Flagship's 7 crypto sectors for 2024

7 crypto sectors to watch in 2024

In this report, we're going to walk you through the 7 sector in crypto that we believe are set to grow the fastest. This include the Bitcoin Economy, the merger of AI and Crypto, non-EVM chains, SocialFi, Real World Assets, Staking 2.0 and the return of the Metaverse!


The year 2024 is already shaping up to be another exciting year for the cryptocurrency market. We'll likely continue riding on the momentum of a surprisingly stellar performance in 2023 (check out Flagship’s 7 best calls of 2023), which was mainly fueled by the anticipation of the Bitcoin spot ETF launch, myriad exciting new innovations, and the fact that there were simply no sellers left after the catastrophic 2022. And to help you find your way in crypto in this exciting new year, we’ve decided to share the 7 sectors in crypto we expect to grow most explosively in 2024!

Just to give you an idea as to why 2024 looks promising, look no further than the recent launch of 11 Bitcoin ETFs. They are expected to inject significant interest and especially capital into the crypto market. On top of that, the Bitcoin Halving in April, a potential Ethereum Spot ETF and several macroeconomic tailwinds are setting the stage for what could be a truly remarkable year. Macro-wise, central banks are continuing to add liquidity to the financial system, inflation has calmed down, interest rates will likely be cut across the board, and the historical trend of markets performing well in election years all contribute to a positive outlook.

Flagship's crypto megabull
Artwork by Beeple

Now that we've set the stage, you (like me) are probably quite excited. But with an infinite number of different cryptocurrencies, hundreds of different blockchains, and a myriad of different sectors and industries that we aim to improve and disrupt, what should you pay attention to?

In this article, we present the top 7 sectors of crypto that we expect to perform best in 2024. We hope to help you determine what to focus on, as the industry simply got too big and diverse to be a generalist. The sectors are ranked based on how valuable the problem that the sector is solving is, the quality and status of the projects in the sector, and how much attention and mindshare of the early mass adoption that might finally be coming they can capture. Let’s dig in!

TL/DR

  1. The Bitcoin Economy
  2. Merger of AI and Crypto
  3. Growth of non-EVM chains
  4. Network effects of SocialFi
  5. Push for Real World Assets
  6. Rise of Staking 2.0
  7. Return of the Metaverse

Megatrend #1: The Bitcoin Economy

On January 10th, 2024, one of the biggest events in Bitcoin's history happened with the approval of the Bitcoin spot ETF. With 11 ETFs approved, the gates are now open for retail and institutional investors alike to easily invest in the leading digital currency without having to deal with any of technology's complexities. The approval also provides a significant boost in credibility for the still niche asset, a message that will be widely spread by the marketing machines of the world's largest asset managers like BlackRock, Franklin Templeton, and Fidelity.

Bitcoin ETF tickers

It is estimated that large money managers, such as pension and sovereign wealth funds, will allocate 1-5% of their Assets Under Management (AUM) to Bitcoin through the ETF over the next few years. This amounts to trillions of dollars in new demand. If that wasn't enough good news, the creation of new bitcoins through mining will also be cut by 50% this spring. With demand significantly increasing while supply is reduced, you don't have to have a master's degree in economics to see what will likely be the result of this…

Bitcoin remains the king and queen of the crypto market, but there is a big BUT. As of now, you can't do much with your Bitcoin other than buy and hold it. In contrast, Ethereum and the hundreds of other smart contract blockchains allow for myriad applications like DeFi, NFTs, and gaming. What if we combine Bitcoin with these applications? That is the Bitcoin Economy. The market opportunity of the Bitcoin Economy is enormous. To date, about 30% of Ethereum's $ETH is staked, and about 10% of the total value of Ethereum ($30 billion) is used in DeFi. If we were to get similar figures for Bitcoin, you're talking about an opportunity in the hundreds of billions, and that's at today's prices.

