For the cryptocurrency sector, 2023 was a crucial year. After a harsh 2022, the year we witnessed cautious optimism driven by notable technology developments, rising institutional interest, and a recovery in the market. However, difficulties remained in the shape of unclear regulations, security lapses, and environmental worries, emphasizing the necessity of prudent navigation in this rapidly changing environment.
Following a bearish performance in 2022, Bitcoin experienced a remarkable surge of over 150+% in 2023, while Ethereum witnessed a substantial growth of 80+. These impressive gains indicate a significant recovery for both cryptocurrencies throughout the year. Technological advancements, growing institutional interest(ETFs), and real-world application(RWAs) breakthroughs marked significant progress
Major Events unfolded in 2023
The institutionalization of Bitcoin has changed significantly, with asset managers pushing towards offering ETFs and banks obtaining licenses for digital asset trading or custody. Regulatory frameworks in the E.U. and U.K. have constrained the Wild West, but institutions are aligned in their thesis that crypto is here to stay. BlackRock, Fidelity, Deutsche Bank, and Citadel are providing Bitcoin infrastructure and investment vehicles, signaling longevity and optimism about Bitcoin’s price path as we enter 2024.
- In Q1(January 2023- March 2023), the banking crisis and regulatory sharpening led to issues such as Gemini taking a spat with DCG Public, DCG facing US investigation over internal transfers, and Binance suspending US dollar bank transfers. The SEC sued Coinbase and its CEO Changpeng Zhao for allegedly violating US laws.
- In Q2(April 2023- June 2023), the SEC sued Coinbase for breaking US securities rules, and BlackRock filed for bitcoin ETF in a push into crypto.
- In Q3(July 2023- September 2023), the Grayscale court win over the SEC lifts hopes for Bitcoin ETF approval, and the SEC acknowledges Bitcoin ETF filings from BlackRock, Bitwise, and others. The cryptocurrency futures market has seen applications tumble in the past few months, with PayPal launching stablecoin on Ethereum and Tornado Cash Devs charged with helping hackers launder $1B.
- In Q4(October 2023- December 2023), the industry continues to grow, with future-based ETH ETFs launches in the U.S., and crypto exchange FTX under investigation by Texas regulators over securities allegations. The Justice Department announced a $4.3 billion settlement with Binance and CZ stepped down as part of a plea deal with the DOJ.
Growth of the Trending Sector in 2023
2023 was a crucial year for the cryptocurrency market, with notable expansion in a number of sectors despite difficult conditions in the market. Even though market capitalization has increased by over 100% year-to-date, various sectors of the cryptocurrency ecosystem have shown different growth paths, which emphasizes how the industry is maturing and diversifying.
- The DeFi sector demonstrated impressive growth throughout 2023, as lending & borrowing, derivatives, storage, and interoperability segments witnessed significant expansion.
- The growth rates for various financial sectors are as follows: Lending and Borrowing experienced a remarkable surge of 100+%, Derivatives witnessed a substantial increase of 70+%, Storage observed a notable growth of 86%, and Interoperability demonstrated a respectable rise of 50+%.
- Key Financial Factors: Accelerated institutional adoption, heightened demand for yield generation opportunities, and a burgeoning recognition of DeFi’s capacity to revolutionize conventional financial services.
- There was a remarkable surge in the Metaverse and NFT sectors during the year 2023. This growth was primarily driven by the emergence of play-to-earn games and the growing demand for NFTs, resulting in a significant boost to virtual worlds, NFTs, and blockchain-based games.
- The growth rates for the VR/AR and AI & Big Data sectors within the Metaverse industry are 500+% and 300+% respectively.
- Advances in VR/AR technology, the popularity of play-to-earn games like Axie Infinity, and an increase in NFT sales, particularly for art and collectibles, are key drivers.
- As the scalability issues of blockchains such as Ethereum became more evident, the demand for infrastructure and scaling solutions increased in 2023.
- Growth has been noticed in fields such as Layer 2 scaling solutions, blockchain bridges, and data oracles.
