If 2022 was the year that “broke” bitcoin, 2023 has been the year of trauma recovery.
Bitcoin has bounced back valiantly in the face of depressed crypto prices, low trading volumes and tough economic conditions. It even found a second wind in October after a summer slump.
“We’ve had a nice recovery, but we’re just at the cusp of the new cycle,” said Kevin Koh, co-founder and managing partner at investment firm Spartan Group.
Indeed, 2023 was a surprisingly good year for bitcoin.
The king of cryptocurrencies has jumped 164% since Jan. 1 and is trading above $40,000. It has outperformed traditional assets, including gold, which is up 10%, and the S&P 500, which is up 20%.
Bitcoin has also increased its share of the overall cryptocurrency market from 38% to over 50%, according to CoinGecko data. The total crypto market capitalization has swelled from $871 billion to $1.7 trillion at the end of 2022, with the price of ether jumping 95%.
Much of bitcoin’s gains came later in the year, as a potential U.S. spot bitcoin exchange-traded fund (ETF) and hopes of easier monetary policy renewed investor energy.
Trading volumes have also picked up, with combined spot and derivatives trading volume on centralized exchanges reaching $3.61 trillion in November, up from about $2.9 trillion in January, according to CCData.
Meanwhile, stablecoins – cryptocurrencies whose value is pegged to a real-world asset like the dollar – have also grown. Tether, the largest such coin, has seen its market capitalization soar to an all-time high of more than $90 billion.
FALL OF TITANS
After a torrid 2022 that saw the demise of FTX and Sam Bankman-Fried, 2023 has seen more crypto giants fall.
Most notably, Binance chief Changpeng Zhao pleaded guilty to violating U.S. anti-money laundering laws as part of a multibillion-dollar settlement with regulators. The co-founder of Voyager Digital also found himself on the wrong end of American regulatory action, while Celsius founder Alex Mashinsky was arrested in the US in July and pleaded not guilty to criminal charges including securities fraud.
And let us not forget SBF – after a whirlwind trial, the former poster child of the industry was convicted of fraud in November.
On a brighter note, Ripple‘s XRP token was up 82% for the year following a major legal victory for the industry when a U.S. judge ruled that Ripple Labs’ sales of the token on public exchanges did not violate securities law.
BITCOIN IN 2024
Much of bitcoin’s 55% run in the fourth quarter can be attributed to bets that a spot bitcoin ETF will be approved in the U.S., attracting money from retail and institutional investors alike on the ease of gaining exposure to the digital asset on a regulated exchange.
Asset management giants such as BlackRock (NYSE:BLK) and Fidelity are among the 13 firms that have filed with the U.S. Securities and Exchange Commission for the multi-billion dollar product.
Such a fund is expected to attract as much as $3 billion from investors in the first few days of trading and billions more thereafter.
Not everyone is so bullish.
J.P. Morgan expects the crypto market’s rally to continue through its expected launch in early 2024, but remains skeptical of the level of adoption success the broader market is pricing in.
JPM expects bitcoin ETFs to attract assets in the low to mid-single digits of the $1.7 trillion crypto market, compared to some optimistic outlooks of 10%.
If adoption falls short of investors’ expectations of around 10%, the crypto markets could reverse their recent gains, they said.
For some market observers, however, the current bitcoin rally appears to be in its early stages.
According to analytics platform Glassnode, the net dollar-denominated realized gains locked in by bitcoin investors have reached $324 million per day, which is still an order of magnitude below the peaks seen in the later stages of the 2021 bull market, which exceeded $3 billion per day.
This suggests that bitcoin’s current performance remains very much within the bounds of an early rather than late stage bull market, Glassnode said.