Crypto TVL Bitcoin
Source: https://defillama.com/chains

That there's demand for the Bitcoin Economy has become abundantly clear over the course of 2023 through Ordinals and BRC-20 tokens. Through a clever innovation in early 2023, the Ordinals protocol enables anyone to add metadata to Bitcoin's smallest unit of account, Satoshis. Think of Ordinals as the Bitcoin equivalent of NFTs. Even in the depths of the bear market, tens of millions of satoshis had images, audio, GIFs, and other data added to them. By mid-2023, it even became possible to issue tokens directly on Bitcoin, called BRC-20 tokens. Although limited in their functionality, the enormous traction that both of these innovations managed to attract gives us a glimpse into how much demand there is to do more with Bitcoin.

We've seen various Bitcoin layer 2s like Stacks, Babylon Chain, and Microvision Space skyrocket over the past year as they promise to enable DeFi for Bitcoin without having to trust a third party. Stacks is currently the market leader, and an ecosystem of applications is rapidly emerging. However, as the market is starting to recognize the opportunity, significant investments are being made into the Bitcoin economy to unlock this enormous opportunity.

Bitcoin Economy projects to watch:

  • Bitcoin Layer 2’s
    • Stacks
    • Babylon Chain
    • Microvision Space
    • Botanix
  • Bitcoin DeFi
    • Alex
    • Arkadiko
    • Sovryn
    • Bitflow Finance
    • Bounce Finance
  • Ordinals
    • Nodemonkes
    • Megapunks
  • BRC-20 tokens
    • Ordi
    • Multibit

Predictions:

  1. Bitcoin’s price will make a new All Time High in Q4 2024
  2. The Bitcoin economy will capture value equivalent to 0.2% of all circulating bitcoins (at the time of writing, roughly $2 billion) this year
  3. Market leader Stacks will initially continue to lead, but rapidly lose market share as new upstarts move faster, and especially do more aggressive marketing
  4. Ordinals will go through a similar hypecyle as NFTs in the 2020-2021 bull market
  5. 3 new countries will adopt Bitcoin either by declaring Bitcoin legal tender or by purchasing Bitcoin through their sovereign wealth fund. My bets are on Argentina, the United Arab Emirates and Qatar
Bitcoin Godzilla
Source: https://messari.io/crypto-theses-for-2024

Megatrend #2: The merger of AI and crypto

Artificial Intelligence has taken the world by storm ever since the release of ChatGPT. From there on, the industry instantly became the hottest sector on the planet, with predictions the technology can add trillions to the economy and valuations of any company building or even remotely related to AI skyrocketing. As two emerging digital technologies, the merger of AI with blockchain and crypto was only a matter of time and the combination actually holds signifcant potential.

Messari Bittensor

Artificial Intelligence is an incredibly powerful technology, and we're running the risk that this power will rapidly centralize in the hands of the current tech giants and a handful of startups. Instead, blockchain and cryptocurrencies enable the building of decentralized AI that is open source, collaborative, transparent, and owned and controlled by a community. Additionally, crypto enables entirely new funding, monetization, and incentive models for AI that can drastically boost speed and growth. In a time where AI is rapidly coming to a stage where it can create deep fakes with the click a few buttons, it likely won’t be long before using blockchain-based authentication of information shifts from an idea to a necessity as it becomes increasingly difficult to discern fact from fiction anywhere online.

Deep fake pentagon

Over the past year, we have seen a rapid emergence of projects combining AI with blockchain and AI. This new sector includes blockchain tailored to AI applications, payment systems enabling AI-to-AI micropayments, platforms for the creation of smart contract-owned autonomous AI agents, decentralized marketplaces for computing resources, tokenization of generative AI creations, community-owned artist AIs, and much, much more. Ultimately, it is becoming clear that blockchain and crypto are critical pieces of infrastructure for AI. Just think about it, do you think AI will use readily available, permissionless blockchains and crypto to make payments, or ask for a bank account?

