State of Crypto 2023 by Andreessen Horowitz

There has been so much happening in the crypto scene. There has been a fluctuation in the prices, wrangles in regulation, etc. This inspired the crypto VC firm Andreessen Horowitz, AKA a16z, to give a crypto market report early this month.

The report started with an overview of the current state of the crypto market, which is characterized by crypto companies collapsing, crypto cycle, crypto regulation, and decentralization.

According to the report, most of the setbacks in the industry are caused by centralization. Centralization happened for selfish reasons, as some entities wanted to maximize the crypto market cycle gains. The solution to this is decentralization.

The second part of the report talks more about crypto market cycles. A positive feedback loop causes crypto market cycles. When the prices go up, it increases the interest rates, which leads to new ideas and projects, making the price go up again. There have been four crypto market cycles so far. The crypto market cycles happen every four years, just like Bitcoin halving.

The report’s authors talk about the different layer cryptos and how to layer two cryptos are gaining a lot of traction. Almost seven percent of all Ethereum fees are on L2s.

Ethereum was highlighted for reducing its energy use by 99.9% by changing its consensus from proof of work to proof of stake.

They reviewed the rising popularity of zero-knowledge proofs, NFTs, and the growth of web3 gaming which has yet to be nearly as impacted by the crypto bear Market. Participation in DAOs has also steadily increased, but this might not necessarily be a bullish sign.

The report discusses the three proposed crypto regulations, including the bipartisan crypto bill by Senator Cynthia Lamas and Kirsten Gillibrand, seven pending crypto cases, including the SEC’s case against Ripple, and three proposed crypto rules, including the SEC’s crypto custody rule.

In the report, there was a highlight on crypto market metrics. It includes the number of active developers, smart contracts, the number of crypto-related academic publications, and the number of people looking for crypto-related jobs.

Crypto adoption indicators include the number of active crypto wallet addresses, the number of crypto transactions, the number of transaction fees paid, the number of mobile crypto wallet users, the amount of trading volume on decentralized exchanges, NFT buyers, and stablecoin trading volume.

What is next?

According to the report, crypto adoption may be likened to internet adoption in the mid-90s. If it takes the same path, crypto will hit 1 billion users in 2031. This will, however, be dependent on crypto regulation and education. Some of the expectations the authors of the report have include:

1. Web 3 will grow. They expect the best web3 products and protocols to be developed during the remaining part of the crypto bear market.

2. Smart contract security will improve. This will lead to more crypto development.

3. Zero-knowledge proofs will continue to become more popular. This makes sense considering institutional investors require Financial privacy, which is something that zero-knowledge proofs can provide.

4. Big Tech will continue to take greater control of the Web 2 internet, and this will highlight the importance of Web 3.

5. Web3 gaming will become more popular. People adopt crypto for speculation, necessity, or entertainment. The entertainment part is growing.

6. There will be more crypto-specific hardware, particularly for zero-knowledge proofs.

7. Decentralized social media will become popular due to issues with centralized social media.

8. Light clients will enable mobile devices to become more involved in crypto infrastructure. This will mean bringing more crypto to mobile devices.

9. There will be new kinds of community governance in DAOs.

10. Governments will pass bipartisan crypto regulations. The crypto regulations will not only be in the US but in other countries too.

11. Non-speculative crypto use cases will emerge.

12. Hiring treasury management and sustainable funding will be a focus for DAOs. This is a subtle reference to a new crypto niche called ReFi or Regenerative Finance, which involves investing in tokenized carbon credits.

What does the a16z report mean for the crypto market?

The report gives a lot of insights into what institutional investors think of the crypto market. Since they are the dominant share, they impact the market. Factors such as crypt regulation and decentralization are important to investors, affecting the entire market. This can help us know what to expect in the future and plan accordingly.

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