Looking back, 2023 was an absolutely fascinating year for anyone following the cryptocurrency market. After the disaster that was 2022, many thought the sector was dead. But those who had the courage to enter in the second half of that very challenging year are now reaping returns they never imagined.

The big question everyone was asking then was whether that rally would continue. And well, to understand what happened, we need to analyze the structure of the crypto market. It’s not just miners and speculative traders. There are nine main actors constantly interacting: blockchain projects, venture investors, whales moving markets, retail investors like most of us, institutional funds, centralized exchanges, decentralized platforms, traditional brokers who got into crypto, and regulators defining the rules of the game.

The interaction of all these actors is what generates the supply and demand dynamics. And in 2023, that dynamic was bullish.

The first thing that explains the behavior of the cryptocurrency market in 2023 was the Bitcoin halving scheduled for April 2024. Bitcoin’s algorithm cuts the rewards to miners in half every four years. This makes the supply of new tokens scarcer, and Bitcoin more valuable in theory. Looking at history, after each previous halving, Bitcoin experienced extraordinary growth. The first halving led to a 950 percent increase in six months. The second, 38 percent. The third in 2020, 83 percent in six months. So, anticipatory positioning before the halving was a key factor.

Then there were expectations about spot Bitcoin ETFs. For years, the lack of clear regulation kept institutional money out of the crypto market. But in 2023, major asset managers sought approval to launch ETFs based on physical Bitcoin, not futures. This is crucial because if approved, these funds would have to buy real Bitcoin to back their shares. Imagine the impact if the world’s largest asset manager started buying Bitcoin spot.

Another factor was the AI boom. Since September 2023, the tech sector exploded with AI. And the cryptocurrency market was no stranger. Projects building AI tools on blockchain gained a lot of traction. The tokens of these projects function like digital shares of decentralized AI companies.

But the most visible factor was the increase in market capitalization. During 2023, the crypto market grew nearly 100 percent. We’re talking about almost $750 billion in new added value. For that to happen, fresh money had to enter, willing to pay higher and higher prices. The trading volume in the crypto market in 2023 far exceeded its historical averages.

And looking at futures, open interest in Bitcoin and Ethereum contracts increased significantly since August. That means new participants were entering or existing ones were increasing their positions. Professional investors know that when open interest in futures rises along with prices, it’s a sign that the spot market is likely to keep rising.

Now, why is it important to understand all this? Because if you want to invest in crypto, you need to analyze from four perspectives: project fundamentals, token supply, market demand, and technical analysis. It’s not enough to buy just because “everyone talks about Bitcoin.” There is a methodology, the DACS, which divides the crypto market into seven major sectors. Diversifying within these sectors is what professional investors do.

As for where to invest, that depends on your profile. If you want short-term speculation, there are derivatives. But if you look at the numbers, the best returns in the crypto market come from long-term holding. Bitcoin returned 79 percent in 2023, almost six times more than the S&P 500. Ethereum returned 40 percent, three times more than the main US index. Those are numbers that speak for themselves.

The question of whether the rally would continue depended on macroeconomic factors. If inflation eased and the economy stabilized, central banks might pause rate hikes, which would benefit tech stocks but perhaps not so much crypto. If inflation spiked again, then Bitcoin, with its fixed supply, could be seen as a hedge. Or if stagflation arrived, the outcome would be uncertain.

What we learned from the behavior of the crypto market in 2023 is that this sector does not evolve in a vacuum. It’s connected to monetary policy decisions, global technological movements, and the risk sentiment of institutional investors. Understanding that connection is what separates those who make money from those who lose it.

Now, three years later, we see that many of those predictions materialized. The Bitcoin spot ETF was approved. The halving occurred. The blockchain AI sector developed. But that’s another story. The important thing is that 2023 was a turning point, and those who understand why what happened happened will be better prepared for what’s to come.