Projects to watch in the AI<>Crypto sector

  • Protocols
    • Bittensor
    • Ritual Net
    • Hypercycle
  • GPU networks
    • Render
    • Akash
    • Nosana
  • AI Agents
    • Fetch AI
    • Autonolas
    • SingularityNET
  • Data marketplaces
    • Ocean Protocol
    • Cheqd
  • DeFi
    • Hera Finance
    • Mozaic

Predictions:

  1. There will be multiple blockchain-based solutions for every infrastructure need and application of AI
  2. At least 5 non-crypto Silicon Valley startups will go crypto and tokenize their AI products
  3. The sector will be an absolute minefield as it will be easy to attract attention and sell a vision, but extremely hard to actually build the technology
  4. The US elections will lead to public outcries to use cryptographic, blockchain-based proofs to authenticate digital information
  5. Bittensor will be in the top 20 biggest protocols by market cap

Megatrend #3: Non-EVM chains

In 2023, Ethereum Layer 2 solutions such as Arbitrum, Optimism, and Coinbase's BASE gained popularity as they provided a similar Ethereum experience with lower transaction fees. However, what if this experience alone is not enough to achieve mass adoption? This is the central theme of the emerging trend: the rise of blockchains that do not rely on the Ethereum Virtual Machine (EVM) but instead offer a different environment for developers and users.

While Ethereum currently dominates the smart contract space and enjoys significant network effects, its user base is still relatively small, with only about 5 million people, or roughly 0.1% of the global internet population, adopting it. As a result, the competitive landscape is wide open, and I anticipate that alternative blockchains will experience much faster growth compared to Ethereum, its Layer 2 solutions, and EVM-based competitors like Avalanche and Binance Smart Chain.

Active crypto addresses 2024
Source: https://app.artemis.xyz/overview

The most obvious winner in the non-EVM space is Solana. After a catastrophic 2022 with the collapse of Solana's key backer FTX and co, 2023 was the year of Solana's comeback, with approximately a 1,000% increase in the value of its $SOL token and explosive growth of activity on the high-performance blockchain. Once you experience the speed and especially the cost of transactions, it's hard to go back. Solana also doesn't have Ethereum's issue of extreme fragmentation, where each Ethereum layer 2 is competing for users and liquidity. On Solana, everything takes place on one and the same chain.

VISA, Shopify, and USDC's Circle have announced their plans to start using Solana for payment solutions. Infrastructure projects like Helium and Render have recently migrated to the blockchain due to its high-performance capabilities, and the obvious choice for consumer-facing and transaction-heavy applications is Solana. Firedance, a forthcoming protocol upgrade, is expected to further improve Solana's performance by 10x, and there's a new phenomenon called Parallelized EVMs that are new blockchains (like Sei, Neon, Monad, and Eclipse) that support EVM-based applications and Solana's high performance.

With the ecosystem still lacking many key applications (or needing to replace existing ones due to tokenomics that were only advantageous for insiders), expect many airdrops and rapidly growing dApps over the course of 2024.

Solana ecosystem activity 2024

A less obvious, but possibly an even bigger winner in the non-EVM arena is The Open Network (TON). TON was initiated by the same team behind the popular messaging app Telegram. After it encountered various issues during its 2021 mega fundraising, the project was spun out into an open-source collaborative project and has since been further developed into a fully-fledged blockchain that is now live and active.

Telegram Monthly Active Users

Reason why this is such a significant (and mostly overlooked) opportunity is the fact that TON is slowly being integrated into Telegram. With 800 million monthly active users, Telegram is one of the most popular messaging apps on the planet and has a distribution of about 100x the current blockchain users. You can already start using Telegram's crypto wallet, and there's even a fiat onramp that allows you to send funds directly from your bank to your easy-to-use Telegram wallet, after which you can start buying cryptos like Bitcoin and USDC and using a growing number of crypto apps.

This is a 10x improvement over the current typical crypto onboarding, which requires a centralized exchange, selecting which chain to use, managing your own private keys, and making sure you have enough of the right asset to pay for your fees. It always pays to be early and look where others are not yet looking, and with a potential distribution to 800 million people, I would not fade the TON/Telegram ecosystem.

