Welcome back for some fresh updates from the crypto space! Today, we are going to support the claim predicted by Bernstein investment firm on 7 trends that may ignite the next crypto bull market. To measure this, we have to provide some criteria based on market sentiment, infrastructure, developments, people's interests, opportunities, and regulations. Let's take a look if this is aligned with our set of standards.
But before that, why the above criteria?
We are currently in the midst of an economic crisis that is unprecedented in recent history. Investors are looking for safe havens to store their wealth and protect it from inflation. Due to their decentralized nature and limited supply, Bitcoin and other cryptocurrencies have emerged as potential safe havens.
More and more businesses are starting to accept them as payment methods, and major financial institutions are beginning to invest in them. This includes things like better wallets, exchanges, and payment processors. As the infrastructure gets better, it will make it easier for people to use cryptocurrencies, which will lead to increased adoption. As the price goes up, more people are interested in investing, and this creates a feedback loop that drives the price even higher.
Wait! What about the regulations? As cryptocurrencies become more mainstream, governments are starting to take notice and regulate them. This is a positive trend as it will add legitimacy to the industry and make it more attractive to investors. For example, what happened to El Salvador, which accepts bitcoin as a payment method?
1. The Ethereum Merge is successful (infrastructure, sentiment, development, opportunities)
For those who didn't know, Ethereum 2.0, or more specifically the Ethereum Merge, is an upgrade from the current Proof of Work (PoW) consensus algorithm to the Proof of Stake (PoS) consensus algorithm. This will be a monumental shift for the Ethereum network, and one that is sure to have far-reaching implications.The primary reason for this upgrade is to improve the scalability of the Ethereum network.
The current PoW consensus algorithm is simply not scalable enough to support the kinds of decentralized applications (dapps) that Ethereum is designed for. With the Ethereum Merge, the network will be able to support far more transactions per second (TPS) than it can currently.
2. Rollups to bring the next wave of crypto user demand (sentiment, opportunities, interest)
Technological innovation always comes with a price. For example, the internet has made it easier for us to access information and communicate with each other, but it has also made it easier for criminals to commit crimes and for governments to snoop on our private lives. The same is true of blockchain technology.
On the one hand, blockchain offers a new way of conducting transactions that is more secure, transparent, and efficient than the existing system. On the other hand, it also brings with it new risks and challenges.
One of the most promising applications of blockchain technology is in the area of "rollups". Rollups are a type of software that allows blockchain transactions to be conducted off-chain, without the need for a third-party. This has the potential to vastly improve the scalability of the Ethereum blockchain, as well as reduce transaction costs. However, there are also some risks associated with rollups.
One of the most significant is the risk of data loss. If a rollup is not properly implemented, it is possible for data to be lost or corrupted. This could have catastrophic consequences for the people who are using the rollup.
Another risk is the possibility of fraud. Because rollups are not yet regulated, there is a risk that unscrupulous developers could create rollups that are designed to defraud users. This could result in people losing their money or having their personal information stolen. So far, the benefits of rollups seem to outweigh the risks. However, it is important to be aware of the risks before investing in any rollup-based project.
3. Ether flips bitcoin as the top cryptocurrency (sentiment, interest, developments)
Investors are wondering when ether will surpass bitcoin in market cap. The note said that for digital assets, what is more important is that it becomes more of an “innovation-driven, structural trend rather than a macroeconomic asset class.”
Bitcoin is a cryptocurrency and a payment system, first proposed by an anonymous person or group of people under the name Satoshi Nakamoto in 2008. BTC is primarily used as a digital asset and a store of value. Ethereum, on the other hand, is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of fraud or third party interference.
The note said that the difference in usage between the two blockchains will have an impact on their respective prices.
We think the key driver for ETH’s price appreciation will be the growing realization that Ethereum’s smart contract platform is the foundation for a new wave of applications that will be built on the blockchain.
4. DeFi on rollups brings back the DeFi summer (infrastructure, opportunities, developments)
The summer of 2020 will go down in history as the first “DeFi summer.” A time when the total value locked in decentralized finance protocols surged to over $12 billion, and the sector’s growth outpaced that of the entire cryptocurrency market.
However, since then, DeFi has underperformed layer 1 chains, the analysts said. Layer 2 scalability, however, is now making DeFi affordable again, the Bernstein analysts wrote, noting that the Uniswap exchange now gets about 10% of its fees from rollups.
We think the next phase of growth for DeFi will be driven by layer 2 solutions that make interactions with smart contracts more affordable,” the analysts said.
Layer 2 scalability solutions are currently being built on top of Ethereum, Bitcoin, and other major blockchain platforms. These solutions aim to make it possible to process a large number of transactions without putting strain on the underlying blockchain.
One popular solution is the Lightning Network, which is being built on top of Bitcoin. The Lightning Network is a “layer 2” solution that uses off-chain payment channels to enable fast and cheap transactions. Another popular solution is Plasma, which is being built on top of Ethereum. Plasma is a framework for building “child chains” that can process transactions faster and more cheaply than the main Ethereum blockchain.
