2023 Crypto Market Review: A New Journey from Bear to Bull (Part 1)
[TL；DR]:
In 2023, the global crypto market became increasingly regulated. Despite a series of enforcement actions against cryptocurrency, Hong Kong is actively embracing the crypto industry, and the overall trend is that the West is not bright and the East is bright.
Bitcoin saw a strong rise of 170% throughout the year, continuing to maintain its leading position in the industry. The spillover effect of funds also activated the entire crypto market in the fourth quarter, with AI, DePIN, RWA and other sectors performing outstandingly.
In 2023, the crypto market experienced a turbulent year, but Gate.io has always maintained a stable development trend. The success of Gate.io proves that in a turbulent market environment, adhering to credibility, innovation, and social responsibility is the key to the success of a crypto trading platform.
Introduction
In 2023, the crypto market gradually recovered from a brutal bear market, with prices of various digital assets experiencing a sharp rise in the first quarter and a pullback in the second and third quarters, and finally experiencing a strong rebound in the fourth quarter, and the crypto eco gradually prospering.
Although there are still some obstacles and differences in practical adoption, these cryptocurrencies are still symbols of financial transformation, and their potential and value still exist.
This resilience has made many investors, technical experts, and enthusiasts more fascinated by the potential of decentralized finance. They have expressed various views on the current situation and future of cryptocurrencies, maintaining a cautious attitude and beginning to lean more towards optimistic expectations.
Let’s take a look at the important developments in the crypto market in 2023, which can be divided into macro environments, Bitcoin, stablecoins, RWA, L2, L1, and more.
Macro Environment: Stricter Regulation and Suspension of Interest Rate Hikes
1. FTX crash triggers strong government regulation
With the FTX crash as the trigger, the regulatory situation of the crypto market has shown an increasingly strict trend throughout 2023. Regulatory authorities in multiple countries and regions around the world have introduced new regulatory measures to address the risks posed by the crypto market.
The main regulatory trends include:
Strengthen the supervision of crypto trading platforms. Many regulatory agencies in countries and regions require crypto trading platforms to register or license, and strengthen compliance reviews for their anti-money laundering, anti-terrorism financing, and other activities.
Improve the supervision of crypto financial products. Regulatory agencies have begun to expand their regulatory reach, expanding from centralized crypto projects to regulating financial products such as decentralized protocols and crypto derivatives.
Global regulatory coordination is further accelerating. The G20 Financial Stability Board (FSB) released the “Principles for Crypto Asset Regulation” in April, the International Monetary Fund (IMF) released the “Crypto Assets: Risks and Policy Challenges” report in October, and regulatory agencies in countries and regions such as the United States, the European Union, and Japan have also established working groups or alliances to strengthen cooperation in crypto regulation.
From the perspective of various regions, the regulatory situation in major countries/regions is as follows:
The United States: The Securities and Exchange Commission (SEC) issued investigative subpoenas against several well-known exchanges in the first half of the year, filed lawsuits against some crypto institutions in the second half, and issued multiple guidelines and draft rules related to derivative trading, financial auditing, taxation, investor education, and more.
EU: In March of this year, the EU launched a pilot program for Distributed Ledger Technology (DLT) and formulated the Crypto Regulatory Framework, the Crypto Asset Market Act (MiCA). This framework categorizes crypto enterprises and proposes different regulatory requirements, requiring registration and emphasizing AML/CFT regulations.
After several discussions and revisions, the plan was officially approved and issued in December.
China: The Chinese government continues to ban crypto trading and mining, but expressed support for the development of the Web3 industry at the end of the year and has always maintained an encouraging attitude in the direction of crypto free blockchain; In addition, Hong Kong, China has embraced the crypto industry with a positive attitude. In January, the Securities and Futures Commission (SFC) of Hong Kong issued the “Guidelines for the Registration and Filing of Virtual Asset Service Providers”, improving the regulatory framework, and expressed readiness to accept registration applications for spot Bitcoin ETF products at the end of the year.
Other: El Salvador, the first country to use Bitcoin as a legal tender, opened a Bitcoin mine this year and launched the Bitcoin legal payment application Chivo; On December 22, the Argentine Ministry of Foreign Affairs announced that it had signed the Bitcoin protocol, allowing Bitcoin to be used for settlement contracts, officially entering a critical moment in the legalization of Bitcoin; Other countries or regions have also expressed positive views on Bitcoin.
The tightening regulation of the crypto market will have a significant impact on the market. On the one hand, this will improve the compliance of the crypto market and protect the rights and interests of investors. On the other hand, this will also increase the operating costs of the crypto industry and may inhibit the development of the crypto market.
Source: CoinGecko
Overall, governments/regions around the world have further improved their regulatory frameworks for cryptocurrencies, which helps improve industry compliance and protect investor rights. Of course, the East tends to be more open, while the West tends to be strict, presenting a completely opposite situation to the previous bull market, where the West is not bright and the East is bright.
2.The Federal Reserve has raised interest rates four times, and the tightening cycle is nearing its end
On December 14, 2023, the Federal Reserve’s annual interest rate decision for 2023 came to an end. The bank decided to maintain its benchmark interest rate in the range of 5.25% to 5.50%, and the market generally believed that the current interest rate hike cycle was nearing its end.
In eight resolutions this year, the Federal Reserve has raised interest rates by 25 basis points four times, while maintaining interest rates unchanged four times.
