From Macroeconomic Environment to Vertical Tracks: A Comprehensive Review of the Crypto Market in the Second Half of 2024

1. Market Overview

1.1 crypto market fundamentals

Since the first half of 2024, the total market capitalization of the crypto market has risen from $2.31 trillion to $3.33 trillion, an increase of 44.2%. This growth is attributed to several key milestones, including the approval of a spot Bitcoin ETF in the first half of 2024, and Trump's overwhelming victory in the second half of the year, which injected optimism into the industry with his deregulatory and pro-crypto policies. Bitcoin's dominance rose from 53.4% to 56.8%, mainly due to the doubling of the assets under management of Bitcoin ETFs, reflecting increased interest from institutional investors.

Although the Ethereum ETF was launched in the second half of 2024, its performance has been relatively flat. Compared to the Bitcoin ETF, institutional investors still show a clear preference for Bitcoin, as evidenced by the continuously declining ETH/BTC ratio.

Solana has also performed well, with its SOL price increasing by 29.3% since the first half of 2024. In addition to the price increase, Solana's ecosystem saw a net inflow of $2 billion in 2024.

In 2024, the market share of DeFi further expanded, with the total locked value ( TVL ) growing more than double since the beginning of the year. Benefiting from deeper liquidity and the established brand effects of decentralized exchanges on platforms such as Solana and Base, the trading volume ratio of DEX/CEX increased from 9.37% at the beginning of the year to 11.05% by the end of the year, with overall trading volume significantly increasing, reaching an annualized trading amount of $2.67 trillion. A more streamlined listing process has also encouraged more projects to shift towards DEX-centric strategies, thereby supporting a more diverse range of long-tail asset trading. Notably, Solana and Base saw their DeFi TVL market shares more than double in 2024, reaching 7.17% and 3%, respectively.

As a "killer application" in the encryption field, the adoption of stablecoins has also significantly accelerated, with its market value increasing by 26.8% from 1H 2024, reaching an all-time high of over $205 billion. New entrants like Ethena have further propelled this trend with competitive yields. Looking ahead, the potential approval of ETFs for other institution-preferred assets such as XRP and SOL will bring positive catalysts to the market.

1.2 Macroeconomic Environment and Politics

Politics

The political situation in the United States has changed. In the November 2024 election, Trump defeated Harris and was re-elected as president, while the Republican Party won a majority in both the House and Senate. This time, Trump's administration will have greater influence and executive power. Trump's America First and isolationist policies will also bring significant uncertainty to the international situation, which may lead other countries to follow the U.S. example and begin trade protectionism, regional economic trade. Trump's campaign policies regarding the crypto market were very friendly, claiming that self-custody wallets would be allowed, that stablecoins would be vigorously developed, and that crypto-friendly economic leaders would be chosen, as well as considering making BTC a reserve asset for the U.S. Treasury. However, whether he can truly promote the development of the crypto market will still depend on the actual policies after he takes office.

Europe is mainly affected by the Russia-Ukraine war, which currently seems to be stuck in a stalemate and may continue for a long time, leading to rising energy prices in Europe. At the same time, the Russia-Ukraine war has also led European countries to increase military spending. From the perspective of political parties in various countries, the right-wing parties have clearly strengthened their voice. In the Netherlands, the far-right Party for Freedom has become the largest party in the House of Representatives; in Germany, the Alternative for Germany (AfD) ranked second in the European Parliament elections, surpassing the ruling Social Democratic Party. In addition, right-wing parties in Italy, Finland, Czech Republic, Slovakia, and other countries are also playing important roles in their governments. Influenced by the United States, limiting illegal immigration and economic isolation are also major issues for European countries. Europe's policies in the crypto market are more in a following state, with the crypto asset market regulation bill ( MiCA ) officially implemented at the end of 2024, which also clarifies the regulatory framework for stablecoins and cryptocurrency entities, while European countries maintain strict scrutiny over crypto tax regulations.

Geopolitics in Other Regions

The Middle East is engulfed in constant warfare, with Hamas launching large-scale terrorist attacks on Israel last year. In the following year, Israel has successively undertaken operations in the Gaza Strip, decapitating several high-ranking Hamas officials, bringing the situation to a concluding phase. Meanwhile, Iran and Lebanon have also had friction with Israel, leading to armed conflicts, and the Syrian civil war has resulted in the downfall of the Assad regime. In South America, Argentina's Milei has implemented extensive reforms, eliminating numerous government departments and dollarizing the currency. After taking office, he has achieved certain results, reducing Argentina's overall inflation rate. Many countries and regions in South America are also advocates of Bitcoin, with Argentina, Brazil, and El Salvador pushing for legislation to allow the crypto to be legally regulated and circulated in their countries.

economy

| Region/Economy | GDP Growth (%) | Inflation Rate (%) | Monetary Policy | Fiscal Policy | |-------------|------------|-----------|----------|----------| | Global | 2.6 | 2.5 | Stable, limited interest rate adjustments | Most regions adopt expansionary policies | | United States | 1.8 | 3.2 | Stable, may pause interest rate hikes | Targeted fiscal stimulus | | Eurozone | 0.9 | 2.4 | Maintain tightening, no rate cuts | Limited flexibility, cautious | | China | 4.8 | 1.8 | Loose policy, expected interest rate cut | Increase public spending | | Emerging Market | 3.2 | 4 | Mixed, mostly supportive measures | Support growth |