TON Telegram NOTcoin

Projects to watch in the non-EVM sector

  1. Solana
    1. Jito
    2. Jupiter
    3. Only1
    4. Tensor
    5. Monad
  2. TON
    1. StonFi
    2. DeDust
    3. Tonstarter
  3. Cosmos
    1. Injective
    2. Kujira
    3. Berachain
  4. Kaspa
  5. Radix

Predictions:

  1. The leading 3 Telegram and TON-based applications will have more users than 90% of Ethereum Layer 2’s
  2. Both Solana and TON will reach a TVL over $15 billion
  3. Solana will increasingly take market share from Ethereum and new blockchain users will onboard to Solana and ignore all Ethereum layer 2s except Coinbase’s BASE
  4. There will be 10 Cosmos-based chains with a valuation over $1 billion

Megatrend #4: Network Effects of SocialFi

SocialFi, blending social networking with finance, has the potential to disrupt social media as we know it. Dominated by giants like Facebook and Twitter, the traditional social media market, valued at $230 billion in revenue last year, has been ripe for disruption. This shift is evident in the rise of platforms like Friend.Tech, which pioneered tokenized social experiences.

Friend Tech Interface

Friend.Tech allowed users to buy and sell fractional “shares” of social media accounts, reaching a peak of 30k ETH in total value locked. This novel approach combines exclusive digital tribes, scarcity, and gamification, leading to $50 million in fees within a few months. Despite a bear market and several emerging competitors like Stars Arena and New Bitcoin City, Friend.Tech's unique model stands out, indicating a significant shift in social media's future trajectory and highlighting the untapped potential of SocialFi.

SocialFi top 10 projects

The future of SocialFi is promising, with each blockchain likely hosting its own platform, leading to a diverse ecosystem. The combination of SocialFi with massive inflows of new users, capital, and enhanced features promises explosive growth. Expectations include customizable user experiences, like control over content algorithms, and more equitable revenue distribution between platforms and creators. The network effects of these innovations could rapidly transform SocialFi platforms into some of the most significant success stories in the digital world, marked by rapid asset appreciation and increased user engagement.

Projects to watch in the SocialFi sector

  • Friend.Tech
  • Friends with Benefits
  • Farcaster
  • Lens protocol
  • Twitter
  • Stars Arena

Predictions:

  1. The most successful SocialFi dApp of 2024 will attract high profile athletes, celebrities and influencers that were previously not into crypto
  2. A new SocialFi platform will attract more users than the then largest DeFi dApp that’s not Uniswap
  3. Each popular blockchain will have it’s own SocialFi platform
  4. Farcaster and Lens protocol will be better at all things social media than their SocialFi counterparts, but will mostly be ignored due to SocialFi’s (monetized) virality

Megatrend #5: Real World Assets

The trend of Real World Assets (RWAs) in the crypto space is poised for significant growth in 2024, driven by increasing institutional adoption. Traditional Finance (TradFi) assets are expected to be "mirrored" in Decentralized Finance (DeFi), creating vital TradFi-DeFi bridges. This integration aims to enhance liquidity and offer diversified investment options. Platforms like Ondo Finance and MZERO are at the forefront, tokenizing assets like US Treasuries. This trend is more than a fleeting phase; it's a response to the demand from investors seeking onchain products, differentiating it from past narratives like "blockchain not bitcoin" or "tokenized securities."

RWA top 10 projects

Stablecoins are Real World Assets and crypto’s first true killer app. It will continue to play a crucial role in linking TradFi and DeFi. Their growth has been explosive, with stablecoins like USDC and PYUSD becoming integral in portfolios and payment systems. The potential IPO of Circle in 2024 and the expansion of non-USD stablecoins, including Euro-backed EURC and others like the British Pound, Singaporean Dollar, and Japanese Yen stablecoins, highlight this trend. Franklin Templeton's tokenization of over $300 million in US Treasury Bonds and PayPal's PYUSD launch, which achieved a market cap of over $200 million, underscore the sector's growth potential. Stablecoins are rapidly approaching the transaction volumes of major traditional payment systems, indicating their burgeoning importance in the financial ecosystem.

