With the recent run up in crypto, everyone is asking whether the bull is back. While you can take some comfort in knowing a lot of carnage is behind us, here are the factors that we think will impact the crypto market over the next year.
AI will start showing up in KYC products
In 2024, legislative changes to crypto are expected to focus on increased regulation and transparency. This includes stricter KYC requirements, reporting of large transactions, and possible taxation rules. But there are some technologies that will also help consumers and fintechs being developed quickly.
2023 was the year for AI startups to bring in mountains of cash to infuse into AI applications. According to Forbes, 1 in 4 dollars of venture capital went into AI startups which surpassed $23B in funding so far this year. LLMs (large language models) have a clear application to assist with KYC. Tools can leverage even more inputs than ever to help build risk profiles and compile valuable data to drive compliance logic.
Fewer custodial wallets may drive DeFi
As a number of custodial wallets and crypto infrastructure platforms have dissolved or moved into bankruptcy (BlockFi, Celsius, Voyager and PrimeTrust to name a few), the appeal of DeFi has become increasingly validated as crypto CeFi imploded and became exacerbated by the FTX and 3AC collapse. One of the conveniences custodial wallets offered was a variety of payment rails to support onramp/offramp activity. The silver lining here is that many of the custodial wallets were simply white-labeling onramp providers. For this purpose, finding an easy way to buy crypto that can be deposited into a DeFi wallet is key to access liquidity.
Expect a little turbulence in crypto regulation efforts
The Israel/Palestine war has surfaced the illicit use of crypto to fund terrorist activity for Hamas. Crypto opponents have attempted to leverage this narrative to drive increased regulation and legislation. The DOJ handed out one of the largest fines in history to the tune of $4.3B to Binance as part of a crack down against money laundering. It is challenging to say whether regulartory headwinds will stifle the industry, but around major news events, one can always expect significant volitility. Throw an election year on top of that and there is a recipe for a wild ride.
The broader crypto market has largely benefited from a strengthening price on the back of ETF filings and SEC failings (The SEC vs. Ripple Labs case ruled in favor of the XRP token not being ruled a security). Despite the noise in the market, there is a feeling that builders can re-focus efforts on driving financial innovation; That might be the best for everyone.