In 2024, the global GDP growth rate is projected to be 2.6%, with an inflation rate of 2.5%. The economy has emerged from the recession caused by COVID-19 and has returned to the growth levels seen before the outbreak of the virus. After a continuous two-year rate hike cycle, the United States has finally managed to partially control inflation. Starting in September 2024, the Federal Reserve has cut interest rates by 25bps in three consecutive meetings, and it appears that inflation is under control, with the economy moving towards a stable landing. The Eurozone has been more affected by geopolitical wars, leading to soaring energy prices. Additionally, the European Central Bank has been forced to raise interest rates to respond to the Federal Reserve's high rates, which has also resulted in sluggish economic growth. China and emerging market countries continue to maintain relatively high growth rates, but they are facing significant challenges. China, due to sluggish domestic consumption and export restrictions, is in a deflationary state, facing high unemployment rates, difficulties for businesses, and is also dealing with the aftermath of a real estate bubble burst, which has resulted in substantial related debt and bad debt risks. Emerging market countries are experiencing severe depreciation of their local currencies as a result of the dollar's interest rate hikes.

| Country/Region | 2024 Performance (%) | |-----------|---------------| | India(Sensex) | 18.5 | | US ( S&P 500) | 15.2 | | Japan( Nikkei 225) | 12.1 | | South Korea ( KOSPI ) | 8.3 | | Brazil ( Bovespa ) | 7.9 | | Eurozone ( Euro Stoxx 50) | 5.8 | | Australia ( ASX 200) | 4.7 | | UK ( FTSE 100 ) | 3.4 | | China ( CSI 300 ) | -2.3 | | Russia ( MOEX ) | -10.6 |

Looking at the development of the US economy in 2024, it remains in a leading position in the world. The three major indices in the US have all seen significant increases, with the Nasdaq, primarily composed of technology companies, rising over 28%, and the S&P 500 also increasing by 15.2%. Throughout the year, the US has been mainly engaged in a long-term battle against inflation, and despite extremely tight financial conditions, technology companies have still demonstrated astonishing growth potential. AI technology companies, represented by Nvidia, have performed the best this year, and the development of AI has also lived up to investors' expectations. AI large models, represented by ChatGPT, have disrupted various fields such as professions, education, and artistic creation, exponentially enhancing productivity efficiency. With the continuous improvement of computing power, AI will also expand into practical applications in more fields.

Another standout performance in the rankings is the Nikkei Index. Due to the global interest rate hike cycle, the yen still maintains a 0% interest rate, which has led international investors to flock to the Japanese stock market for carry trades. This has also pushed the Japanese stock market higher and caused the yen to depreciate. The influx of capital and the export trade advantages brought by the yen's depreciation have enhanced the profitability of Japanese companies, enabling the Japanese stock market to finally reach a new high after more than 30 years since the bubble burst.

2. Bitcoin

2.1 Product and Protocol Design

In the second half of 2024, there are some significant software upgrades on Bitcoin, such as the flexible transaction forwarding strategy introduced in Bitcoin Core 28.0 and BOLT12 for the Lightning Network. These client upgrades may impact various application scenarios. For example, the implementation of V3 transactions in Bitcoin Core now supports zero-fee transaction forwarding, which could influence the development of MEV-related business models adopted by mining pools.

The discussion about the design of the Bitcoin protocol layer is ongoing, mainly focusing on soft fork proposals. There are disagreements among many developers, which can be seen from the OP_NEXT summit held at the end of 2024 and its subsequent discussions. Currently, these discussions can be roughly divided into several camps: one camp aims to implement restrictions or other more flexible functions by adding new opcodes, such as OP_CTV and OP_CAT; another camp is LNHANCE, which introduces a whole set of tools to improve the Lightning Network; and some developers go further, promoting the so-called "Great Script Restoration" (Great Script Restoration).

In these discussions, no consensus has been reached. One part of the discussion focuses on whether certain upgrades are too concentrated in specific areas and lack diversity (, such as OP_CTV ), while another part of the discussion concerns whether some proposals are too flexible (, such as OP_CAT ), which may lead to unexpected uses like recursive limits, thereby introducing unforeseen risks at the protocol level. Meanwhile, some developers advocate for a consensus cleanup first, rather than blindly pursuing functional upgrades.

The discussion regarding these proposals mainly takes place in the mailing list. There is also a feedback form in the community to collect opinions from developers of various backgrounds. In addition, several studies have analyzed transactions related to soft fork proposals that are currently active on signet.

However, it is foreseeable that there will still be many intense discussions and controversies during the activation process of soft forks in the future, just like the previous Taproot soft fork upgrade. By 2025, we hope to see some form of consensus and development.

Another previously discussed implementation solution - the implementation of BitVM is still progressing steadily. Similar to previous reports, the current focus remains on the design and implementation of cross-chain bridges. Recently, some test versions of cross-chain bridges based on BitVM have started running, such as BitLayer.

2.2 Layer 2 - Lightning Network

The number of publicly accessible Lightning Network channels has not changed much, remaining at around 5000 BTC. The number of nodes has remained stable, but the number of channels has continued to decrease. This may indicate that the liquidity of the Lightning Network is gradually concentrating in the hands of some large node service providers, or that some early channels have been closed due to security patch updates.

However, the protocols and application ecosystem of the Lightning Network are still continuously evolving. For example, BOLT12(offer) has been adopted by many clients.