Cryptocurrency bull markets typically have underlying themes and sectors that outperform others, such as the rise of decentralized finance (DeFi) in the summer of 2020, the meme token frenzy that saw Dogecoin (DOGE) surge from $0.003 to $0.75, and the breakout of non-fungible tokens (NFTs) as a new speculative asset class.
With the latest bull market cycle starting to ramp up as 2024 gets underway, traders and analysts across the ecosystem are now moving to position themselves ahead of what is expected by many to be the biggest bull run in crypto history.
Here’s a look at the sectors those in the know are saying to keep an eye on as the approval of the first spot Bitcoin (BTC) exchange-traded fund (ETF) is imminent and the next Bitcoin halving approaches.
DeFi
“The DeFi space has been a hotbed of innovation throughout 2023, offering a plethora of financial services without the need for traditional intermediaries,” said Oleg Fomenko, co-founder of Sweat Economy. “In 2024, we can expect the DeFi ecosystem to mature even further and tackle user experience challenges, security threats, and scalability.”
“Advanced infrastructure and interoperability between different DeFi platforms will pave the way for a more robust and user-friendly decentralized financial landscape expanding accessibility even more,” he added. “As DeFi becomes more accessible, traditional financial institutions will be forced to adapt or risk becoming obsolete, so more users will step away from traditional banking and to decentralized finance.”
Fomenko noted that “Tradfi institutions are increasingly exploring the opportunities DeFi technology presents,” as shown by the launch of Citigroup’s Token Service. “We’ll continue to see further institutional and consumer adoption next year,” he concluded.
“The trajectory of the cryptocurrency market in 2024 will be heavily influenced by the regulatory landscape, particularly in regard to decentralized finance,” said Daniel Krupka, head of research at Coin Bureau. “While DeFi has revolutionized the financial sector, it continues to face regulatory scrutiny in the US and elsewhere. Until favorable regulations are established, it seems unlikely that DeFi will experience a resurgence in 2024.”
“2023 was a tumultuous year for DeFi, with compromised user data, money laundering claims, and hacked wallets that resulted in a regulatory push from authorities and demand for technological innovations,” said Sankar Krishnan, head of digital assets and FinTech at Capgemini. “DeFi could see renewed consumer interest post the crypto fall of 2022, with regulations being proposed and implemented by the EU and US to protect consumers and increase their trust in the sector.”
“Banks have continued foraying into the space with particular value seen in the tokenization of traditional assets, and multiple use cases are emerging around the same, including deposit tokens,” he added. “Pilots are starting to show results, particularly around cross-border transactions, with trades being executed successfully on a blockchain. With newer use cases, too, the success of initial pilots to validate the potential of the use case will be crucial for wider adoption in the industry.”
“The exact evolution remains to be seen, but the potential for growth is immense with technological advancements as use cases become more widely publicized,” Krishnan concluded. “Better security driven by regulatory requirements could lead to more stability in the sector and provide an impetus for renewed consumer enthusiasm, as well as broader adoption of the technology by banks globally.”
Sebastian Banescu, head of Quantstamp Germany and CEO of Chainproof, thinks that greater regulatory clarity will be a boon for the DeFi industry.
"With MiCA set to fully take effect in 2024, I think we’ll see an emergence of more CeDeFi projects rather than DeFi projects,” he said. “A key advantage of CeDeFi is improved security which is another reason why I think these types of projects will gain popularity in 2024. Builders are realizing that the lack of pausing mechanisms and circuit breakers is causing a lot of damage when hacks are incurred. In the new year, I think we’ll see more projects using these mechanisms in combination with real-time smart contract monitoring solutions to mitigate hacks."
Arie Trouw, co-founder of XYO Network, also sees growth and increased adoption coming to DeFi in 2024. “Its accelerated expansion can be attributed to its growing user-friendly nature and heightened accessibility. Users now have direct access to a comprehensive range of financial services through digital wallets, bypassing traditional financial intermediaries and gaining unparalleled control over their assets,” he said.
“The trajectory of DeFi is poised for continued advancement, diversifying into various sectors and presenting an extended and sophisticated array of financial services alongside decentralized lending, borrowing, and trading,” Trouw said. “With a clearer regulatory landscape, the integration of DeFi with traditional finance is anticipated to intensify. This closer integration has the potential to disrupt established financial systems, ushering in innovative approaches to lending, borrowing, trading, and investment.”