Stablecoin market cap january 2024

The future of RWAs in crypto is not just a repeat of previous cycles' hype but a fundamental shift driven by investor demand for onchain products. Unlike previous years where Wall Street sought blockchain for back-end optimization, the current RWA boom is fueled by wealthy investors' desire for onchain investment opportunities. This shift suggests a more substantial and sustained integration of RWAs in the crypto market, potentially leading to transformative changes in how we view and interact with financial assets. This integration is not just a possibility; it's already in motion, promising to reshape the landscape of both traditional and decentralized finance.

Projects to watch in the Real World Asset sector

  • Centrifuge
  • MakerDAO
  • Frax Finance
  • Maple Finance
  • Canto
  • IX Swap
  • Polytrade

Predictions:

  1. Leading financial institutions will keep experimenting with tokenization and there will be announcement from 5 of them they they are planning to launch a platform for tokenized assets
  2. Stablecoins will triple their market cap this year, fueled by the bull market and failing fiat currencies of small economies
  3. There will be 5 (KYC’d) platforms that offer tokenized securities with a TVL of over $50 million
  4. Failures in the RWA sector will give the sector a bad reputation as 10 companies will be either taken down by regulators or collapse as it turns out they do not actually own the underlying assets

Megatrend #6: Staking 2.0

Staking has been wildly popular in crypto as it provides an additional yield to people who stake their tokens to help secure the network. This passive income has had strong appeal, but the downside is that you have to lock up your tokens and therefore can't use them in things like DeFi. This has been changing over the past year with the emergence of Liquid Staking. This new feature enables users to collect the staking yield AND still use their assets, making the staked tokens liquid. Ever since Ethereum could be freely staked, this category has risen to become the largest category in DeFi.

Biggest 10 defi categories

Ethereum's liquid staking, with a TVL of $15 billion and a 3.7% yield, has become integral to the DeFi landscape. It's not just about securing the network; it's also about fueling DeFi protocols like Aave, Frax Finance, and Maker, where these liquid staking tokens are a major form of collateral. The impact is evident in the rising popularity of Pendle, which is the overwhelming market leader when it comes to trading yield. Additionally, various new innovations have emerged around liquid staking, including stablecoins that pay interest to their holders through the yield and self-repaying loans.

Lybra LST Stablecoin with yield

Restaking is another facet of this trend, expanding the capabilities of staked assets. Innovative and exciting new protocols like EigenLayer allow users to leverage staked ETH to secure additional blockchain networks, providing yield upon yield in different tokens. Restaking takes these rewards and puts them back into staking, essentially making your earnings work for you too. This creates a compounding effect, where your investment potentially grows faster because you're continually adding your rewards back into the pool. While there are definitely risks involved in these strategies and applications, it is likely that these yields will be too attractive for most market participants to ignore. The explosive growth in liquid staking has already shown us just how much demand there is for these primitives.

Projects to watch in the Staking 2.0 sector

  • Eigenlayer
  • Pendle
  • Jito
  • Stride
  • StackingDAO
  • Lybra
  • Primsa
  • Restake Finance

Predictions:

  1. Pendle’s TVL will grow to $2 billion
  2. The 10 leading Proof of Stake blockchains by TVL will have 1 liquid staking protocol with $2.5 billion in TVL
  3. Eigenlayer’s airdrop will be in the 5 figures
  4. Restaking will lead to 2 figure yields on protocol tokens like $ETH and $SOL
  5. Ultimately, staking 2.0 will cause a giant house of cards of yield upon ponzi upon yield upon ponzi, but it won’t collapse in 2024 but in 2025

Megatrend #7: Return of the Metaverse

In late 2021, Facebook's rebranding to Meta catapulted the concept of the Metaverse into the collective consciousness as Zuckerberg made a colossal bet on this digital frontier. However, the Metaverse as envisioned then still didn't materialize and even became somewhat of a laughingstock; a vivid example of how being early can be akin to being wrong.

Fast forward to 2024, the Metaverse, in its utopian Ready Player One form, remains a dream, elusive in its full realization. Yet, the gaming industry, boasting over 3 billion gamers and $175 billion in revenue, subtly embodies the Metaverse ethos. Gen Z and Gen Alpha have started to live in a world where interactive digital experiences are increasingly indistinguishable from real-life interactions.

