The pessimism that gripped the crypto market at the end of 2022 after a $1.5 trillion collapse was replaced 12 months later by a very different emotion: greed. Bitcoin has made a comeback this year with gains of more than 160%, adding about $530 billion to its market value. Small tokens such as Solana and Dogecoin have taken off as investors accept risk again. An investor who had purchased $100,000 of Solana in early 2023 would now have gained over $800,000.
The main factor underpinning this rally is optimism that U.S. regulators will soon approve a spot Bitcoin exchange-traded fund (ETF) for the first time. Investors won't know until January 10 next year whether the bet will be successful.
MicroStrategy (MSTR.US) co-founder Michael Saylor said: "The approval of spot ETFs will be a major catalyst and it will definitely drive a demand shock" because mainstream investors currently lack compliant token investment channels. The enterprise software company is understood to have purchased Bitcoin as part of a dual corporate strategy, making it the largest publicly traded company holding the digital asset. As of November 30, MicroStrategy held approximately $6.5 billion in Bitcoin.
The digital asset market still has many critics who believe that cryptocurrencies are fundamentally worthless and a haven for criminals. Binance, the largest exchange, agreed in November to pay a $4.3 billion fine over a series of violations. Bankman-Fried, once known as the "King of Cryptocurrency," was found guilty of fraud in the FTX bankruptcy case, which U.S. prosecutors called one of the largest financial fraud cases in U.S. history.
Bitcoin has outpaced stocks and gold this year. Proponents say the quadrennial halving event, set to take place in 2024, will curb supply growth and provide support for Bitcoin, as well as potential ETF demand. Bitcoin is still trading well below the record of nearly $69,000 set in November 2021.
Bitcoin Outperforms Global Equity Indicators and Gold in 2023
As the cryptocurrency market recovers, the stock prices of MicroStrategy, Bitcoin miners Marathon Digital (MARA.US) and Riot Platforms (RIOT.US), and the top U.S. cryptocurrency exchange Coinbase (COIN.US) have all risen. Coinbase is up nearly 400% despite the SEC accusing the company of operating an unregistered platform, a charge it denies.
Crypto-related stocks such as Marathon Digital, Coinbase and others have soared this year
Bitcoin derivatives surged in 2023. In December, open interest in Bitcoin options on Deribit, the largest crypto options exchange, exceeded $16 billion for the first time, according to CCData. CME Group’s Bitcoin futures open interest also reached a landmark level.
Demand for Bitcoin options reaches unprecedented levels
Weekly trading volume for non-fungible tokens (NFTs) has climbed to around $180 million this month from a low of less than $50 million in October, according to Nansen data. But it is still well below the peak of $1.8 billion in 2022.
NFT trading volume is off its lows but remains a fraction of past peaks
While the price of Bitcoin has soared, the negative impact of the FTX platform’s collapse in November 2022 remains. The crash resulted in reduced liquidity, making the token harder to trade.
Market depth, or the crypto market’s ability to take on relatively large orders without unduly affecting prices, illustrates this problem. Kaiko data shows that on centralized exchanges, the daily trading volume of Bitcoin’s central price fluctuation within 1% fell by 55% from US$1.5 billion in April last year to about US$680 million.
Trading volume within 1% of Bitcoin’s mid-price move has declined since the FTX crash
There have been significant changes in the market share of cryptocurrency exchanges this year. Binance remains the largest exchange, but its share of spot trading fell from more than 65% in early 2023 to around 44% in mid-December, according to Kaiko data. Asia-focused platforms such as Upbit, Bybit, and OKX filled much of Binance’s lost business.