“The primary risk to DeFi is the continued eroding of its decentralization due to centrally controlled contract upgradability or contract canceling requirements that some new regulation is calling for, taking Defi from the ‘can’t’ model that it has historically been towards the ‘won’t’ model of traditional finance,” he warned.
“DeFi will continue to thrive and builders will continue to innovate,” said Alan Scott, a contributor at RAILGUN. “There’s a lot of really interesting new primitives coming to fruition around trading, derivatives, and speculation. I think there are a few key developments around intents and RFQs in the on-chain swaps space that can really unlock a lot of liquidity from centralized exchanges.”
“As there are continued macroeconomic headwinds, I think more and more users will turn to stablecoins as a way to pay for goods and services online without having to use a bank,” said Pelli Wang, co-founder of Bracket Labs. “From there, other DeFi or gaming use cases will get additional adoption.”
Josh Jones, co-founder and co-CEO of Cornucopias, thinks that “DeFi will continue to remedy core flaws of the traditional financial system, and further build infrastructure that enables frictionless transactions.”
“For example, DeFi is set to address scalability concerns, a significant challenge faced by traditional finance marked by notably slow transaction settlement times,” he said. “The birth of DeFi largely stems from a drive to eradicate these issues and establish a more robust and sustainable financial framework. Furthermore, banks are infamous for concealing fees, while DeFi operates transparently, empowering users to make informed decisions."
"As web3 and blockchains look to expand beyond financial transactions, I think distributed computing, private data, and the big question of how decentralized technology can play a role in AI will be interesting narratives in 2024,” said Andrew Yeoh, co-founder of Nillion.
GameFi
GameFi – a more recent sector to emerge – is the fusion of blockchain technology, decentralized finance, and gaming. It includes the popular play-to-earn (P2E) cohort of tokens that rose to prominence in 2021.
“Amid a dynamic gaming landscape, GameFi has carved out a niche for itself, with a relatively modest market share of around $9 billion,” Fomenko said. “However, research shows an optimistic picture, projecting a tenfold growth, soaring beyond $90 billion by 2031.”
He said that while P2E games like Axie Infinity and StepN “initially led us to believe they had created a whole new gaming world where players could earn and live off their earnings, this turned out to be a temporary and disappointing phenomenon that benefited early adopters who also knew when to jump ship.”
2024 will see a shift in the GameFi narrative towards Gamification, Fomenko said, which “is an incredibly powerful tool that leverages psychology to make products more engaging and sticky by ‘gamifying’ the users’ experience.”
“Our preconceptions about GameFi will certainly change,” he said. “Web3 has a role to play but GameFi will continue to be a stronger force for driving adoption. In 2024, GameFi is set to witness thriving success across diverse sectors, with P2E games taking the lead. Games that seamlessly integrate blockchain technology, DeFi mechanisms, and NFTs are anticipated to dominate. Other areas, such as SocialFi, will also continue to grow as social media companies absorb more web3 elements into their platforms.”
According to Krupka, “Decentralized social media platforms offer users greater control over their data and privacy, while infrastructure solutions like decentralized storage and oracles provide the backbone for both financial and non-financial applications.”
“The GameFi market is projected to reach a whopping $38B by 2028, enhancing the success of DeFi, NFTs, the metaverse, and other related sectors,” Trouw said. “In the nascent stages of GameFi, select games, such as Gods Unchained, Illuvium, and Axie Infinity, are positioned to potentially popularize the play-to-earn model. However, there is still underlying apprehension within the online gaming community toward features resembling in-game purchases, posing a significant challenge for the widespread acceptance and growth of the GameFi movement.”
"GameFi will be one of the ONLY areas of mainstream adoption in 2024. All other consumer-focused use cases are just not ready yet,” said Johnny Gabriele, head of DeFi at CryptoOracle. “However, the term GameFi will most likely be replaced by ‘blockchain’ or something else as the industry shifts its focus away from ‘money’ and towards ‘ownership.’ The ability to own in-game collectibles will be the true driver of adoption.”
"GameFi will certainly continue to be a core means of onboarding crypto novices to the Web3 realm. However, the caveat is that Web3 game developers must remove blockchain jargon to broaden their audience,” Jones said. “Tossing around terms such as ‘NFTs’ and ‘on-chain’ within your game is a certain path to intimidate and, ultimately, repel potential users.”
