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## Abstract

In 2023, we need to "get back to Crypto" from the "Web3" obsession.

The speculative frenzy is now a thing of the past, and building is the right time.

DeFi, NFTs, and DAOs will become the next major directions of innovation.

2023 is a good time to focus on allocating capital, and we will see if there will be an inflection point in the investment trend.

By Ryan Selkis
[Link to original article](https://resources.messari.io/pdf/messari-report-crypto-theses-for-2023.pdf "原文链接")

## Introduction

"Web3" is an all-encompassing term that covers cryptocurrencies (such as Bitcoin and stablecoins), smart contracts (such as Ethereum and other Layer 1 solutions), decentralized infrastructure networks (such as video, storage, and sensors), non-fungible tokens (such as digital identity and ownership), decentralized finance (financial services for exchanging and collateralizing crypto assets), metaverse (digital public resources built in a game-like environment), and community governance structures (decentralized autonomous organizations).

Since we switched to Web3, the crypto market has dropped 80% and the entire industry has experienced a 'massacre'. Now, we need to 'get back to Crypto' by 2023.

## The speculative frenzy has passed, and there are fewer "tourists".

Although we have emphasized the position we are in during this particular cycle, we may face a painful bear market for several years after experiencing a top before the end of the first quarter of 2022...

Because now, the speculative frenzy has passed.

A lot of people lost money in 2022, and some poorly managed companies went out of business. But many survivors are well-funded and product-focused. So now only true believers and long-term builders remain –
**There are fewer gamblers, scammers, and tourists.**.

The core essence of crypto has not changed: in this world, these institutions are rarely considered capable and moral (a16z: How to Win the Future), but the crypto world can already provide enough utility:

**- BTC: can cross borders, giving individuals true ownership of wealth and freedom of movement**
**- Ethereum and other L1: developers can bypass the monopoly and censorship of large companies on it**
**- DeFi: Trustless and Permissionless Finance**
**- NFT: Rejecting high commissions from traditional art markets**
**- DAOs: Truly Free Organizational Structure**

Like most other tech fields, Crypto can be great, but it can also be abused. It all depends on the specific product, the spirit of the builders, and the strategies employed.

## The encryption trend is inevitable

It's easy to be bullish in a bull run, but you can only see who's swimming naked when the tide goes out. In many ways, this year has been a bad one, especially for the greedy, leveraged, and unethical.

Under the wreckage is an unprecedented solid foundation: $10 billion capital, influx of world-class talent, the population structure shifting towards digital natives in the past four years, and innovations in dozens of 'zero to one' crypto scalability and primitive application tools.

![](https://gimg2.gateimg.com/image/article/1672903095Messari 1.png)

**Encryption is an unstoppable trend** because we have made significant progress in building Bitcoin, stablecoins, distributed computing, blockchain scalability, decentralized finance primitive tools (DEX, lending, asset issuance), and governance structures.

We have been in a long-term bear market in DeFi for two years now, it still faces technical resistance and regulatory challenges, but core fundamental elements (AMM, flash loans, protocol-controlled value, etc.) will be preserved. NFTs also open the door for secure sharing or trading of any intellectual property, synthetic assets, digitally consumable goods, or on-chain identity tokens.

They may have started out looking immature, but as a primitive tool, as a technology, their importance is almost immeasurable. We now have true DAOs with on-chain voting, authorization, and community financial management, entities that transcend borders, allowing for the rapid formation and closure of online communities and collective property management.

## Survive the long winter with Build

Many people may lose confidence in the asset price decline for many years, severe political and regulatory resistance, and stagnant user enthusiasm and product demand.

In addition to suffering significant financial (or actual) losses, you will also see people experiencing mental breakdowns, going bankrupt due to excessive leverage (or poor tax planning), quitting promising projects, becoming annoying, frustrated, or indifferent, and often overlooking the long-term potential of crypto.

What's worse is that in the next bear market or a regulatory nightmare, we won't have the bullish atmosphere to help us withstand all the consumer protection, fraud and abuse, systemic risks, ESG (environment, social and corporate governance) and illegal activities FUD, our enemies will throw these issues at us.

At the same time,
**The retail investor group will decrease.** Because when you lose 90% of your savings and need to find a real job again, regaining confidence becomes even more difficult.

How to best spend a long winter? The answer is simple, challenging, and uneventful: Build!