Metaverse Warner Brothers

Despite technological limitations, such as unresolved rendering, computing challenges, and the unfulfilled promise of immersive hardware reaching the masses, the allure of the Metaverse persists. Open world gaming platforms like Roblox and Fortnite (valued at $26 billion and $32 billion, respectively) are stepping stones towards the Metaverse, now a concept that encompasses all forms of interactive digital experiences, including gaming, social media, and possibly SocialFi among many others. I expect blockchain and crypto to become critical building blocks, and this year, we're going to see just why.

Fortnite concert metaverse crypto

We already got a glimpse into this in the previous bull market with very early-stage projects like the Sandbox and Decentraland, which, like Zuckerberg, were too early. On the gaming front, Axie Infinity and DeFi Kingdoms displayed how explosively web3 games can grow, fueled by rapidly increasing prices.

While 2021 was too early, it led to billions in investments in the vertical and attracted many of the leading gaming studios (e.g. Ubisoft, Square Enix, Rockstar) and independent talent. Three years later, this influx of capital and talent is leading to a slew of high-quality and fun games coming out that subtly incorporate crypto elements like direct ownership of assets through NFTs, in-game crypto economies, and the portability of gaming assets from one game to another, all without degrading the gaming experience. That crypto-enabled games are slowly entering the mainstream is perfectly exemplified by the addition of trading card Parallel to the popular game streaming platform Steam.

Metaverse Parellel TCG Steam

This year, multiple high-quality games with crypto elements will be released. If these games are actually fun to play and their distribution goes beyond crypto's echo chamber, they have the potential to onboard millions to crypto and become the industry's first true breakout application. Games are potent revenue generators, and this, in combination with a rapidly growing user base and appreciating in-game assets, can easily lead to another speculative frenzy. And then there's, of course, generative AI, which will make it significantly easier to create games and can lead to autonomous characters and worlds that can be (fractionally) owned. As this concept captures our collective imagination so easily, and with one of the biggest potential user bases of any industry, expect fireworks once more for (all-things-)metaverse once crypto produces its first hit.

Projects to watch in the Metaverse sector

  • Games
    • Parallel
    • Treeverse
    • Shrapnel
  • Infrastructure
    • The Root Network & Futureverse
    • Immutable X
    • Avalanche’s subnets
  • Metaverse
    • Wilderworld
    • Star Atlas
    • Sophiaverse

Predictions:

  1. There will be 1 crypto game that reaches over 1 million non-crypto natives.
  2. The above will be followed up by an endless slew of cheap copycats that promise the world through AI-generated videos but won't deliver.
  3. 3 crypto-games will be released this year that people actually enjoy playing without making their early users rich.
  4. There will be another ponzi-nomic "play-to-earn" game that reaches $1 billion in market value.
  5. There will be 1 popular game that fully relies on generative AI.
  6. There will be 5 $100 million+ projects that promise to enable Ready Player One through AI.
  7. The Metaverse will still not be anywhere near possible at the end of 2024, but the market won't care and there will be another hype cycle #metaverse.

Closing Thoughts

2024 couldn't have started better than with the Bitcoin ETF, which is set to have a long-lasting positive effect on the price of Bitcoin by making it more accessible and leading to a permanent place for Bitcoin in the portfolios of the world's largest investors. Bitcoin still very much determines the direction of the overall crypto market, and for now, this direction looks up, which bodes well for all crypto assets.

For the risk-takers among us, the 7 sectors described in this article can be a great place to expand your journey into the crypto rabbit hole. The industry has become too big to be a generalist (as they say, "jack of all trades, master of none"), so I'm hoping this article also helped with narrowing down the sectors you want to focus on. While there will likely be many sectors that do well over the coming years, myself and our team of analysts at Flagship will mainly focus on these sectors! Join us on our journey here, and let us know what you're excited about!

Disclaimer: Nothing on this site should be construed as a financial investment recommendation. It’s important to understand that investing is a high-risk activity. Investments expose money to potential loss.

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