End-of-Year Review: Crypto Highlights of 2023

Several key events have markedly shaped the crypto sector in 2023, laying the foundation for a potentially better year in 2024.

Let’s take a look at them.

The Discovery of Inscriptions

2023 began with the launch of the Ordinals protocol, bringing NFTs directly to the Bitcoin blockchain. The protocol was created by Bitcoin developer Casey Rodarmor, who leveraged past upgrades — Taproot and SegWit — to make Bitcoin-native NFTs a reality.

Bitcoin NFTs, better known as digital artifacts, are created using a serialization scheme called Ordinal Theory. The scheme assigns ordinal numbers to individual satoshis in the order in which they are mined, allowing them to be trackable and tradeable. Digital artifacts are created by inscribing sats content such as images, text, or audio. Thus, ordinals are also referred to as inscriptions sometimes.

Rodarmor’s goal was to create a protocol that Bitcoin applications could use. This objective has been achieved since more and more developers are using the Ordinals protocol to issue other types of assets.

For example, the BRC-20 token standard enables users to issue fungible tokens directly on Bitcoin. Its launch in March 2023 sparked a lot of excitement and investor speculation, creating a multi-million-dollar market. In May, BRC-20 tokens surpassed a market cap of $1 billion.

Some say that the token standard has made Bitcoin great again, while others aren’t happy that BRC-20 tokens are clogging the network, leading to increased transaction fees. Critics believe BRC-20 tokens are a waste of Bitcoin’s limited block space, since they are essentially meme coins with no real financial value (yet).

That aside, the total fees generated by Ordinals to date are approximately $176.4 million, as indicated in the graph below.

Source: Dune Analytics

Crypto media outlet CoinDesk ranked Rodarmor among the top ten most influential people of 2023, indicating the significance of his achievements for the Bitcoin and broader crypto sector.

Ethereum Shapella Hard Fork

April 2023 was a highly anticipated month by the Ethereum community because of the Shapella upgrade, also called the Shanghai hard fork. The update, which was implemented on April 12, allowed the network to process withdrawal requests from ETH stakers. Before this, stakers could not withdraw their staking rewards. Besides withdrawals, Shapella also enabled unstaking.

Despite some fears surrounding unlocking an enormous supply of staked ETH worth billions of dollars, selling pressure on Ether’s price has been a non-event post-Shapella. Moreover, the number of validators and amount of Ether staked have risen, as shown below.

Source: Dune Analytics

Interestingly, staked ETH outflows are not as high as they were in April. The following graph compares staked Ether inflows (green) against outflows (red) since Shapella.

 Source: Dune Analytics

There are currently more than 28 million staked ETH, with liquid staking platform Lido holding the majority of the market share at 31.8%.

Kick-off of the Bitcoin ETF Race

After years of battling it out with the SEC in court, Ripple has enjoyed partial wins this year when the regulator dropped its case against the company’s executives. This was thanks to a judge, ruling that the sale of XRP on public exchanges wasn’t an offer of securities.

In 2020, the regulator accused Ripple and its principal executives of selling more than $1.3 billion of an unregistered security. While the lawsuit isn’t yet over, these wins gave the crypto community hope that the SEC is not invincible.

Another positive development that injected enthusiasm into the crypto space was BlackRock’s spot Bitcoin ETF application in June. Although the SEC has not approved a spot Bitcoin ETF yet, BlackRock’s application sparked confidence that a spot Bitcoin ETF could now be more likely. As the largest asset manager in the world, the quality of BlackRock’s application is expected to be of the standard the SEC expects.

This development and Grayscale’s win against the SEC in court in August is what really kicked off the ETF race in 2023. Grayscale sued the SEC for rejecting its request to convert its Bitcoin trust investment vehicle to a spot Bitcoin ETF.

BlackRock’s move encouraged several institutions to resubmit their Bitcoin spot ETF applications with the hopes that, this time, the regulator would approve them.

For example, shortly after BlackRock filed its application, WisdomTree resubmitted its filing for the third time. Invesco also filed on the same day as WisdomTree, making this filing its second attempt. Invesco’s application was then followed by Valkyrie, VanEck, and Fidelity, companies that had all been rejected before.

As of this writing, there are a total of 13 spot Bitcoin ETF applications awaiting approval. Experts expect feedback from the SEC in early 2024.

