(Bloomberg) — The sense of doom that gripped crypto markets in late 2022 after a $1.5 trillion loss has given way 12 months later to a very different mood: stinginess.
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Bitcoin stormed back this year with a gain of more than 160%, adding around $530 billion to its market capitalization. As a result, countless smaller tokens, from Sam Bankman-Fried-backed Solana to dog- and frog-themed memecoins, saw a boost as investors took on the risk again. An investor who bought Solana for $100,000 in early 2023 would now be sitting on a profit of more than $800,000.
Much of the bonanza rests on confidence that U.S. regulators will soon give their first blessing to an exchange-traded fund that invests directly in Bitcoin. Investors will know by January 10 whether this bet, which crypto bulls see as a near-certain winner, will pan out.
Read more: The countdown to the Bitcoin ETF decision reaches a critical point
“The approval of the spot ETFs will be an important catalyst, it will definitely trigger a demand shock,” as mainstream investors currently lack a “compliant” high-bandwidth investment channel for the token, Michael Saylor, co-founder of Bitcoin holder MicroStrategy Inc., said on Bloomberg Television.
There are still many critics in the digital asset markets who claim that cryptocurrencies are fundamentally worthless and a haven for criminals. Binance, the largest exchange, agreed to pay a $4.3 billion fine for a series of violations in November, forcing Chief Executive Changpeng Zhao to resign. Bankman-Fried was jailed for fraud on FTX and liquidity has not yet fully recovered after the collapse of his empire.
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Here is a selection of charts showing how crypto has performed in 2023.
Bitcoin's rally has outperformed stocks and gold this year. Proponents say a quadrennial event in 2024 known as a halving – or halving – will curb supply growth and provide support for the token alongside potential ETF demand. The dominant cryptocurrency is still trading well below its November 2021 record of nearly $69,000.
Bitcoin miners Marathon Digital Holdings Inc. and Riot Platforms Inc., leading U.S. crypto exchange Coinbase Global Inc. and software company-turned-Bitcoin investor MicroStrategy all rose as crypto markets recovered. Coinbase's nearly 400% gain survived a lawsuit from the Securities and Exchange Commission for allegedly operating an unregistered platform, an accusation the company denies.
Bitcoin derivatives saw a sharp surge in activity in 2023. According to CCData, Bitcoin options open interest on Deribit – the largest crypto options exchange – exceeded $16 billion for the first time in December. Open interest in Bitcoin futures also reached groundbreaking levels at CME Group, which now competes with Binance for the top marketplace for such instruments.
The decentralized finance sector has yet to recover from the more than $40 billion collapse of the TerraUSD stablecoin project in 2022. An exception is liquid staking, where the total value of locked assets rose to a record this year, data from DefiLlama shows. Liquid staking protocols provide easier access to the rewards derived from staking tokens to operate blockchains. Ethereum staking increased in popularity following the network’s Shanghai update in April.
Weekly trading volume for non-fungible tokens – digital collectibles – has risen from a low of less than $50 million in October to around $180 million this month, according to Nansen. But they represent only a fraction of the $1.8 billion peak in 2022, suggesting that crypto in general still has a lot of work to do to revive the interest that the sector has seen during the pandemic, as the world was flooded with economic stimulus programs.
While Bitcoin's price has surged, the crypto market still bears scars from the November 2022 collapse of Bankman-Fried's FTX platform and his trading house Alameda Research.
The depth of the market, or the ability of the crypto market to shoulder relatively large orders without unduly influencing prices, highlights the problem. The daily value of trades within 1% of Bitcoin's median price on centralized exchanges has fallen 55% to about $680 million from $1.5 billion in April last year, data from Kaiko shows .
This year saw major shifts in crypto exchange market shares. Binance remains the largest trading venue, but its share of spot trading fell to about 44% by mid-December from over 65% at the start of 2023, according to Kaiko. Asia-focused platforms like Upbit, Bybit, and OKX have lost much of the business that Binance lost.
– With support from Dave Liedtka.
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