The cryptocurrency market is showing signs of recovery, a year after the collapse of the crypto exchange FTX and other significant players in 2022, which had a profound impact on prices and led to increased regulatory scrutiny.
In a recent New York trial, Sam Bankman-Fried (SBF), the former CEO of FTX, was found guilty of defrauding FTX's customers before its sudden collapse in November 2022. Despite his plea of not guilty and his acknowledgment of mismanagement, the verdict highlighted the challenges faced by the crypto industry.
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| Bitcoin, which experienced remarkable surges in 2020 and 2021, has seen a decline of approximately 50% within the current year |
The FTX collapse was one of several industry setbacks that drove bitcoin's price to its lowest point since 2020. While the cryptocurrency market has not returned to the feverish levels of investment seen in late 2021, recent weeks have seen a resurgence in the prices of bitcoin and other major tokens. This rebound can be attributed to the expected conclusion of central bank rate hikes, drawing investments back into high-risk assets.
Additionally, the crypto industry is eagerly anticipating the approval of new spot bitcoin exchange-traded funds (ETFs), which could open the market to a broader range of investors. While none have been approved yet, several firms have submitted applications for such products.
Ben Laidler, global markets strategist at eToro, observes, "I think crypto markets have moved on. The SBF trial is (a) a bit of a sideshow, and (b) probably just a reminder of a year that most in crypto want to forget."
Bitcoin's Resurgence
Bitcoin, the leading cryptocurrency and a key indicator of crypto market sentiment, has witnessed significant growth this year, more than doubling in price. This marks 2023 as its most successful year since 2020 in terms of percentage gains.
In 2021, bitcoin was riding high, reaching an all-time high of $69,000 in November. However, as central banks began to raise interest rates early in 2022, riskier assets like cryptocurrencies experienced a downturn as investors sought higher returns. Bitcoin's value declined by over 65% last year, primarily due to the collapse of the stablecoin terraUSD, which led to the bankruptcy of Singapore hedge fund Three Arrows Capital and disrupted the broader crypto market. It plummeted to under $16,000 in November 2021.
Analysts attribute bitcoin's resurgence to the growing anticipation that US regulators will soon approve spot bitcoin ETFs, in addition to the expected end of rate hikes. Several major financial institutions, including BlackRock, have applied to the US Securities and Exchange Commission to launch a bitcoin ETF, which could potentially attract substantial institutional investments.
Although approval is not guaranteed, the possibility alone is keeping traders optimistic. Furthermore, this week, both the US Federal Reserve and the Bank of England opted to maintain their current interest rates, hinting at a possible plateau in rate hikes.
Market Cap Recovery
The cryptocurrency market's total value peaked at $3 trillion in November 2021 but experienced a sharp decline throughout 2022, hitting a two-year low of $796 billion as FTX faced its collapse. Since then, it has gradually recovered, remaining above $1 trillion for most of this year.
As of Thursday, the global crypto market's value stood at $1.35 trillion, thanks to the rise in bitcoin's price in October.
Bitcoin's Stability
Bitcoin, known for its price volatility, experienced a period of relative stability following the FTX collapse. While this calm might seem beneficial, it's important to note that many investors are drawn to crypto precisely because of its potential for quick profits through volatility.
However, since mid-October, bitcoin's price swings have widened once again. Analysts at crypto data firm Kaiko observed that trade volume and volatility were low throughout the summer, with markets appearing stagnant. Unfounded speculations about the approval of a spot bitcoin ETF played a role in reversing this situation. While a spot-based ETF is not confirmed, it seems that markets are not overly concerned.
VC Funding Slowdown
In 2021, venture capital (VC) investors poured significant funds into emerging crypto firms, but this trend began to wane in 2022 and 2023. US VC crypto investments in the third quarter of 2022 amounted to just $704 million, a stark decline from the $6.12 billion invested in the first quarter of 2022, according to data from PitchBook.
The slowdown in VC investments was not solely due to the failure of FTX but had already begun with the collapse of the terraUSD ecosystem earlier in the year. Venture investors are now proceeding cautiously, aware of the risks and challenges within the crypto industry.
In conclusion, the cryptocurrency market is displaying resilience and signs of recovery following the FTX collapse. Bitcoin's resurgence, market cap recovery, increased volatility, and changes in VC funding trends are indicative of a dynamic and evolving crypto landscape. The anticipation of spot bitcoin ETFs and the conclusion of central bank rate hikes continue to influence the market's trajectory, making it an interesting space to watch in the coming months.