“Blockchain gaming projects poised for success will provide engaging narratives and innovative designs, ensuring peak performance and an accessible and seamless user experience,” he said. “The projects that remove Web3 hurdles and utilize the power of incentives inherent in crypto will have the best chance at onboarding new users to Web3 gaming.”
He also sees a convergence of artificial intelligence, blockchain, and gaming as a promising development in 2024. "The convergence of AI and blockchain will continue to make waves as we head into the new year, especially when it comes to gaming. From tailoring in-game content to making NPCs more realistic, AI has a profound impact on different facets of Web3 gameplay, transforming the overall player experience,” Jones concluded.
Not all analysts see GameFi as a driving force for adoption in 2024, however.
“I never was sold on GameFi being a major player for adoption,” Scott said. “I think there was a big hype cycle around ‘GameFi’ as VCs poured lots of capital into the sector. However, it always gave me the same vibes as 2015 when ‘everything’ was going to be on the blockchain, which we know just simply isn’t the case.”
“I guess we have to think about incentives,” he said. “In what world would AAA title makers Ubisoft, Epic, etc. start down this path? Everyone listens to the same radio station, ‘W.I.I. FM’ - What's in it for ME?! And these game developers are no different. Giving players ‘NFT ownership’ I think ultimately creates a secondary market they arguably don't want, and even if they do, ‘blockchain-ification’ of that secondary market doesn’t really make a ton of sense.”
“There's a metric that's seldom considered by NFT Gaming types. It's commonly called ‘Time to Fun’ in the game development circle,” Scott said. “Basically, game designers work really hard to make sure you have fun pretty quickly in a game. In shooters there's BIG ACTION up front; in puzzle games, they make sure you're solving puzzles quickly, etc.”
“With ‘crypto’ games there is a massive barrier to fun: namely, crypto,” he said. “Let's be real with ourselves here. You gotta figure out wtf an NFT is, what a wallet is, how to get gas in that wallet, which probably means KYC with a CEX, and whatever additional annoyances you put up with getting into crypto. So outside of crypto, NO ONE who games wants to do all of that. And Rockstar/Ubisoft aren't going to stop milking the cash cow they have, in order to build something that will shrink their micropayments addressable market.”
“Pure ‘GameFi’ has only worked at inflated token prices and will continue to be a tremendously volatile market space,” said Sicco Naets, director of technical operations for the Moonbeam Foundation. “You can see this with Axie Infinity: It worked during the bull market when gamers in Southeast Asia discovered that they could make more money grinding Web3 games with heavy DeFi overtones than what they could make doing their regular jobs.”
“Tellingly, though, a lot of those gamers spent a significant portion of that money on mainstream Web2 games, which tells you where their hearts really were,” he added. “And as soon as token prices collapsed, GameFi died with it. That doesn’t mean it won’t reappear – if we enter a new bull market, you may well see these types of game models reappear. But building games is complex and time-consuming, and a business model that is so heavily impacted by price fluctuations (to the point of non-viability) does not seem like something that can really grow Web3 in the long term.”
Layer-ones and Layer-twos
In the waning months of 2023, the topic of “Ethereum (ETH) Killers” returned to prominence, largely due to the rapid rise in Solana (SOL) price as the popular layer-one (L1) protocol finally broke free from its negative association with FTX and its former CEO Sam Bankman-Fried.
Layer-two (L2) protocols, such as Optimism (OP) and Arbitrum (ARB), also saw their prices surge, setting the stage for competing narratives involving a battle between both existing and new L1 networks, and which L2s offer the best scalability.
“As we venture into 2024, the landscape of blockchain technology is poised for a dynamic shift, prompting speculation about the trajectory of the layer-one race versus the significance of layer-2 solutions,” Fomenko said. “While L1 protocols lay the foundation for blockchain networks, with projects like Ethereum 2.0 and Polkadot gaining momentum, the focus may increasingly shift towards L2 solutions in the coming year.”
“Layer-2 solutions, such as Optimistic Rollups and zk-rollups, address scalability issues by processing transactions off-chain, offering faster and more cost-effective solutions,” he said. “The debate over whether to enhance existing L1 protocols or to optimize scalability through L2 solutions reflects the maturation of the blockchain space. In 2024, the industry may witness a nuanced blend of innovation and competition as developers and projects strategically navigate the evolving landscape, seeking a harmonious integration of L1 and L2 advancements.”