- The desire for faster and cheaper blockchain transactions, the rise of decentralized apps (dApps), and the increasing complexity of the crypto ecosystem are key drivers.
- According to Boston Consulting Group, the on-chain RWA market might reach $16 trillion by 2030. According to a recent survey, 91% of institutional investors are interested in tokenized assets. Due to protocols like Ondo Finance, Centrifuge, and Tangible, RWA TVL expanded to support this desire. RWA procedures had $2.8 billion TVL in November.
2023 was a dynamic year for stablecoins, the cryptocurrencies pegged to stable assets like the US dollar. The year saw significant growth, regulatory scrutiny, and some major events that shook the industry.
- Stablecoins experienced a noteworthy net supply reduction of $10 billion over the course of the year. The decrease in value can be attributed to the SEC’s enforcement of the shutdown of BUSD and the ongoing outflows from USDC amidst the U.S. banking crisis.
- Global regulatory bodies, such as the US Treasury Department and the Financial Action Task Force (FATF), have intensified their scrutiny of stablecoins. This heightened attention stems from apprehensions regarding potential risks to financial stability, money laundering, and the safeguarding of investor interests.
- Circle, the prominent issuer of USDC, recently unveiled its intentions to conduct an initial public offering (IPO) in the early months of 2024. This development holds significant implications for the stablecoin sector, potentially signifying a pivotal milestone. The upcoming IPO is anticipated to enhance the prominence and credibility of stablecoins in the mainstream market.
- Stablecoins have experienced increased adoption within the realm of decentralized finance (DeFi) applications, serving as a reliable medium of exchange and facilitating seamless cross-border payments.
Market Data Points
- Total market capitalization: The total market capitalization of the crypto market is currently around $1.835 trillion. There is a net 122+% YTD change.
- Bitcoin dominance: Bitcoin dominance, which tracks the percentage of the total market capitalization that is held by Bitcoin, is currently at around 48.6%. There is a net 24+% YTD change.
- ETH dominance: ETH dominance, which tracks the percentage of the total market capitalization that is held by Ethereum, is currently at around 15.7%. There is a net -12.89% YTD change.
- DeFi market capitalization: The total market capitalization of the crypto market is currently around $111 Billion. There is a net 137+% YTD change.
USDT/USDC dominance: There is a net -37.80% YTD change for USDT and -75.33% YTD change for USDC.
- The open interest in Bitcoin futures surged considerably from $8 billion on January 1 to $17+ billion YTD, more than doubling with a 108+% gain. This sharp increase in open interest indicates increased interest in and participation in the Bitcoin futures market. High open interest usually signals improved liquidity and trading activity, which makes the market more appealing to both retail and institutional traders.
- The open interest in perpetual futures climbed by 65+% year to date(YTD), from $6+ billion to $10+ billion. This expansion indicates a rising hunger for perpetual trading, which is generally selected for its flexibility and ease of implementation of various trading methods.
- Over the year, options open interest increased by more than 900%, from $2 billion to $20 billion. This rapid expansion suggests a growing interest in Bitcoin options trading.
- CME has surpassed Binance in Bitcoin futures open interest. The CME’s notional open interest has increased to $5.71 billion, the largest among exchanges that allow conventional bitcoin and perpetual futures trading.
Bitcoin Price Analysis:
Bitcoin experienced a decline below the crucial support level of $41,000. However, the downward momentum was not sustained by the bears, suggesting a notable increase in buying activity during price dips. The price has surged to $43,000 on the back of mounting buying interest. The potential for a rally above the $46,000 mark is now on the horizon if ETF approval news supports it. The surge in price coincides with news that the SEC might inform the 14 Bitcoin ETF applicants about its verdict before the January 10 cutoff, intensifying investor anticipation regarding the potential approval of the Bitcoin ETF in the US. For now, $45,000 is acting as a strong resistance for the bulls.
