Bitcoin 2023 Year in Review: Key Trends and Sector Analysis

Introduction

2023 will be one of the most important years in the history of Bitcoin. Bitcoin Ordinals have pioneered a brand new concept and sub-market. Bitcoin Layer 2 networks, sidechains, and scaling solutions have regained market attention. Traditional financial markets have started to view BTC as a serious asset class, with multiple spot BTC ETF applications submitted in 2023, some of which have been approved in early 2024. More importantly, BTC seems to be recovering from a severe bear market, having withstood the tests of collapses like Luna and FTX, becoming stronger.

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

Network Status

As the largest decentralized currency network in the world, closely monitoring the health of the Bitcoin network is crucial. In 2023, several indicators of the Bitcoin network began to show positive development.

The computing power has continued to reach new highs in 2023, doubling since the beginning of 2022. This indicates that the network is becoming more secure, and miners' confidence in the network is also increasing.

The number of active BTC addresses saw a significant decline in 2021, but has shown a growth trend again in 2023, stabilizing at around 1 million.

In 2023, the fee revenue of Bitcoin has improved. The inscriptions and new demand for block space have had a significant impact on Bitcoin, leading to a notable increase in fee levels.

The inscription has caused the average block size in 2023 to nearly double. The demand for block space in the Bitcoin mempool has surged, which may be good for miners, but small transaction users feel frustrated.

The increase in demand and costs for inscriptions has led to the ratio of Bitcoin's FRM( fees to block rewards dropping to a lower level, decreasing from 80 times to between 12 and 40 times. This is closer to the levels of 2020-2021, which is more favorable for the long-term development of Bitcoin.

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Overall, network data shows that Bitcoin is shifting from pure HODL to more practical application scenarios. Inscriptions have created new fee and user sources for the network, making it busier and more secure.

Bitcoin Entity

) Exchange

The BTC balance on the exchange continues to decline, sitting at its lowest level since 2018, just above 2 million BTC. This may reflect a decrease in user trust in centralized platforms, as well as the rise of inscriptions.

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) miner

In 2023, miners typically hold more BTC than they sell. As the block reward halving approaches, the fees generated from inscriptions will become more important for miners. It is expected that miners will become staunch supporters of the inscription ecosystem.

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) Institutions and ETFs

2023 is the year Bitcoin moves towards mainstream adoption. Several well-known institutions have applied for spot BTC ETFs, some of which have been approved at the beginning of 2024. This opens the door for a significant influx of new capital into Bitcoin, potentially having a substantial impact on BTC prices.

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The Evolution of Bitcoin

) inscription ### Ordinals (

In early 2023, Casey Rodarmor released the inscription technology, allowing users to store arbitrary data on the Bitcoin network. The market quickly embraced this innovation, and by the time the report was published, there were already over 59 million inscriptions.

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The early inscription market has been highly sought after, with some collectibles like Bitcoin Punks attracting attention. Sotheby's in New York recently completed the auction of Bitcoin Shroom, with prices far exceeding expectations. Projects like Taproot Wizards are also very popular.

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) BRC20

The simple Token standard BRC20 launched by anonymous developer Domo has created a sub-industry with a market value of over 1 billion USD. The trading volume of BRC20 once surpassed that of regular BTC transactions.

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$ORDI became the first BRC20 token to be listed on a centralized exchange, with its price rising from $4 to a historic high of $82. This provides strong support for the BRC20 market.

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) Trading Market

OKX has performed well in terms of BRC20 trading volume and new user acquisition. However, this landscape may change with Binance entering the market. There is still room for development in the DEX space, and it is worth paying attention to who will build the "BRC20 version of Uniswap."

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) Cultural Controversy

Inscriptions and BRC20 have sparked controversy within the Bitcoin community. Some Bitcoin purists believe they are garbage and deviate from the original intent of Bitcoin. However, due to the decentralized nature, shutting down inscriptions is nearly impossible. This debate may continue until 2025.

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DeFi and Scalability

) Lightning Network

The Lightning Network stagnated in development in 2023. However, with inscriptions driving up on-chain fees, the Lightning Network may find its place in basic BTC transactions. The capacity and number of nodes in the Lightning Network remained relatively stable in 2023.

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) Rollup and other scaling solutions

Bitcoin Rollup has recently attracted market attention and an influx of funds. Projects like Citrea have been released one after another. The Bitcoin Drivechain proposal has also regained attention, offering users low-cost trading and smart contract capabilities.

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2024 Outlook

• The controversy over Ordinals may continue into 2024 or even 2025.
• The approval of the spot BTC ETF will bring a large amount of new funds and market participants to Bitcoin.
• It is expected that the positive development momentum of Bitcoin will continue in 2024, and it is worth keeping a close eye on.

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