Plasma is already being used by a number of popular DeFi protocols, including MakerDAO, Augur, and 0x.
The Bernstein analysts believe that the adoption of these layer 2 solutions will “accelerate the growth of the DeFi ecosystem.”
We expect the sector to continue to grow in popularity as more protocols launch on layer 2 and as users become more comfortable with the technology,” the analysts said.
Layer 2 solutions are not only making DeFi more affordable, but they are also making it more user-friendly, the Bernstein analysts said.
We believe that the adoption of layer 2 solutions will make the DeFi sector more accessible to a wider range of users and will eventually lead to mass-adoption of DeFi protocols,” the analysts said.
5. NFTs pivot to gaming and play-to-earn becomes play-to-own (sentiment, interest, opportunities)
The Bernstein team believes that crypto games will have their own unique culture. They say that over a million NFT (non-fungible token) avatars will become playable characters across multiple interoperable crypto games. Chhugani and Agrawal think that there is a big migration in talent to Web3 game development from traditional game development.
The team has outlined three theses for their Web3 gaming investment thesis:
1) The rise of Web3 games will lead to the creation of a new type of social network, where players can own their own data and interactions.
2) The sale of in-game assets will create a new economy, which will be powered by NFTs.
3) The new generation of gamers will be more comfortable with cryptocurrency than the current one, which will lead to mass adoption of crypto games.
The team is bullish on the future of crypto games, and they believe that the industry is still in its early stages. They think that the industry is ripe for disruption, and that the current crop of Web3 games is just the beginning.
6. Token economic designs start to focus on value accumulation (infrastructure, developments, sentiment, regulation)
In the past few years, we’ve seen a growing interest in investing in application tokens. However, with the rise of fast blockchains and retail meme coins, this interest has waned. But, according to analysts, more sustainable token designs will bring back retail interest in investing in application tokens.
Here’s a look at why more sustainable token designs will revive retail interest in investing in application tokens:
1. Fast blockchains and retail meme coins are not built to last. While fast blockchains and retail meme coins may be all the rage right now, they are not built to last. On the other hand, application tokens are designed in a way that makes them more sustainable.
2. More sustainable token designs are more attractive to investors. Not only are more sustainable token designs more attractive to investors, but they are also more likely to generate returns in the long run. This is because investors are looking for projects that have a solid foundation and are built to last.
3. Application tokens are the future of the crypto industry. As the crypto industry evolves, we are likely to see more and more projects move away from fast blockchains and retail meme coins, and towards more sustainable token designs. This is because application tokens offer a more viable and sustainable solution for projects in the long run.
4. Retail investors are looking for long-term investments. This is because they want to see their investment grow over time. And, more sustainable token designs are more likely to provide long-term growth.
5. Application tokens offer a more stable investment. Another reason why retail investors are looking for more sustainable token designs is because they offer a more stable investment. This is because application tokens are less volatile than fast blockchains and retail meme coins.
All in all, more sustainable token designs will revive retail interest in investing in application tokens. This is because they are more attractive to investors, offer a more stable investment, and are the future of the crypto industry.
7. Fat protocol thesis becomes the fat application thesis (infrastructure, developments, sentiment, regulation)
In recent years, there has been a proliferation of tokens and token-based platforms, with each new project promising to revolutionize some aspect of the digital landscape. With so many different tokens and platforms to choose from, it can be difficult to know where to invest your time and money.
The “fat protocol thesis”, put forward by Union Square Ventures partner Albert Wenger, suggests that the value in these token-based platforms will ultimately accumulate at the base protocol layer, rather than at the application layer.
In a recent blog post, Wenger expands on the fat protocol thesis, outlining three key reasons why he believes this to be the case.
First, Wenger points to the fact that protocols are generally more scalable than applications. This is because protocols tend to be designed with a “lean and mean” approach, while applications tend to be “bloated” with features that are not essential to their core functionality.
Second, Wenger argues that transaction costs are generally lower at the protocol layer than at the application layer. This is because protocols are designed to be as efficient as possible, while applications often include features that drive up transaction costs.
Finally, Wenger notes that user growth tends to be faster on protocols than on applications. This is because protocols have a network effect, whereby each new user increases the value of the protocol for all other users. In contrast, the value of an application is generally limited to its existing users.
Taken together, these three factors suggest that the value in token-based platforms will ultimately accumulate at the protocol layer. This means that, if you’re looking to invest in a token-based platform, you should focus your attention on the protocol layer, rather than the application layer.
Of course, not all protocols will be successful. The key is to identify those protocols that have the potential to become the “fat protocols” of the future. To do this, Wenger suggests looking for protocols that are:
1. Scalable
2. Efficient
3. Networked
If a protocol meets all three of these criteria, then it may be worth investing in. However, it’s important to remember that investing in any token-based platform is a risky proposition, so be sure to do your own research before investing any money.
What does the future hold for cryptocurrency?
Cryptocurrency is here to stay. With the backing of some of the world's most influential organizations and individuals, cryptocurrency is well on its way to becoming a staple in the world economy. While there are still some hurdles to overcome, the future looks bright for cryptocurrency.