“While layer-two solutions such as Polygon are undoubtedly building momentum, we are still seeing layer-one solutions garnering attention within the industry,” said Trouw. With Ethereum now focused on the introduction of shard chains, “the platform's technical progress is establishing a robust groundwork for a blockchain that is both more scalable and sustainable.”
Trouw also suggested that “Alternative sovereign layer-one solutions will start to challenge shared ledger-based layer-one solutions.”
According to Krupka, the recent shift where each L1 has started to carve its niche within the ecosystem “suggests that the intense competition between L1s may moderate in 2024, allowing each chain to focus on its unique strengths and serve specific use cases.”
“Similarly, the L2 space is witnessing the emergence of specialized solutions tailored to address specific needs,” Krupka said. “Rather than direct competition, the focus in 2024 will likely shift towards interoperability, particularly for L2s built on Ethereum. This emphasis on seamless communication between chains will be essential for maximizing the potential of the L2 landscape.”
“I think the alt-L1 race is all but dead,” Scott said. “We’re already seeing a lot of pivoting to L2s happening, and I think this will continue to gain attention. I believe the race to watch will be between the likes of Polygon, OP, and Matter Labs. These are the three big players jockeying for position as best L2 stack.”
Long term, it's likely that the L1 and L2 race will settle itself, and interoperability will make it so that the average user won’t even know that they are using blockchain technology, according to Gabriele.
“The ‘race’ will be between Solana, Cosmos, and Eth L2s (Optimism, Arbitrum, Polygon, etc.), and each will have their pros and cons for adoption,” he said. “In the end, the average crypto user will have no idea what chain they are using since it will be abstracted away by whatever app they are on. There's even a world where one consumer could be using three different chains at once and not even know it (Solana for speed, Cosmos for data availability, Eth for settlement).”
Decentralized physical infrastructure networks
“The one Web3 sector that everyone must have on their radar in 2024 is decentralized physical infrastructure networks, or DePIN,” said peaq co-founder Max Thake. “DePIN are projects like Helium (HNT), which use tokens to incentivize people and communities to run real-world hardware like sensors, Web hotspots, and more. It’s basically Web3 going as real-world as it can.”
“What makes DePINs special is that they directly tap into real-world demand and services, which is a healthy source of growth and liquidity,” he said. “I don’t think any other Web3 sector can boast such a sustainable foundation. With DePIN, you can pay with crypto for a service you need or earn crypto for providing this service. That is the dictionary definition of adoption.”
This real-world applicability is why Thake thinks DePIN will do more for adoption than GameFi or other speculative sectors of the market. “The sector is already hot, featuring projects like a fleet of tokenized car-sharing Teslas, a people-driven Web access network, and data crowdsourcing platforms for mobility and noise pollution data. In 2024, I am sure, it will see even more growth; Messari estimates its potential reach at $3.5 trillion by 2028.”
Real-world asset tokenization
“The future of the cryptocurrency sector looks bright heading into 2024, given that we appear to be on the precipice of the first spot Bitcoin ETF approvals,” said Lee Taylor, founder of Internationally Recognized Exchange. “Those approvals will end up paving the regulatory path within the industry, in addition to increasing the breadth of investors interested in the segment.”
“Once that happens, the next big trend in digital assets will be the tokenization of real-world assets, including power plants, diamond mines, and mortgages,” he said. “Beyond that, though, tokenization offers a completely revolutionary approach to less tangible assets, like carbon credits.”
Taylor gave the example of a diamond mine, which the average person could not purchase on their own. “Tokenization democratizes access to sophisticated financial instruments, while also enabling cost-efficient trading of assets like carbon credits,” he said. “It eliminates middlemen like lawyers and brokers, lowering costs and the barrier to entry by increasing liquidity for assets long considered illiquid.”
“Furthermore, by tokenizing assets like diamond mines, the industry can make the supply chain far more transparent, combatting illegal mining by enhancing traceability to reduce trade in ‘blood diamonds,’” he added. “The future is bright for digital assets, and the greatest opportunity clearly lies in the tokenization of real-world assets. It is poised to revolutionize our entire financial system.”
