Crypto Trends 2023 | NFT, Defi, CBDC, and more
Learn five trends affecting the fast-paced cryptocurrency market, to be prepared: NFTs, DeFi, CBDCs, Stablecoins, and adoption among institutional investors.
The cryptocurrency market is no longer what it was in 2017. The ICO boom has ended, and many projects have not survived the 2018 bear market. This opened the way for new projects, while old ideas strengthened their viability.
In 2020, the crypto market received significant support from both retail and institutional investors. A lot of cryptocurrencies updated their all-time highs, and crypto adoption has reached a new level. All this set the stage for 2021 that has already amazed analysts and investors.
Here are five trends in 2023 affecting the fast-paced cryptocurrency market.
Adoption among institutional investors and traditional companies
Previously, conventional financial institutions and world-known companies were skeptical about cryptocurrencies. But in 2020, institutional investors began to be more willing to enter the crypto market, especially the Bitcoin market. This increased the demand for digital assets, allowing the crypto market to achieve rapid market capitalization in 2021.
By the end of 2020, institutional investors pumped over $15 billion into cryptocurrency funds and products. That’s a five times increase compared to 2019. The Grayscale investments alone have seen bitcoin assets increased by more than 900% in 2020. Microstrategy and Square also surprised the market by placing large sums of Bitcoin to their treasury holdings. Overall, institutional investors accumulated more than 5% of the total Bitcoin supply in 2020.
In March 2021, Paypal allowed US customers to buy/sell cryptocurrencies and use them to pay online merchants globally. In turn, CME Group has introduced Ether futures in February 2021. Such an increase in adoption by institutional investors could become one of the main drivers of further crypto market rally 2021.
DeFi (Decentralized Finance) sector growth
DeFi (Decentralized Finance) businesses seemed to rock the world of the crypto industry in 2020. In February 2020, the total value locked (TVL) in DeFI reached $1 billion for the first time. After that, DeFi experienced parabolic growth, going $60 billion TVL in April 2021.
The DeFi concept includes providing traditional financial transactions such as trading, derivatives, lending, and others, but on the blockchain. These transactions are usually performed using smart contracts and eliminate the need for financial intermediaries.
Some of the most popular DeFi apps are yield farming and DEXs. Yield farming allows receiving rewards for borrowing and lending cryptocurrencies, participating in liquidity pools, etc. The relatively high rates provided by yield farming projects have attracted a lot of new participants.
DEXs allow you to trade cryptocurrencies directly and without intermediaries as well. They also give users complete ownership and control over their crypto assets while trading. From July 2020 to March 2021, trading volume on DEXs increased from $5 billion to over $70 billion.
The DeFi surge has also sparked an interest in cryptocurrencies and projects that are close to DeFi. For example, LINK has received significant support thanks to its oracles and Holochain as a scaling solution. In addition, HOT to USDT and LINK/USDT trading became available on many DEXs and CEXs that also helped these coins to see growth. So, now the DeFi sector is one of the determining factors for the development of many altcoins.
CBDCs (Central Bank Digital Currencies) development
Central bank digital currencies or CBDCs have long been discussed and studied by central banks around the world. About 80% of central banks are researching what can be achieved with CBDCs and how to use it. In 2020, the Bank for International Settlements (BIS) and seven major central banks announced plans to work together on the CBDCs.
Countries like China are already well ahead of global CBDC adoption trends and started testing their cryptocurrency technology. For example, at the end of 2020, the People's Bank of China completed the second test of its CBDC, allowing 100,000 residents to make electronic payments without intermediaries or fees.
The US Federal Reserve is also considering creating a digital dollar, which is driving CBDC trends. Further, CBDCs development can significantly change the balance of power in the crypto market.
Stablecoins take the lead
The use of stablecoins such as Tether, USD Coin, or True USD grew significantly in 2020. The total market value of stablecoins soared by 500% in 2020 due to the increased demand for fiat substitutes.
The DeFi sector has played a significant role in the growth of stablecoins. Stablecoins are used as the crypto equivalent of fiat currencies. It helps, for example, in pricing various services in the DeFi sector. Besides, since DEXs conduct all transactions on the blockchain, all pairs are crypto-to-crypto. In this case, stablecoins have become an alternative to fiat in crypto-native applications and services.
Further growth of DeFi and dApps can increase the demand for stablecoins. Stablecoins are already gradually replacing fiat on cryptocurrency exchanges as the base asset for spot and margin trading.
NFTs (Non-Fungible Tokens) for asset tokenization
NFTs (Non-Fungible Tokens) have already become a buzz in 2021, especially after Christie's auction, where Beeple’s artwork was sold for $69 million as an NFT. So naturally, this caused a real NFT hype — artists and celebrities started selling various things as NFTs. However, you shouldn't think that NFT is some utterly new type of asset. For example, CryptoKitties experienced a wave of popularity back in 2017.
NFT or non-fungible token is a unique token stored on the blockchain and represents a claim for a specific asset. Thus, NFT can be used for asset tokenization. Ownership of tokenized assets is fixed on the blockchain, and it can be easily transferred to another user using on-chain transactions. In addition, most NFTs have embedded intelligent contracts that describe the physical and digital properties of the asset.
In reality, NFT technology solves the copyright and ownership issues in the digital space. This can be useful both for the art world and when tokenizing assets from the real world, for example, real estate. In 2023, the NFT market started to go mainstream and is accelerating. As a result, we may see more and more tokenized assets in the future, increasing the demand for cryptocurrencies that support smart contracts.
Julia Beyers
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