After a brutal year in 2022, crypto has had a better time in 2023. It hasn’t been uniformly positive, but we’re heading in the right direction. Here are ten of the big themes and stories of the last 12 months.
1. Price Soars
Bitcoin bottomed at the end of last year and has rallied strongly through 2023. A combination of factors – interest rates peaking, recession seeming less likely, and some moves by big institutions – has brought attention back to an asset that was hated and feared in 2022.
Over the course of the year, the price of bitcoin has almost tripled, from the low of $15,500 to a high of nearly $45,000. Coinbase has seen a similar turnaround in its fortunes. COIN shares have had an incredible year, rising from under $32 in January to almost $150 in December.
2. Regulators Make Their Moves
Following the collapse of FTX, the SEC has been on the warpath, going after any organisation it feels has broken the rules – even when it’s not clear what the rules are. Coinbase, Kraken, Binance, and a slew of DeFi and NFT projects have found themselves in the crosshairs.
Meanwhile, the European Union decided that regulatory clarity would benefit the sector more than arbitrary enforcement, and passed the Markets in Crypto-Assets (MiCA) act. This gives the bloc a unified approach to crypto asset regulation, helping protect users and reduce crime.
3. Banks Face Crisis
March saw a wobble in the banking sector that threatened the stability of the wider economy. A number of banks collapsed, including crypto-friendly institutions like Silvergate and Signature Bank. While the root problem was losses on their bond portfolios, the association with crypto handed critics fresh ammunition, no matter how inaccurately or unfairly. Just as central banks extended failing commercial banks a lifeline in the 2008 crisis, so they made hundreds of billions of dollars of credit available to the sector this time, causing the Fed’s balance sheet to balloon – and actually reinforcing the case for Bitcoin.
4. BlackRock And Spot ETFs
Arguably the big narrative for this cycle is Bitcoin ETFs. In July, BlackRock – the world’s largest asset manager, with $9 trillion under management – applied to the SEC to launch a spot BTC ETF.
Unlike futures ETFs (which already exist), spot ETFs require the fund to hold real BTC, meaning that any demand would be passed through to the underlying market. Because they are regulated by the SEC and managed by major financial institutions, these ETFs would allow institutions and retail investors to access bitcoin in a safe, easy and compliant way, using existing investment and trading platforms rather than unregulated exchanges. In doing so, they open the way to a wave of institutional and retail money that has, in the past, been unwilling or unable to invest in crypto.
5. Courts Clip The SEC’s Wings
Also back in July, Ripple inflicted a significant defeat on the SEC. The court ruled that the majority of XRP sales should not be considered offerings of unregistered securities. Then in August, another court ruled that the SEC’s denial of Grayscale’s bid to convert their GBTC fund into a spot bitcoin ETF had been ‘arbitrary and capricious’. This development was credited with accelerating the approval process of an ETF, and gave the sector hope that the regulator could be held to account for unfair decisions.
6. Crypto Opposition Intensifies
While there have been plenty of positive developments, opposition to crypto has also strengthened, as the political approach to decentralised assets becomes more polarised. In particular, Senator Elizabeth Warren has launched a crusade against crypto, creating an ‘anti-crypto army’ to fight what she sees as a serious threat to the US. Her bipartisan bill to impose enormous burdens on the industry has gained some support, though it’s unlikely to pass.
7. Layer-2 Solutions Keep Coming
New networks to scale Ethereum have launched, complementing and competing with existing L2 solutions like Arbitrum, Optimism and Polygon. In particular, we’ve seen several major crypto companies release their platforms, seeking to capture their user bases and create new revenue streams from the fees charged by sequencers (the nodes responsible for validating transactions and posting them to mainnet). Coinbase (Base network), Consensys (Linea) and OKX (X1) have all joined the increasingly crowded L2 space in recent months.
As the Ethereum NFT market recovers from a period of deathly quiet and near-fatally low liquidity, there’s a new kid in town. Ordinals are a form of ‘digital artifact’ (or, in simple terms, NFTs) on the Bitcoin blockchain. They are created by attaching extra data to a regular Bitcoin transaction, and have proven both wildly popular and extremely controversial – with at least one mining pool filtering them out on the grounds that they are a ‘spam’ attack on the blockchain.
9. SBF Heads To Jail
It has not been a good year for Sam Bankman-Fried, founder and CEO of FTX – at one point, the world’s second-largest exchange. It turned out that SBF, as he is known, had been diverting billions of dollars in customer funds to make a series of very risky trades, which ultimately inflicted huge losses on users and precipitated the exchange’s collapse. After his arrest in January, SBF was tried, and recently found guilty on seven charges, including wire fraud and money laundering. He awaits sentencing, and could stay in jail for many years.
10. A New Era For Binance
SBF isn’t the only exchange founder in trouble. Binance founder Changpeng ‘CZ’ Zhao has drawn the attention of the US Department of Justice for the exchange’s lax approach to KYC, which they say enabled criminals to move money using the platform. The exchange was recently hit with a $4 billion fine. As part of the deal, CZ pleaded guilty to violating the Bank Secrecy Act, received a $50 million fine, and was forced to step down as CEO. He, too, awaits sentencing in the new year.
Overall, 2023 saw the digital asset space being aggressively cleaned up and professionalised, ready for the entrance of some big institutional players in 2024. It’s fair to say that crypto’s Wild West days are finally over.
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