In the tumultuous year of 2023, the crypto community braced itself for a roller coaster ride. Expecting only a bear market and a dent in their portfolios, what they faced were a series of challenges – collapsing market prices, liquidity shortages, and SEC crackdowns on crypto projects in the USA, which put market sentiments at an all-time low. The industry experienced a severe shock after an already unsatisfactory 2022.

Amid this turmoil, a silver lining emerged in the form of the MiCA framework and the G20 Summit. Led by India, nations decided to adopt the regulatory framework recommended by the IMF-FSB Synthesis paper. This unexpected move indicated a positive approach toward crypto from global regulators, defying the larger ambiguous conditions. The sentiment of the community was further boosted by the application of exchange-traded funds (ETFs) by institutional investors, swiftly reviving the momentum of the dwindling ecosystem.

Fast forward to the end of 2023, major cryptocurrencies, including Bitcoin (BTC) and Ethereum (ETH), experienced positive momentum despite ongoing regulatory anticipation. BTC surged over 70% year-to-date. Crypto enthusiasts are now optimistic as they are convinced about how the adverse market conditions of the last two years have been successful in weeding out bad actors and fair-weather tourists, leaving the true enthusiasts and genuine BUIDLers to rebuild the industry with a stronger foundation, better transparency and clear regulations. Hopes for more regulatory clarity persist, and victories against The victory of Ripple and Grayscale against the SEC were much applauded by the community as it was a ray of hope for the larger ecosystem about the future of the industry.

As the cryptocurrency market looks ahead, macroeconomic developments and the Federal Reserve’s interest rate hikes to combat inflation may influence prices. However, the forecast for 2024 looks positive as the market gears up with fresh enthusiasm for some of the historic events such as Bitcoin halving, SEC’s possible approval of ETF applications filed by BlackRock, Fidelity, and others, and the implementation of the regulations that have been approved by nations.  Here are some key developments to look out for in 2024.

What to Expect in 2024?

Decentralized Applications (dApps) Surge in Development

Blockchain technology will witness a surge in the development of decentralized applications in 2024. DeFi especially will witness continued growth in 2024, driven by increasing user-friendliness and accessibility. With decentralized lending, borrowing, and trading services, DeFi disrupts traditional finance. Decentralized applications will improve the agility of existing systems and eliminate latency. Beyond DeFi, decentralized solutions will be prominent in healthcare, supply chain management, trade settlements, and more. Smart contracts are key for eliminating third-party involvement and automating protocols on any network. They ensure trustless systems run efficiently without security lapses or manipulation from external factors. This is what will ensure the long term success of DeFi. According to Statista, the global DeFi market is expected to reach 9.33m users by 2027. User penetration is expected to hit 0.12% by 2027. 

Tokenization of real-world assets

The process of asset tokenization, converting real-world assets into digital tokens on the blockchain, is already gaining momentum. This allows fractional as well as complete ownership of assets, thus providing equitable access to all stakeholders. The market for tokenized assets is set to reach $10 trillion by 2023. Many players are capitalizing on this opportunity to democratize the tokenization experience to non-Crypto native individuals. TokenFi is one such example that allows users to tokenize assets without any coding experience with an easy interface. 

Clarity on stablecoins

The coming year will provide further regulatory clarity on the application and use of stablecoins. With CBDCs also anticipated to be in circulation based on the pilot projects of banks, private tokens will co-exist along with central bank currencies, backed and recorded on a digital ledger for complete transparency, details of issuance, and ownership. Similar to CBDCs, stablecoins could also be used for transaction settlement (wholesale and retail) between private entities by mutual consensus of parties involved. After a decline in the market cap towards the middle of this year, the Bitcoin price surge has reversed the plunge in the stablecoin market cap which went back up to $126bn in November.  The stablecoin market is expected to grow to $2.8 trillion in the next five years, according to Bernstein Private Wealth Management. While USDC and USDT are the top stablecoins in the market and command most of the trust, popularity, and adoption in the market, other players such as DAI and Tether are also gaining popularity. Algorithmic stablecoins integrated with smart contracts will see some momentum as multiple players or new entrants start issuing their own stablecoins backed by trusted assets. However, the adoption will be cautiously approached by market participants who are still reeling from the Terra collapse. 

Blockchain Infrastructure

As per last year’s predictions, blockchain infrastructure projects did take off well in 2023 though the amount of funds raised wasn’t remarkable due to an overall decline in funding value and bear market conditions. In 2024 too, scalability, interoperability, and security in blockchain will be of paramount importance. With the growing adoption of blockchain, these features will become a prerequisite for extensive use of the technology and making it mainstream. Transfer of assets on chain, collaboration between networks, processing millions of transactions at a time, and multi-chain transactions between different networks will become easier with these developments. User experience will also be a key area of focus for blockchain projects. There will be solutions to make Web3 applications more user-friendly and ease the adoption process for non-tech-savvy individuals. Polyhedra Network is one of the players in Web3 infrastructure, using zero-knowledge proofs (ZKPs) for privacy, scalability, and interoperability. Polyhedra establishes a secure, trustless connection between Web2 and Web3. Modulus is another example that brings AI on-chain with Zero Knowledge Proof which means double the efficiency and security. Layer 1 chain Aptos is improving the Web3 user experience. It has caught the eye of many investors and also has its native token. It boasts of investors such as a16z and Coinbase Ventures. 

NFT Market Revival and Wider Applications

The NFT market is also set to revive in 2024, with increased use. The Bitcoin halving event is set to play a key role in facilitating the same. Bitcoin ordinals might also see a revival amidst larger NFT use cases. The price increase of Bitcoin will automatically prompt greater activity on the network and more applications with the token. According to a study by Technavio, the NFT market will grow at a CAGR of 35.02% from now till 2027. The report further indicates that demand for digital assets in Singapore, China, South Korea, the Philippines, and Japan will drive the growth of NFTs in APAC and put it ahead of other regions.

Source: 4ire Labs

Regulations becoming mainstream

Lawmakers and regulators across the world will bring digital assets under their jurisdiction with better clarity on their use cases, taxation, ownership, and transfer. Concerns of these assets being used for illicit transactions will be diminished to a large extent with watchful eyes being able to trace the movement of assets across blockchain in case of suspicious activities. Private tokens will also encourage CBDCs to innovate and bring in more use cases under the ambit of country-specific laws. Some of the recent concerns about misappropriation of user funds, and processing transactions without verification of identities will also be resolved with regulations taking shape.

Fundraising

After a conservative 2022 and 2023 for Web3 investors and projects facing severe fund crunch, we will witness an improvement in Web3 funding in 2024. Though the massive funding size that blockchain startups had enjoyed in the past might not make a comeback very soon, the ticket sizes will definitely look better than in the last several months. There might be a huge fund influx due to the rise of institutional investors and TradFi players trying to acquire small-scale DeFi projects and integrate them into their existing service or add a new vertical based on changing customer needs. Pantera Capital, a16z, Binance Labs, and Coinbase ventures will continue to be the bigger players. However, institutional investors will also loosen their purse strings in the coming year with the growing Crypto market cap.

The market deserves a smooth uphill climb after facing the rough terrains of the last two years. On the brighter side, it felt especially brutal as there were more people involved in this bear market than the previous ones, indicating an uptick in ownership. This is set to grow further in the coming year amidst new projects entering the market, prices of tokens taking off, and institutional investors entering the market in larger numbers than ever before.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.