In many ways, building a position in a bear market is easier than in a bull market, with less interference and easier identification of real product-market fit without token noise, eliminating weaker and unstable contributors from the market.

In 2018, there were some investors who were curious about Crypto, but many projects that raised funds through ICOs had already squandered their assets while holding more than 90% ETH.

**To successfully get through the winter, reduce leveraged bets, reserve cash for emergencies, hold coins and wait.**

## Bear Market Build Guide

If the bear market is for Build, then it raises a question: what should we Build?

In 2015, the answer was infrastructure surrounding Bitcoin, with billions of dollars worth of companies formed to provide entry and exit channels between the cryptoeconomy and traditional financial systems.

In 2018, the answer was decentralized applications (dApps), during which dozens of major DeFi (USDC, Uniswap, Aave), NFT (OpenSea, Punks, ENS), and decentralized infrastructure projects (Filecoin, Helium, The Graph) were incubated during the deep winter. The entire ecosystem of Ethereum and L1 and L2 blockchains also emerged to meet the demand for on-chain block space.

Looking at the industry development in 2022, you may find the unicorn field that produces the next solution:

• Want to address systemic risks? We need investment disclosure standards, reserve proofs and on-chain monitoring infrastructure, as well as Crypto's GAAP accounting to distinguish fundamentals from dumber investments.

• Want to solve the hacker problem? This year is a disaster for on-chain hackers, with bad smart contract designs, economic model exploits, governance flaws, critical security issues, social engineering attacks, and more. A massive solution to security issues (using AI monitoring, algorithm circuit breakers, etc.) will be huge.

• Want to be competitive in the crypto financial markets? Excess mortgages are less appealing compared to traditional finance. But you can't take out an undercollateralized loan without a significant risk of default...... Unless you can take advantage of new identity and reputation meta tools.

• Want to ensure that Amazon, Google, or Apple won't shut down encryption? We still need a scalable decentralized hardware network, jailbroken app stores, and decentralized data markets.

• You can also keep an eye on some of the largest venture capital firms in the field and ask them about their vision for the industry. Many of them will share their thoughts and requirements for startups.

## Will the market continue to decline?

The drivers of rising asset prices are "selling", but many of us can't help but "moths to the fire". So, do you want to continue to go lower?

![](https://gimg2.gateimg.com/image/article/1672903219Messari 2.png)

Bitcoin: This round has bottomed out, and the next target is a maximum of $500,000;

Ethereum: In terms of technology, the best comparison to Ethereum may be AWS, Google, and Microsoft. Ethereum is a 'computer' in the virtual world. But it looks more like Visa or JPMorgan. ETH has a P/E ratio of 195 times, and its protocol revenue is shrinking;

Other L1: Ethereum killers and Ethereum's market capitalization are 57 billion: 155 billion, with still potential for growth;

DeFi: DeFi accounts for only 0.2% of the global financial market share, with a total value locked (TVL) in DeFi protocols of only $400 billion, which will continue to rise;

NFTs: Any NFT project can go to zero, but as a data structure, NFT assets will eventually be worth trillions of dollars, currently only at a scale of $8 billion, so there is still a lot of room for growth. Appreciation rather than speculative mentality may be more suitable for investing in NFTs;

DePIN: Decentralized Physical Infrastructure Network (DePIN), or Token Incentives, will be one of the most important areas of cryptocurrency investment in the next decade. Storage solutions like Filecoin and Arweave, distributed wireless networks like Helium, and other hardware networks are crucial to the long-term viability of the industry.

## Continue the deep bear or bottom out?

So far, all the content in this report assumes that the bear market will continue for the foreseeable future, and there will be no "V-shaped recovery" in the crypto market. This is a rather safe and conservative view, but...

This is still about the macro (regulatory) level. The current market sentiment is that we will see an economic recession in 2023, with some debate about its potential scale. The market also seems to trust that the central bank will continue to tighten monetary policy until inflation is under control. Despite opposing views, some investors still believe that once the economic recession truly begins, the Federal Reserve is more likely to pivot and accept years of high inflation instead of a crisis of depression or global reserve currency.

If that's the case, then physical commodities such as gold and oil will perform strongly, and digital gold (BTC) and digital oil (ETH) may follow suit.

