Shen Yu, co-founder and CEO of Cobo, and co-founder of F2Pool, is one of the earliest pioneers and evangelists of digital currency in China. As early as 2011, Shen Yu began promoting digital currency and mining in China. He later founded F2Pool, the first digital currency mining pool in China, which remains one of the largest comprehensive mining pools in the world.

In the first half of the year, there were several significant events. However, looking at it from today's perspective, there were not many major events.

Macro Events

First, the collapse of a US digital bank in March had a significant impact as it eliminated a crucial channel for the conversion between cryptocurrencies and fiat currencies, which accounted for over 70% of the market's volume.

In April, Ethereum completed the Shanghai upgrade. This was a major market upgrade that brought a fundamental change, ensuring a highly secure underlying asset for the entire cryptocurrency ecosystem. After the upgrade, a significant amount of Ethereum started being staked, with nearly 20% of Ethereum already locked in nodes. Many traditional enterprises have also started building strategies based on this upgrade.

For a long time, traditional funds entering the cryptocurrency world could only engage in physical mining by buying mining machines. Now, some traditional institutions are starting to create funds to buy Ethereum and enhance returns through staking. This will become an important native source of funding for cryptocurrencies in the foreseeable future. In the past decade, there have been two main activities in the cryptocurrency industry: asset issuance and asset trading. This represents a significant shift within the asset issuance category.

In April, changes in cryptocurrency policies in Hong Kong led to a surge of activities, attracting significant attention. However, it remains to be seen whether Hong Kong can replace the United States as a crucial channel between cryptocurrencies and fiat currencies. On June 1st, Hong Kong's new cryptocurrency policies took effect, and we have seen some movement, although it has been relatively small.

In June, regulatory tightening in the United States led to the Securities and Exchange Commission (SEC) filing lawsuits against exchanges such as Binance and Coinbase, resulting in a significant market downturn. However, the market sentiment quickly reversed as numerous traditional financial companies began applying for cryptocurrency ETFs.

ETFs are also a crucial narrative in the cryptocurrency industry. In 2013, Bitcoin experienced a significant price increase from 1,000 RMB to 8,000 RMB driven by the anticipation of an ETF hearing in the United States. Therefore, the ETF story has been circulating for the past ten years.

Behind the price increases in 2021 and 2022, one of the key driving forces was Grayscale. Grayscale introduced an innovative arbitrage model that locked a substantial amount of coins into their funds, creating a one-way flow of US dollars and causing a Bitcoin rally. ETFs could potentially become a large-scale version of Grayscale.

The next thing to watch for is when a large number of ETFs will be approved. From the perspective of traditional funds' asset allocation or risk management, when investors can directly buy ETFs from brokerage banks, it represents a significant influx of funds into major assets such as Bitcoin and Ethereum. This will be a crucial event.

Industry Exploration

At the industry development level, there are several notable things to consider.

First, in February and March, the launch of the Move blockchain caused a small speculative wave, but the bubble quickly burst. Second, the airdrop of Blur brought about a liquidity feast for NFTs, leading to an increase in NFT prices in January and February, especially for blue-chip NFTs. However, with subsequent blue-chip projects like Ape and Azuki failing to meet expectations, prices plummeted. Currently, the NFT market is in a state of bubble bursting and narrative restructuring.

Next, NFTs need to find new narrative logics and use cases beyond the PFP (Profile Picture) concept. Perhaps combining NFTs with offline activities, such as integrating them with personal fans or membership benefits, will attract a large number of new users. Personally, I have high hopes for this area.

In late April and early May, there was a wave of meme coin speculation, causing many low-quality coins to skyrocket in value. Additionally, the combination of NFTs on the BTC chain and BRC20 tokens fueled the meme coin frenzy. This also indicates that the industry's narrative has reached a stage where there is almost no narrative left, and people are left with no choice but to speculate on meme coins.

The above events represent the significant occurrences in the cryptocurrency industry over the past six months. From the analysis, we can draw the following conclusions: the industry is currently lacking a narrative logic and is heavily influenced by macro and regulatory factors.

Three Things to Watch in the Second Half of the Year

The cryptocurrency industry is still in a state of searching for a new narrative logic. However, there are several major events worth paying attention to. As for what the final narrative logic of cryptocurrencies will be, which applications will succeed, and which scenarios will be implemented, we can only have a clear picture in the second quarter of next year. These results will come from trial and error, and everything will be determined by the market.

First, Ethereum will undergo an upgrade in the second half of the year to improve its performance. Second, Layer 2 (L2) solutions will go live on the mainnet within the next 6-12 months, with a high probability of being within 6 months. This includes networks like Scroll and ZKS, which are competing to become the first and gain a significant first-mover advantage. Once Ethereum completes the upgrade, the performance issues that have plagued the entire blockchain industry for the past decade will gradually be resolved. We might see a tenfold improvement in performance, from the current level of a few hundred transactions per second (TPS) to around a thousand TPS. In the future, through hardware acceleration and other means, it may even reach the level of tens of thousands of TPS. This will bring a significant performance boost, enabling high-traffic applications and low-cost transactions on the blockchain.

The second consensus is that non-custodial wallets based on Multi-Party Computation (MPC) technology and on-chain AA (Autonomous Account) wallets may gradually adopt unified standards with the launch of Layer 2 solutions. Layer 2 networks were originally designed to provide users with AA wallets from day one. This may become the default configuration for users, greatly reducing the entry barriers.

Once the performance issues of blockchain are addressed and the user barriers are further lowered, there may be a wave of application attempts and explosions, attracting a large influx of users. This is what we hope to see. I expect this wave to occur sometime after the second quarter of next year.

The third important issue is the application for traditional institutional ETFs. Since June of this year, many traditional financial institutions have been applying for cryptocurrency spot ETFs, and the likelihood of approval seems high. The hard timeline is at the end of Q1 next year, around the end of March, when the SEC must respond to whether ETFs will be approved. We expect to see one or two large-scale, liquid ETFs from traditional financial institutions go live at the end of Q1 next year, reconnecting compliant capital channels in North America.

These are the three core driving forces that I believe will shape the industry in the next six months to a year.