The Year of Trauma Recovery
If 2022 was the year that “broke bitcoin”, 2023 has been the year of trauma recovery. According to Kelvin Koh, co-founder and managing partner at investment firm Spartan Group, “We’ve had a nice recovery, but we’re just in the cusp of the new cycle.” The surprising resilience of bitcoin in 2023 has outpaced traditional assets like gold, which rose by 10%, and the S&P 500, which gained 20%.
Bitcoin’s Growing Market Share
Bitcoin has also seen an increase in its share of the total cryptocurrency market, rising from 38% to above 50%, as reported by CoinGecko data. Additionally, the overall crypto market cap has swelled to $1.7 trillion from $871 billion at the end of 2022. Ethereum’s price has soared, jumping 95% and contributing to the market’s growth. Trading volumes have also rebounded, with combined spot and derivatives trading volume on centralized exchanges reaching $3.61 trillion in November, up from approximately $2.9 trillion in January, according to CCData.
Fall of Crypto Giants
While 2023 has been a year of recovery for bitcoin, it has also seen the downfall of several crypto giants. Changpeng Zhao, the chief of Binance, pled guilty to breaking U.S. anti-money laundering laws as part of a multi-billion dollar settlement. The co-founder of Voyager Digital also faced regulatory action in the U.S., while Celsius founder Alex Mashinsky was arrested and pleaded not guilty to criminal counts, including securities fraud. Despite these setbacks, Ripple’s XRP token saw gains of 82% for the year following a key legal victory when a U.S. judge ruled that Ripple Labs’ sales of the token on public exchanges did not violate securities law.
Looking Ahead to Bitcoin in 2024
The significant run of bitcoin in the fourth quarter of 2023 has been attributed to expectations of a spot bitcoin ETF approval in the U.S. This approval is anticipated to attract retail and institutional investors, fueling further growth. Asset management giants like BlackRock and Fidelity are among the 13 companies that have submitted applications for the multi-billion dollar product to the U.S. Securities and Exchange Commission. If approved, the launch of a bitcoin ETF could result in an influx of around $3 billion in the first few days of trading, with potential for even higher inflows thereafter. However, not everyone shares the same level of optimism. J.P. Morgan remains skeptical about the broad market’s pricing in of adoption success, with expectations that the bitcoin ETFs will only attract a low to mid-single digit percentage range of the $1.7 trillion crypto market.
Concerns and Market Outlook
J.P. Morgan’s conservative outlook warns that if adoption falls short of expectations, crypto markets could reverse their recent gains. Despite the positive trends, some market watchers believe that the current recovery is still in its early stages. Glassnode, an analytics platform, reveals that the net dollar-denominated realized profit locked in by bitcoin investors stands at $324 million per day—a fraction of the levels experienced during the later stages of the 2021 bull market, which exceeded $3 billion per day. This suggests that bitcoin’s current performance aligns more closely with an early bull market phase than a late-stage one.