Mirva Anttila, Director of Digital Asset Research at WisdomTree, He noted that digital asset prices, led by Bitcoin, have performed strongly in 2023. Since the start of the year, Bitcoin is up more than 70%, while Ether is up more than 50%.. Together, these two assets still represent more than 63% of the market capitalization total digital asset space.
While the US Federal Reserve (Fed) continues to raise interest rates, the market appears to be expecting recent bank failures (Silvergate Bank, Signature Bank, Silicon Valley Bank, Credit Suisse) to lead to central bank easing . Lower interest rates would benefit long-term assets, such as digital assets. Furthermore, several traders were caught off guard and short sellers expecting further declines in digital assets had to liquidate positions, leading to higher prices.
Anttila believes that the crypto market could be on the brink of the fourth major bull market, although the exact timing is uncertain.
“The next bull market will be enabled by advances in the speed and scalability of blockchain networks, more intuitive user interfaces and innovations in blockchain wallets, as well as developments in digital identity, which will pave the way for web3 applications”, highlighted the director.
Furthermore, he emphasized that which user applications will win the market will be the critical determinant and that he will continue to monitor potential candidates on an ongoing basis:
“Despite the dismal price action over the past year, digital assets are supported by a healthy and vibrant community of software developers. The number of monthly active developers has increased by 5% over the past year, which is significant and confirms his view that developers continue to be actively engaged in their respective blockchain ecosystems.”.
The director affirms that layer 2 networks finally stand out and promise to solve the scalability problem of blockchains. The main impediment of the current Bitcoin and Ethereum networks has been their inability to handle a large volume of transactions. One way to solve this problem is to use a layer 2 network, which is built on top of a layer 1 blockchain.
Layer 2 networks move transactions off-chain, bundling them, and bundling multiple transactions into a single transaction, which can then be secured at layer 1 of the blockchain, leveraging the underlying security and robustness of the blockchain.
Anttila mentioned that The Lightning Network is the most popular Layer 2 solution for Bitcoin, while for Ethereum there are several options available.including optimistic summaries, zero-knowledge summaries (ZK summaries), and sidechains.
“The Ethereum network is expected to experience so-called ‘sharding’ later this year, which is expected to split the network into separate ‘shards’, thereby increasing network capacity and reducing transaction fees (gas) in the process.“, he commented.
Emerging USD digital tokens as a key use case
Stablecoins, digital tokens issued on public blockchains and tied to an underlying asset, have become increasingly popular in payments and remittances.. Because stablecoins are global and accessible to anyone, they offer an attractive way to safely and cheaply transmit money around the world 24/7 and settle transactions (almost) instantly. .
Anttila points out that the world’s largest stablecoin is USDT, issued by Tether, which is particularly popular in Asia, while in the West Circle, USDC is widely used. And he claims that stablecoins are designed to offer stability, while an asset like Bitcoin is more volatile.
“Last year stablecoins settled $8 trillion in on-chain transactions, more than the $2.2 trillion settled by Mastercard or the $1 trillion settled by American Express, this year it is possible that the combined value of transactions of stablecoins exceed payments settled by Visa“, he stressed.
However, emphasizes that these stablecoin transaction volumes are not related to consumer spending, but to decentralized payments, commerce, and financeand do not take into account trade volumes on centralized exchanges.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
It may interest you:
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the entire amount invested may be lost. The services or products offered are not directed or accessible to investors in Spain.