Horowitz Fund Releases 2023 Cryptocurrency Report
The a16z Crypto venture fund has just released their latest report on the cryptocurrency market, highlighting the most significant developments occurring in the digital asset space.
The fund releases these reports annually, catering to institutional investors who want to stay informed about market trends. For retail traders curious about where the big players are putting their attention, we have prepared a concise summary of a 60-page report, along with key insights from the "State of Crypto Index" presentation, which is included in the document.
Positive aspects of the cryptocurrency market
The fund's analysts have identified several factors that highlight the stability of digital assets.
1. The number of active crypto addresses has skyrocketed to a record-breaking 15 million. What's remarkable is that this figure is nearly double the amount recorded during the peak of the bull market in 2021. It suggests that an increasing number of people are actively engaging with cryptocurrencies. Furthermore, this finding supports Glassnode analysts' conclusion that "small fish" have surpassed "big whales" in terms of cryptocurrency holdings.
The adoption index has doubled compared to 2021. Source: a16zcrypto
2. The increase in vacancies for Web3 specialists. New developers are entering the market at record rates. In the United States alone, over 55,000 people are actively working with open-source code for decentralized services, and an additional 26,000 are working on creating new tokens and coins. Even companies that traditionally have not been involved in cryptocurrencies are now opening departments focused on emerging technologies like blockchain, virtual reality (VR), and non-fungible tokens (NFT). As of March, the competition for developer vacancies is fierce, with a ratio of 1 to 1.5, meaning that nearly every specialist with experience in Web3 can secure a job contract.
3. The increased usage of the developer library. The downloads of tools designed to assist users in interacting with crypto applications have surpassed 7 million, showcasing a tremendous level of interest in the realm of digital assets.
The interest in tools for working with cryptocurrencies is steadily growing. Source: a16zcrypto
4. The acceleration of academic research. Blockchain and VR technologies have been officially embraced at the government level, resulting in an increasing number of higher education institutions incorporating instructional hours for students to study these disciplines. Additionally, research groups dedicated to exploring the practical applications of these emerging technologies are being established at universities.
5. The decline in mobile wallet users. The usage of mobile apps for storing cryptocurrencies has seen a significant decline, with the number of clients dropping from 23.5 million in 2022 to 7.5 million as of March 2023. In contrast, sales of hardware wallets have doubled. This shift is attributed to concerns over security breaches and the recent FTX crash, leading more people to prefer individual crypto vaults for storing their funds.
6. Advancement of energy-efficient infrastructure. They mention the successful transition of Ethereum to the energy-saving Proof of Stake (PoS) consensus algorithm as an example.
7. The decrease in transaction costs. Cutting-edge scaling tools and technologies are drawing in greater volumes of transactions with minimal gas fees.
Blockchain transaction value trend chart. Source: a16zcrypto
8. Increasing activity on the blockchain. The total number of transactions on Ethereum, Solana, Optimism, and Arbitrum networks has grown by over 50% in the past two years.
The volume of transactions on the blockchain is rapidly increasing. Source: a16zcrypto
Factors causing concerns among investors
1. The overall market capitalization of cryptocurrencies has experienced a decline.
2. Cryptocurrencies are grappling with a rapidly evolving regulatory landscape, with lawmakers proposing conflicting legislation.
3. Cryptocurrency companies are facing increasing scrutiny from fiscal authorities, with regulators issuing enforcement orders and setting legal precedents.
4. Interest in cryptocurrency-related job opportunities is waning, as a natural consequence of the impact of the first four factors.
Chart showing applicant fluctuations for crypto company vacancies
5. Activity among NFT buyers has decreased by nearly 30% compared to last year, with analysts attributing this to the proliferation of short-lived projects without a sustainable development plan.
Summary and conclusions of the report
The analysts have made some interesting findings. They believe that decentralized platforms could effectively resist attempts to consolidate power in the hands of a few tech giants, which could have positive implications for the global financial market.
The failures of major CEXs highlight the shortcomings of centralized systems, in contrast to the resilience of DEX projects.
The Horowitz Fund is convinced that Web3 is the future of the internet. Those who understand this are determined to shape the future of technology by investing significant resources into such projects.
However, the United States may not be at the forefront of the crypto space due to regulatory challenges and legislative uncertainties.
Nevertheless, the report portrays a robust industry that is more resilient than market prices may suggest, showcasing a consistent cycle of development, product launches, and continuous innovation. As a result, the fund remains confident that regulatory pressures and bear markets will not deter investments in this promising field.