The proliferation of Layer-2s (L2s)

2023 saw a proliferation of layer-2 (L2) protocols, especially on Ethereum, with networks like zkSyncEra, Base, and Linea going live on the mainnet in 2023. The layer-1 (L1) blockchain now has over 30 networks built on top of it. Arbitrum One is presently the largest L2 by total value locked (TVL), followed by OP Mainnet and Base.

Source: L2Beat

L2s aim to scale the base layer using various technologies. For instance, layer-2 protocols like Arbitrum One, Boba, Aevo, Lyra, Base, Honeypot, Zora, and OP Mainnet use Optimistic rollups. On the other hand, Polygon zkEVM, zkSyncEra, Loopring, Starknet, Scroll, Paradex, and ZKSpace leverage zero-knowledge (ZK) rollups.

Rollups are scaling solutions that move transactions off-chain and process them in batches. They then submit the transaction data to the base layer for recording. This helps enhance the efficiency of the L1.

The L2 season on Bitcoin also kicked off in 2023 as several projects, such as MintLayer, Taproot Assets, and Botanix launched testnets. RGB protocol also went live. Other projects in the pipeline include BOB (Build on Bitcoin), BSqaured, and Botanix.

Older protocols like Rootstock (RSK) and Stacks are taking the lead in Bitcoin DeFi, with TVLs of $118.7 and $99 million, respectively.

The Rise of RWAs

2023 was the year of on-chain real-world assets (RWAs). Their TVL grew from around $700 million in January 2023 to $5.5 billion as of December 19.

This growth has been driven by US Treasuries, real estate, and private credit. The demand for tokenized Treasuries, in particular, has climbed due to attractive yields. As US interest rates have risen this year, so have the yields investors receive from lending money to the government.

The top issuers of tokenized Treasuries are WisdomTree, Ondo Finance, and Franklin Templeton.

Besides Treasuries, real estate, and private credit, on-chain RWA categories also include lending (users borrow money in the form of stablecoins against real-world assets), TradeFi (small companies receive financing against assets like invoices and inventories), and synthetics (assets track the price of an underlying real-world asset).

One of the most notable RWA programs launched in 2023 was Avalanche’s Vista program. The initiative allocated $50 million to the purchase of tokenized assets like real estate, credit, and commodities, giving users access to more investment products.

Furthermore, MakerDAO’s focus on RWAs is facilitated by the Endgame Plan, whose goal is to boost revenues. As a result of the efforts made this year, 70 to 80% of the protocol’s revenues are generated from RWAs.

Bitcoin defies macro headwinds

Despite interest rate hikes in the US, two ongoing wars, and recession fears, Bitcoin has considerably outperformed traditional assets in 2023 and many cryptocurrencies.

The table below compares BTC’s 2023 performance to traditional assets and Ethereum.

Asset Class	Annual Percentage Return As of December 19
Bitcoin	157%
Ethereum	82.3%
S&P 500	25%
Gold	12%
Nasdaq 100	53%

Sources: Cryptorank, Google Finance, DailyFX, and Slickcharts

What’s to come in 2024

So, with all that has happened in 2023, here is what is coming in the new year:

Bitcoin ETF showdown

The SEC has until January 10, 2024, to approve the first spot Bitcoin ETF applications, while BlackRock’s feedback deadline comes in March. These will be the final deadlines.

Should the regulator endorse the applications, experts expect increased mainstream access to Bitcoin and a price boost. On the contrary, a rejection from the SEC could negatively affect BTC’s price in the short term and lead to legal actions against the regulator.

Bitcoin’s halving

The next Bitcoin halving is scheduled for around mid-April 2024. The event will reduce the block reward from 6.25 to 3.125 BTC, lowering the Bitcoin supply, minimizing inflation, and potentially driving up the price.

Make Ethereum fast again

The next Ethereum upgrade, Cancun or Dencun, is expected to ship in Q1 2024. Through EIP-4844, the update will cut down transaction costs by introducing a form of sharding known as proto-danksharding. This innovation will enable rollups to send data more cheaply, resulting in lower gas fees.

Cancun will also execute the proposals published in EIP-6780, EIP-5656, EIP-1153, and EIP-4788 to elevate Ethereum’s overall efficiency.