“Real-world asset tokenization will continue to gain momentum, particularly with dollars and treasuries leading the way,” said Stan Miroshnik, founder and managing Partner at 10SQ. “This development resulted in on-chain yield movements, highlighting the potential of decentralized structures in traditional finance.”
"I think we’ll see more RWA tokenization projects launching due to clear regulations in jurisdictions like Singapore and the EU,” said Banescu. “RWA will range from real estate to cars to luxury goods to even tokenization of equity in companies.”
“The trend of asset tokenization, where tangible assets are converted into digital tokens on the blockchain, is expected to gain momentum in 2024,” Trouw said. “The fusion of tokenized assets with blockchain technology offers substantial potential, enabling fractional ownership and increasing accessibility to various assets.”
“This procedure streamlines investment opportunities for medium and small businesses, as well as individuals, allowing them to invest in assets that were previously beyond their reach, such as real estate, valuable art, or commodities,” he added. “Furthermore, it establishes a more streamlined, transparent, and secure trading platform for these assets across different blockchain platforms, potentially unlocking liquidity and paving the way for new investment avenues.”
“Despite facing challenges in the past year, there are indications that the NFT market will experience a resurgence in 2024, with non-fungible tokens becoming more widely utilized,” said Trouw. “Beyond conventional sectors like art, music, fashion, and gaming, NFTs may find applications in representing ownership and access to a diverse range of real-world assets, including real estate, luxury items, and intellectual property rights.”
“The tokenized Tesla fleet is a great example of how real-world asset (RWA) tokenization empowers DePIN to do even more,” said Thake. “Teslas are costly, but through tokenization, communities can crowdfund them and get a share in their revenues.”
“This is all the more important as we’re going through the AI boom, which will enable more machines to be independent creators of value; with tokenization, we can co-own them and benefit from their non-stop work,” he added.
Regulation and adoption
“Throughout 2023, the crypto industry has faced an uphill battle to establish the necessary guardrails for institutions to trade digital assets without incurring undue risk at the hands of avaricious actors,” said Jesper Johansen, founder and CEO of Northstake. “Licensed and regulated projects have been paving the way for a transition from non-compliant platforms to more risk-managed, compliant staking providers. These developments are such that the industry has demonstrated remarkable resilience, and mainstream interest in crypto is once again on the rise.”
He noted that the final months of 2023 saw the digital asset market steadily gain momentum as “capital inflows into digital asset exchange-traded products (ETPs) reached pre-2022 market crash figures.”
“Given the ongoing turbulence across global equity markets and the comparatively low returns of traditional financial instruments, investors and market makers have begun adopting digital assets to hedge against economic uncertainties,” he said. “While it is always challenging to define what exact fundamentals have led to a market rally, the sheer amount of capital coming into the space has certainly served as upward pressure on prices across many projects.”
Johansen attributed the “outsized returns” to the market positioning itself for the approval of the first spot BTC ETF by the SEC.
“The SEC’s approval of a spot Bitcoin ETF will render the asset class an accredited financial product, making it far more accessible to the masses,” he said. “Further to this, trading will extend into derivative markets and this will give rise to more ETF options and futures options. Investors who are looking to diversify their portfolio and improve their asymmetric returns through alternative assets will be more encouraged to engage with and allocate larger funds to digital assets, and for this reason, industry degens expect the value of Bitcoin to rise exponentially.”
“There is no doubt that new regulations and requirements for crypto companies will pervade the market in 2024 – and this is something that digital asset service providers should prepare for accordingly,” Johansen said.
“With the advent of more stringent security measures and legislation, I expect that we will see more traditional finance institutions embracing digital assets, in addition to bank-banked securities such as stablecoins,” he concluded. “As long as digital asset providers are willing to engage and align with policymakers, the coming year will see them assume a much larger role in this sector. Decentralized finance as a whole will crack open the institutional market as regulations become more clear, and this will bring about a host of societal and economic benefits, such as increasing global accessibility to yield-driving opportunities.”
“Traditional finance powerhouses such as J.P. Morgan, HSBC, and DTCC continued to embrace blockchain technology,” said Miroshnik. “They made notable strides in integrating blockchain into their operations, executing mergers and acquisitions, and announcing new products and deals. These moves signify a growing acceptance and adoption of blockchain in the financial sector. We will see more mainstream adoption in 2024.”