**On the other hand, we also have some potential crises that need attention:**

◇ For Bitcoin, miners are selling almost all of their mined assets to pay for operating costs and debt, creating predictable selling pressure with no sign of abating. The refund from Mt.Gox's bankruptcy (137,000 BTC) is likely to be distributed in early 2023, although it will not directly impact the Bitcoin spot market. However, DCG and Genesis may be forced to sell up to $60 million worth of GBTC shares quarterly in the foreseeable future to alleviate debt pressure.

◇ After the Ethereum merge, its supply can suppress inflation, although it is unclear whether the tax on staking rewards after the merge will cause a huge spot selling pressure in the market to offset the liabilities generated by staking income. However, the selling pressure from miners has become a thing of the past for Ethereum, but it is difficult to predict the future selling pressure for Ethereum after the transition to PoS.

◇ In addition to Bitcoin and Ethereum, there are also many specific projects with potential for chaotic sell-offs. For example, L1 and DeFi have a large number of token assets that may be unlocked by founders or early investors; forced sales of positions held by bankrupt funds or collateral held by distressed borrowers; poorly designed tokens may suffer from an "economic death spiral" and so on.

## Capital never sleeps

In 2021, there were 247 rounds of investment in centralized infrastructure startups, 500 rounds of investment in decentralized infrastructure and NFT startups, and 218 rounds of investment in 'CeFi' startups, with a total financing amount of 28.5 billion US dollars.

In the first half of 2022 alone, there were 183 investments in centralized infrastructure, 596 investments in decentralized infrastructure and NFTs, and 186 investments in CeFi, with a total financing amount of USD 27.4 billion.

Although the total trading volume of the DeFi industry has decreased from 348 transactions in 2021 to 226 transactions in the first half of 2022, its total financing amount has exceeded that of the whole year of 2021 (1.9 billion US dollars in the first half of 2022, while 2021 was 1.7 billion US dollars).

However, the economic slowdown will become a reality in the second half of 2022:

![](https://gimg2.gateimg.com/image/article/1672903232Messari 3.png)

Compared to the first half of the year, we expect the investment amount to decrease by more than 70% in the second half of 2022, and the overall pace of investment will also slow down. The reserve funds for crypto trading are also decreasing.

By 2023, the risk market for more mature companies may become even more brutal. Despite the bear market and its pressures, it is time for companies with A+ ratings to prove their strong fundamentals, and we expect to see significant reductions in trading volume and pace of growth.

2023 may be a good time to focus on capital allocation, and we will witness whether there will be a turning point in investment trends.

## Acquisition and bankruptcy

In the past few months, BlockFi has filed for bankruptcy, Circle has withdrawn from SPAC, Kraken has cut 30% of its workforce, Genesis is facing a liquidity crisis, and DCG may also be on the brink of bankruptcy.

There is danger and opportunity. Wall Street's potential funds are still queuing up to enter the crypto market. Fidelity or Blackrock may like DCG in distress, and JPMorgan may seize the opportunity to maliciously acquire Coinbase with only 5% dilution. If institutionalization does come, you have to wonder if the 'barbarians' are already at the gate and if Wall Street is ready to slowly 'take over' crypto.

The recent economic downturn may be a bridge and ultimately prove to be a bridge that Wall Street and large institutions need in order to consolidate and acquire the crypto market on a large scale.

## Conclusion

In 2022, the tone of the crypto market is to build and invest, with crypto innovations based on meeting the real needs of the market. Therefore, it will be difficult for 2023 to be worse. More and more external funds are still queuing to get on board, which is very different from the previous bear markets. We believe that the fundamentals of the crypto market are still positive.

In every bear market, it is the moment of power accumulation for the next bull run. A true builder should seize the opportunity and wait patiently like a hunter for their prey.

<div class="blog-details-info">
<div>Disclaimer<div>Author:<strong>Ryan Selkis</strong>
  <div>Translation: Gate.io Blog Team<div class="info-tips">*This article represents the views of the original author and does not constitute any investment advice.<p></p></div></div></div></div></div>

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2022 is a real test for crypto assets, the cryptocurrency market has collapsed, and many industry giants have fallen, global regulatory headwinds are intensifying. Nevertheless, there are still many exciting things to look forward to. This report covers the hot investment themes that are expected to shape the crypto industry in 2023, key figures to follow, policy developments, and technological breakthroughs.

Messari's Selected 2023 Crypto Market Outlook Report