Bitcoin spot ETFs will receive the SEC's final response. While the answer of approval or rejection has not been announced, the price of Bitcoin has risen from $17,000 at the beginning of 2023 to $44,000. On the morning of January 2, it broke through $45,000.
This may have been influenced by the news. On December 29, 2023, Reuters cited sources saying that the SEC is likely to reply to applicants on January 2 or 3 whether they have been approved, in preparation for their trading launch on January 10.
The hammer is about to fall, but the narrative of Bitcoin will not end there.
Inscription Craze
On January 23, 2023, an unexpected craze emerged on the Bitcoin network: using a protocol called Ordinals, data (text/images/audio/video) was permanently inscribed into the Bitcoin block network.
After the non-fungible token (NFT) was proven to exist on the Bitcoin network, the homogeneous BRC-20 token standard was created by the mysterious blockchain analyst @Domo in early March 2023, and a batch of inscription tokens emerged. At that time, these tokens were only popular among a niche group of users in the Unisats wallet.
It wasn't until May that inscriptions became active again, causing concerns among Bitcoin core developers about network congestion and rising fees. The number of inscriptions reached 124 million the following month, and some tokens appeared on centralized cryptocurrency exchanges, marking the initial formation of the inscription's breakout effect.
On November 4, 2023, the number of inscriptions reached its peak, producing 433,471 in 24 hours. Inscribing became a wealth password for some people, and advertisements for inscribing services even appeared on China's second-hand e-commerce platforms.
On November 7th, the inscription completely broke out on the encrypted asset exchange Binance with the listing of the ORDI token, the first BRC-20 token created by @Domo, which surged by over 50% in a short time, with prices soaring from a few dollars to $80. Subsequently, various inscription tokens took turns to rise, forming the hottest market sector of 2023.
At the same time, in order to prevent inscriptions from being "deleted with one click" by core developers such as Bitcoin Core, some Bitcoin Layer2 projects emerged, including protocols such as the Lightning Network, Stacks, BEVM, and BitVM, which are likely to continue the vibrancy of the Bitcoin ecosystem.
NFT "Two-Way Journey"
Whether it's ETFs, inscriptions, or block halving, there is no doubt that Bitcoin still led the hottest topics of Web3 in 2023. Whether in terms of network scale or market value, Bitcoin remains the strongest king in the field of encrypted assets.
As for Ethereum, ranked second, and the subsequent blockchain networks, they did not disappear in 2023. The most noteworthy is NFT, a non-fungible token generation technology that has sparked new reactions both inside and outside the Web3 community: traditional NFT IPs have moved offline, launching related products, while non-traditional companies actively embrace NFTs, accelerating their layout in this field.
The intersection of these two trends has allowed NFTs to complete a "two-way journey" between old and new fields, becoming a major highlight of the Web3 world in 2023.
In August, the well-known blue-chip NFT project Doodles collaborated with Crocs to launch a limited edition "holey shoes," which sold out within 72 hours. Another well-known blue-chip NFT, "Pudgy Penguins," combined with physical toys to launch Pudgy Toys, selling over 20,000 units and generating sales of over $500,000 within two days of its launch on Amazon.
Pudgy Penguins launches physical toys
NFTs that were previously disguised as "new blockchain applications" have now started selling on the internet.
At the same time, the traditional catering company Starbucks not only did not fear the bear market in encryption but also thrived. On August 2, the coffee brand released its 12th NFT series, "Green Apron." The NFTs were priced at $100 each, with a total of 5,000 units, and quickly sold out after launch. After entering the secondary market, the cheapest one also rose to $123. Starbucks has tied its physical brand IP to NFTs, exploring a successful path for digital marketing.
It is foreseeable that NFTs will continue to be active in 2024, buried in Web3 games, traditional company membership systems, and user rights on internet platforms, waiting for interested individuals to unlock them one by one.
(Disclaimer: Readers are strictly advised to comply with local laws and regulations. This article does not represent any investment advice.)
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