Source: MacroMicro.me
Generally speaking, the impact of the Federal Reserve’s interest rate hike on Bitcoin is negative due to the increase in US dollar interest rates causing investors to compare their willingness to hold risky assets such as Bitcoin and withdraw liquidity from the crypto market. However, the specific degree of impact depends on multiple factors. The gradual recovery of cryptocurrencies this year indicates that the crypto market has a marginal diminishing feedback effect on the Federal Reserve’s tightening interest rate policy, Even the market has started to hype up expectations of future interest rate cuts.
Bitcoin Strongly Rebounds, Inion Sparks Market
1. Bitcoin surged nearly 170% throughout the year, leading mainstream traditional assets
Bitcoin’s performance this year is significantly different from other mainstream assets, with a nearly 170% increase throughout the year far exceeding the returns of various mainstream traditional assets.
The price of Bitcoin has experienced fluctuations with an upward trend this year, hovering around $16,000 at the beginning of the year. Without significant news, it quickly rose to the front line of $30,000. After a period of sideways fluctuations in the second and third quarters, it rose again in the fourth quarter with the positive progress of spot ETF applications. As of the writing date, the coin price has approached $45,000.
Source: Gate.io
According to on-chain data analysis, by the end of 2023, over 67% of Bitcoin had been in a sleep state for more than a year, and people’s holding of Bitcoin continued to increase. The consensus on Bitcoin is becoming stronger.
Source: unchained
In contrast, traditional mainstream assets such as gold and stocks have performed relatively steadily in 2023.
The price of gold has shown a fluctuating process of first rising, then falling, and then continuing to rise to new highs this year. From $1,800 per ounce at the beginning of the year, it has risen in a tortuous manner to the current $2,050 per ounce, with a year-on-year increase of over 10%.
The US stock market also experienced an N-shaped upward trend in 2023, with overall performance relatively stable. The S&P 500 index was around 3840 points at the beginning of the year, and by the end of the year, it had reached 4770 points, approaching its historical high, with a full year return of 23%.
Source: Artemis Terminal
Overall, Bitcoin has rebounded strongly in 2023, with its market value now ranking 10th globally and annual returns better than many traditional mainstream assets.
2. The approval process for spot Bitcoin ETFs is progressing smoothly
The approval status of US spot Bitcoin ETFs has been a focus of market attention throughout the year, and ultimately directly stimulated a sharp rise in coin prices in November.
Entering 2023, global spot Bitcoin ETF products continue to expand. The UK, Germany, and other countries have successively issued spot Bitcoin ETF products, and Hong Kong, China has also approved two futures ETFs. As of the writing date, there are a total of 20 active spot Bitcoin ETF products worldwide, with total assets exceeding 170000 BTCs; There are also 7 futures ETF products, mainly located in the United States (5) and Hong Kong, China (2).
Source: CoinGecko
But their trading scale is too small, their influence is limited, and the focus of market attention is still on the positive progress of many US institutions queuing up for approval.
In August, a US court made a ruling in favor of Grayscale in the dispute between Grayscale and the US Securities and Exchange Commission (SEC) over the conversion of Grayscale Bitcoin Trust (GBTC) to spot BTC ETF. This favorable ruling prompted many other participants, including BlackRock, the world’s largest asset management company, as well as Fidelity and Jingshun, to submit their spot ETF applications in the following months.
Currently, a total of 13 spot Bitcoin ETF applications are undergoing SEC review. The earliest final deadline is January 2024, and the latest is August.
Source: Bloomberg
The market generally expects that these ETFs will be approved in the coming weeks or months.
The approval of spot Bitcoin ETFs will be of great significance. It will provide investors with a regulated and user-friendly way to obtain Bitcoin, accelerate the actual adoption rate of Bitcoin, and thus usher in a new era of accessibility and legitimacy.
3. Bitcoin inion eco became popular
In 2023, the emergence of Bitcoin inions has brought new excitement and innovation to the Bitcoin eco.
Inion is a technology based on the Ordinals protocol that can assign a unique identifier to the smallest unit of Bitcoin, Satoshis, and “engrave” any content within it. This allows Bitcoin to be used to create digital assets with unique attributes, such as artworks, collectibles, tokens, etc.
The emergence of inions has attracted widespread attention and sparked a wave of enthusiasm in March 2023. However, entering May, as market sentiment cooled again, the popularity of inions also tended to flatten.
Since October, BRC20 inions represented by ORDI and SATS have made a strong impact, and the transfer volume of Bitcoin has doubled that month, from $2.4 billion per day to over $5 billion per day. In November, the inions craze quickly swept across the entire crypto market public chain, and this FOMO sentiment has continued to this day without significant decline.
Source: glassnode
The Bitcoin Inion contributed 15% to 30% of the total transaction fee income of miners throughout the year, with several blocks even paying fees exceeding the subsidy of 6.25 BTC. This new source of income will significantly improve the income structure of miners after the fourth halving.
The rise of inions indicates that Bitcoin is transforming from a pure value storage tool to a more diverse digital asset, which has driven the development of many infrastructure based on inions and other assets, as well as the expansion of the Bitcoin L2 eco. This has brought new opportunities and challenges to the Bitcoin eco.
Further review of the crypto market in 2023:
Title: 2023 Crypto Market Review: A New Journey from Bear to Bull (Part 2)
Title: 2023 Crypto Market Review: A New Journey from Bear to Bull (Part 3)