Traders face significant exposure as the verdict approaches, as derivatives drive up premiums due to BTC’s sustained upward momentum over the past three months. The ETF approval deadline has the potential to be perceived as a “sell the news” event, a commonly recognized term in the world of capital markets. If the price falls and closes below $42,000, the bullish perspective will be invalidated. The pair may then fall to $41,000. This level may serve as a significant support, but if it is breached, the drop may extend to $40,000 or lower.
BTC Technical Indicator:
Macro(Global) 2023 Overview:
- In the fiscal year of 2023, the global economy persisted in encountering significant macroeconomic and geopolitical challenges. The global economy experienced a gradual slowdown in growth over the course of the year, influenced by various factors including increasing inflation, the implementation of stricter monetary policies, and geopolitical tensions.
- Throughout the year, the world economy grew less quickly. This was due to things like rising prices, tighter monetary policy, and political unrest. Many countries’ inflation went through the roof because of problems in the supply chain, higher energy prices, and high demand that built up over time. For example, in the US in early 2023, inflation was higher than 8%. Western central banks tightened money even more to try to control inflation.
- There was a long-lasting kinetic war in Europe and a new one in the Middle East. The COVID-19 pandemic had long-lasting effects. Because of this, the International Monetary Fund (IMF) predicts that the world’s GDP will grow by 3.0% in 2023 and 2.9% in 2024, both less than the 3.5% growth seen in 2022. At the same time, world inflation is expected to drop from 8.7% in 2022 to 6.9% in 2023 and 5.8% in 2024.
- The war in Ukraine had a big effect on food and energy prices around the world. It also messed up supply lines and made inflation worse. Sanctions against Russia made the world economy even less stable and predictable.
- While much of the focus in 2023 was on analysing what went wrong the previous year, the price of Bitcoin began to rise. It was partly attributable to improved inflation and expectations of a Fed move to looser monetary policy.
- Inflationary pressures began to ease towards the close of the year, providing some hope for stabilization. Bitcoin has recovered to $43,000, a 160% year-to-date gain. In fact, Bitcoin outperformed equities, gold, bonds, and other commodities to become the year’s best performing asset.
Bitcoin prices are being influenced by predictions that the SEC is going to allow a spot Bitcoin ETF. BlackRock and Twelve other financial firms have also applied to launch a Bitcoin ETF and have met with the SEC to finalize the specifications. BlackRock, Fidelity, ARK 21, Bitwise, VanEck, WisdomTree, Invesco, and Franklin are among the other applicants. The decision is expected on January 10, 2024. The long-awaited Bitcoin Spot ETF will invest in Bitcoin directly. An approved ETF will make Bitcoin more accessible to the general public while also resolving many of its concerns. However such events are considered as “Sell the News” events and price sharply falls before or after the event.
- Long-term holders control the supply, and they often sell and profit once prices break through all-time highs. The halving of incentives in April 2024 is predicted to cause Bitcoin prices to rise. ETF approval is expected to make Bitcoin more accessible and to incentivise asset managers to lobby for Bitcoin exposure. Diversification is a key reason for increasing Bitcoin exposure.
- Decentralised Exchanges (DEX) will have an all-time high market share of spot and futures crypto trading as high-throughput networks such as Arbitrum and others (L2) improve the on-chain trading experience for users. Meanwhile, much enhanced wallets with account abstraction, a critical component in enabling automatic payments, will drive more users onto the blockchain and into self-custody solutions. As the dominance of BTC and ETH declines as a result of the Bitcoin halving, the long tail of assets may increase faster, shifting trade activity to decentralised exchanges that list coins early in their lifecycle.
- The halving of block rewards is a key underlying driver of BTC’s strong price trend. In principle, the efficient market hypothesis should hold true, but in fact, it does not because the liquidity effects are so difficult to predict.
Bitcoin returns were % for this week. The Alpha Blue Chip Focused Strategy returns were −12.73% during the same period (28 December -04 January). The Top Cap Digital Assets Strategy and Arbitrage Opportunities & Balanced Strategy returns were −6.13% and −4%, respectively.