Cobo Shen Yu's Outlook for the Second Half of 2023: From Macro Events to Industry Exploration
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Cobo Shen Yu's Outlook for the Second Half of 2023: From Macro Events to Industry Exploration
Cobo co-founder and CEO Shenyu recently reflected on the major industry events of the first half of 2023 and their impacts during an internal event.
Navigating Web3 tides with focused insightsAuthor: Shen Yu, Cobo
The first half of the year saw many events. But looking back from today, there were actually only a few major ones.
Macro-Level Events
First, the collapse of a U.S. digital bank in March had a significant impact. A core channel connecting crypto to fiat and vice versa—accounting for over 70% of market flow—disappeared after years of development.
In April, Ethereum completed its Shanghai upgrade—a pivotal network upgrade that introduced a key change: the emergence of highly secure, native yield-bearing assets in crypto. After the upgrade, a large amount of ETH began staking, with nearly 20% of total supply now locked into validator nodes. Meanwhile, many traditional enterprises have started building strategies around this new infrastructure.
For a long time, traditional capital entering the crypto space could only do one thing: buy mining hardware and mine physically. Now, some traditional institutions are launching funds, buying ETH, and enhancing returns through staking. This will become an important native source of capital for crypto in the coming years. For the past decade, crypto has largely revolved around two activities: issuing assets and trading assets. This marks a crucial shift within asset issuance itself.
Hong Kong’s crypto policy changes in April triggered a wave of activity and brought significant attention. However, we’re still observing whether Hong Kong can replace the U.S. as a major gateway between the crypto and fiat worlds. On June 1, Hong Kong's new crypto regulations took effect—we’ve seen some movement, but it remains minimal so far.
In June, regulatory pressure intensified in the U.S., as the SEC filed lawsuits against Binance, Coinbase, and other exchanges, triggering extreme market sentiment and a sharp downturn. However, market sentiment quickly reversed as numerous traditional financial firms began filing applications for crypto ETFs.
ETFs represent a crucial narrative in crypto. During Bitcoin’s rise from 1,000 to 8,000 RMB in 2013, a major driver was the U.S. holding hearings on Bitcoin ETFs. Thus, the ETF story has been circulating for a full decade.
Behind the price surges of 2021 and 2022, a core driving force was Grayscale. Grayscale represented an interesting innovation—using a clever arbitrage model to lock large amounts of cryptocurrency into its trust, allowing inflows but not outflows. This led to massive USD inflows and drove a round of Bitcoin appreciation. An ETF could essentially be a "scaled-up" version of Grayscale.
What remains to be seen is when a significant number of ETFs will be approved, enabling traditional investors—whether for portfolio allocation or hedging—to directly purchase ETFs through brokers and banks. That would signal substantial capital flowing into major assets like Bitcoin and Ethereum. This will be a pivotal moment.
Industry Explorations
On the industry development front, several developments are worth noting.
First, the launch of the Move blockchain in February and March sparked a brief speculative wave, which quickly burst. Second, Blur’s token airdrop created a liquidity boom in the NFT market, fueling NFT prices—especially blue-chip NFTs—in January and February. However, as projects like Ape and Azuki failed to meet expectations afterward, their prices plummeted. The NFT space is now in a state of post-bubble recalibration, redefining its narrative.
Next, NFTs need to develop new narratives and use cases beyond PFP (profile pictures). Perhaps integrating NFTs with real-world applications—such as fan engagement or membership benefits—could attract a large number of new users. I’m particularly bullish on this direction.
From late April to early May, a wave of meme coin speculation sent many low-quality tokens soaring. Additionally, the combination of Ordinals-based NFTs and BRC-20 tokens on the Bitcoin chain further fueled this trend. This reflects a stage where the industry’s narrative framework is nearly depleted—having nothing else to hype, participants turned to meme coins.
These summarize the major events in the crypto industry over the past six months. From this analysis, one basic conclusion emerges: We are currently in a phase where the industry lacks a coherent narrative, and macroeconomic and regulatory factors exert enormous influence.
Three Key Things to Watch in H2
The entire crypto industry is still in the process of rediscovering its narrative. Yet, there are several major developments ahead. As to what the final narrative will look like, which applications will succeed, and which use cases will materialize, clarity likely won’t come until next year’s second quarter. These outcomes will emerge through market-driven trial and error.
First, Ethereum is scheduled for another upgrade in the second half of the year to enhance performance. Second, Layer 2 (L2) solutions—including Scroll, ZKS, and others—are expected to launch on mainnet within the next 6–12 months, most likely within 6 months. Many are racing to be first-mover to gain a strategic advantage. Once Ethereum completes this upgrade, the performance bottleneck that has plagued the blockchain industry for the past decade may gradually be resolved. We could see roughly a tenfold improvement—from current throughput of hundreds of TPS to the thousands-of-TPS range. With further hardware acceleration and optimizations, we might eventually reach tens of thousands of TPS. This level of performance will finally allow high-daily-active-user applications and low-cost transactions to run efficiently on blockchains.
The second emerging consensus is that private-keyless wallets based on MPC technology and on-chain account abstraction (AA) smart wallets may converge into a unified standard alongside L2 rollouts, enabling widespread adoption. Layer 2 networks natively provide AA wallets from day one. This could eventually become the default user setup, dramatically lowering the entry barrier.
Once blockchain performance improves meaningfully and user onboarding becomes easier, we may witness a wave of application experimentation and explosive growth, drawing in large numbers of users—the outcome we all hope to see. I estimate this inflection point may arrive by Q2 of next year at the earliest.
The third critical issue is traditional institutions’ ETF applications. Starting in June, many traditional financial firms have filed for spot crypto ETFs, and approval appears increasingly likely. A hard deadline looms in Q1 of next year—around the end of March—when the SEC must respond to these applications. We anticipate that by the end of Q1 next year, one or two ETFs backed by major traditional financial institutions could go live with substantial liquidity, effectively reopening compliant capital channels in North America.
These are the three most critical drivers I see shaping the industry over the next six to twelve months.
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