2023 Bitcoin Report: Key Trends and Developments

Introduction

2023 is one of the most important years in the history of Bitcoin. Bitcoin inscriptions have pioneered a whole new concept and sub-market. Bitcoin's second layer networks, sidechains, and scaling solutions have once again drawn market attention. Traditional financial markets have started to view BTC as a serious asset class, with several spot BTC ETF applications submitted in 2023, some of which have been approved in early 2024. Most importantly, BTC seems to be recovering from the most severe bear market it has experienced in the crypto market, becoming stronger after multiple crashes. Overall, the current state of Bitcoin is exciting.

This report will focus on several key trends in the Bitcoin space for 2023. This is not an exhaustive list of all developments in Bitcoin for 2023, as there are too many to enumerate. Whether it’s through the Lightning Network, inscription markets, small payments via Bitcoin sidechains, or bringing BTC to other chains, the development of Bitcoin in 2023 has reached a fever pitch. The rigid Bitcoin we saw in 2021 and 2022 seems to be a thing of the past.

Network

Bitcoin as a network's operating status is the first area that needs attention. Bitcoin is the world's largest decentralized currency network, so closely monitoring the health of the network is very important. To some extent, buying BTC is a bet on the Bitcoin network absorbing more users and capital. In 2023, various indicators of the Bitcoin network have almost all begun to improve.

The hash rate performance in 2023 is surprising. Although the price performance of BTC was relatively poor in 2022, the hash rate continued to reach new highs before 2023. Since the beginning of 2022, the hash rate of Bitcoin has doubled, representing an increase in network security and miner confidence.

The number of active BTC addresses showed a growth trend in 2023, starting to rebound after a decline from the peak of 1.15M in January 2021. As of early 2024, active addresses stabilized at around 1M.

In 2023, the transaction fee revenue of Bitcoin has improved. For a long time, Bitcoin has faced the challenge of insufficient fee income to replace block rewards. However, 2023 has brought new hope for solving this issue.

The emergence of inscriptions and the new demand for block space have had a significant impact on Bitcoin. At the beginning of 2023, transaction fees soared dramatically, and although they have since declined, they remain noticeably higher than previous levels. Inscriptions have caused the average block size in 2023 to nearly double, and the mempool is often congested.

The increase in demand for inscriptions and transaction fees has caused the Bitcoin FRM( fee ratio to drop to its lowest level in years at multiples of ). In 2023, the FRM plummeted from 80 times to between 12 and 40 times, closer to the levels of 2020-2021. This is a positive trend, but there is still room for further improvement.

Overall, the network data shows that Bitcoin is surpassing the simple HODL( holding) phase and entering more practical use cases. Inscriptions have brought new fees and user sources to the network, making it busier and more secure.

Bitcoin实体

exchange

The BTC balance on exchanges continues to decrease, continuing the trend since 2020. By the end of 2023, the BTC balance on exchanges has dropped to its lowest level since 2018, slightly above 2 million coins. This may be related to users' declining trust in centralized exchanges following the FTX incident, as well as the rise of inscriptions.

miner

In 2023, miners typically held more BTC than they sold, although not by much. During the FTX collapse, miners sold a large amount of BTC, but they started accumulating again in 2023 (, although there was a decrease in Q4 2023 and Q1 2024 ).

Miners' income mainly comes from block rewards, while the proportion of fee income has historically been low. The emergence of inscriptions in 2023 has brought new sources of fees for miners, averaging around 13% of total fees, and during certain periods, it even exceeded 60%.

With the halving around April 2024, the proportion of transaction fees in miners' income will further increase, and inscriptions as a new important source of transaction fees will become more significant. We expect that miners will become strong supporters of the thriving inscription ecosystem.

institutions and ETFs

2023 is the year Bitcoin gained institutional recognition. Several well-known companies have applied to the SEC for a spot BTC ETF, with some already approved in early 2024. This marks BTC as a mainstream asset class and opens the door for a significant influx of new capital.

The approval of a spot BTC ETF could have a significant impact on Bitcoin:

1. signals the importance of BTC as a significant asset class.
2. provides access channels for a large amount of institutional funds.
3. makes it easier to access BTC through traditional financial channels.

The Evolution of Bitcoin

inscriptions and BRC-20

In early 2023, Casey Rodarmor developed and released the inscription technology on the Bitcoin network, allowing users to store any data on the Bitcoin network. The inscriptions quickly sparked a frenzy, with over 59M inscriptions already created by the time the report was released.

BRC-20 is a simple token standard based on inscriptions, creating a sub-industry with a market value of over $1 billion. More than 56,000 BRC-20 tokens have been deployed, with minting and transfer transactions constituting the main part of the BRC-20 market.

$ORDI is the most popular BRC-20 token and the first BRC-20 listed on a centralized exchange. As of the writing of this report, $ORDI has reached an all-time high of $82, which is impressive for a token that seems to have no practical use.

OKX dominates the BRC-20 and inscription trading markets, but the competitive landscape may change with the entry of other exchanges like Binance. There is still room for development in the DEX space, awaiting ambitious projects to emerge.

Cultural Controversy

Inscriptions and BRC-20 are not without controversy. Some Bitcoin believers view them as garbage, harmful to the network, and deviating from the original intention of Bitcoin. This has sparked a debate about the essence and development direction of Bitcoin, similar to the block size debate from 2015 to 2017. This debate may continue until 2025.

DeFi and Scalability

The development of Bitcoin DeFi still faces challenges. The adoption of the Lightning Network stalled in 2023, but with Ordinals driving up on-chain fees, it may find new uses in basic BTC transactions.

The resurgence of interest in Bitcoin scaling in 2023 has brought about the reappearance of the Bitcoin Drivechain proposal. Some experimental Drivechain projects are already underway, such as Zside and ETHside.

Bitcoin Rollup has recently drawn market attention and influx of funds. The launch of projects such as Citrea marks progress in this field, with more developments expected in 2024.

2024 Outlook

2023 is an important year for Bitcoin, and 2024 is expected to continue these positive trends:

• The development of inscriptions and BRC-20 and the controversies they may cause could continue.
• The approval of institutional ETFs will bring new capital inflows and market participants.
• Bitcoin scalability solutions such as Rollup, Drivechain, etc. may make progress.
• The halving event will affect the income structure of miners and may drive new sources of fees.
• The development of Bitcoin DeFi and layer two networks is worth paying attention to.

Overall, Bitcoin has regained vitality in 2023, and is expected to continue this momentum in 2024. We look forward to seeing its further development.