Crypto Niches That Are Set to Grow

After a tremendously positive January for Bitcoin and crypto in terms of price movement, February has brought drama in the US, in the shape of what many interpret as hostile regulatory manoeuvres by the SEC.

There was a temporary dip in prices while these events dominated crypto headlines and caused a stir, but the price of Bitcoin bounced back sharply to briefly touch eight-month highs, with the rest of crypto following a similar upward path.

On top of that, even as the stage is laid out for regulatory confrontation, the mood in the crypto space is unmistakably upbeat. One positive reading of the battle over regulation is that it had to occur sooner or later, and with crypto now in a more established position than ever before, it has a reasonably strong foundation from which to defend itself. What’s more, the very fact that regulator interest is intensifying indicates that crypto is making an impact. After all, if crypto was inconsequential, it would simply be left alone on the fringes, but that is evidently not the case.

Aside from these regulatory issues, though, and feeding back into the elevated overall mood, there are several current niches within the crypto space that are looking buoyant and active, and which have the potential to grow significantly if this year sees prolonged positivity in the crypto markets.

NFT Finance

If 2020 brought DeFi summer, could a similar event unfold sometime in the future, but with NFTs at its core? That’s a speculative suggestion, but it’s not out of the question, as development increases and use grows around platforms that bring together NFTs and decentralized finance.

One problem with NFTs from a finance and trading point of view (rather than an art and design perspective) is that they are so illiquid. However, protocols such as BendDAO, JPEG’d, Pine Protocol and Drops are using peer-to-protocol mechanisms to unlock liquidity, NFTperp is a perpetual futures DEX centered around NFTs, and the likes of NFTfi and Arcade enable more straightforward peer-to-peer lending.

NFT markets are currently enjoying a welcome injection of liquidity, thanks to the Blur marketplace airdropping around $400 million worth of tokens (at current prices) to its users, a stimulus that is fueling an uptick in activity across the NFT landscape, and could, in turn, benefit NFT finance protocols.

Bitcoin Ordinals

This month there has been an explosion of interest in Ordinals, which are a way of inscribing unique, unalterable content onto the Bitcoin blockchain. These can be thought of as NFTs for Bitcoin, although the underlying mechanism is different. While NFTs utilize smart contracts and usually link to external data files, Ordinals place data directly on-chain (actually onto individual satoshis), meaning they’re self-contained, forever, on the blockchain.

There is now a race to create the kind of working infrastructure that has already emerged around NFTs on Ethereum, Solana and other blockchains, starting with user-friendly wallets to safely hold, send and receive Ordinals, and marketplaces on which they can be traded.

Keeping in mind how rapidly NFT-related products expanded and innovated on Ethereum, this could be a dynamic area of interest, with the caveat that, unlike on Ethereum, a significant number of Bitcoin purists are ambivalent or openly opposed to using Bitcoin for this purpose.

Layer 2s

With Ethereum looking comfortably dominant as the web3 narrative takes shape, there is a battle unfolding when it comes to Layer 2 scaling solutions. Three key players in the running are Arbitrum, Optimism and Polygon, although technically, Polygon could be classified differently from Arbitrum and Optimism, and is more accurately described as a sidechain. Still, though, the three can be bracketed together for practical purposes.

Going into 2023, data shows Polygon dominating in terms of daily ETH transactions, with Arbitrum then taking a clear lead over Optimism. In more detail, Polygon’s dominance is strongest when it comes to NFTs (ERC-721 tokens), but the three chains draw closer together (with Polygon still leading) when it comes to fungible tokens (ERC-20 tokens).

This perhaps reflects Polygon being used for Reddit’s NFTs, which surged in popularity last year. Also, Polygon operates Polygon Studios, which is focused on onboarding brands into web3, and on gaming and metaverse development, all of which are centered around NFTs. At the moment, the Layer 2 environment exhibits a distinction between NFT-oriented applications (served mainly by Polygon), and applications making use of fungible tokens (where Arbitrum and Optimism take a more significant share).

ZK-rollups

Also, in the realm of Layer 2 scaling, we have ZK-rollups, which differ in their methods from Arbitrum and Optimism. Without digging into the technical side, ZK-rollups are more scalable, but less directly compatible with Ethereum (or rather, with the EVM, meaning Ethereum Virtual Machine). In this category, we have projects, such as Loopring and StarkWare, along with the gaming-focused Immutable X, which utilizes StarkWare technology.

Moreover, we now have incoming, EVM-compatible ZK-rollups, known as zkEVM, which will have scalability while allowing developers to easily deploy smart contracts written for Ethereum. Additionally, Polygon is active here too; zkSync has opened its zkEVM mainnet, and Scroll is working towards similar goals.

In all of the above-mentioned niches, as is usual in the crypto world, a multitude of new developments can spring up rapidly, and the outlook is highly unpredictable. With this in mind, if particular products start to bed in and look dominant, then they may be worth paying attention to.