Following a tumultuous year plagued by scandals and market turmoil, crypto was still reeling heading into 2023. With the news of the FTX collapse in November 2022 still fresh, questions abounded about whether the industry could regain the trust of investors and regulators.
“I think coming out of 2022, there were a lot of people questioning if crypto was dead … and if that was the last we’d ever hear of it,” he said. “I think most of us (in the industry) were pushing back, saying no, it’s not, it’s just going through a re-sorting-out period. And I think that’s proven out well.” He referenced the performances of Bitcoin and Ethereum over the past month as examples of crypto’s staying power.
Bitcoin made headlines on December 4 when it experienced its highest valuation since April 2022, soaring to US$42,008.48. The price then hit a new high of US$44,313 the very next day. It has spent the last few weeks of 2023 bouncing between US$41,000 and US$44,300.
Ethereum has seen substantial gains as well, climbing as high as US$2,384 on December 9 and achieving impressive year-over-year growth of 84.4 percent as of December 21.
Regulation was the main focus in 2023
Conversations in the DeFi world in 2023 have been largely focused on regulatory developments, with investor interest reflected in market fluctuations as the story unfolds.
As the Sam Bankman-Fried trial approached, the US Securities and Exchange Commission (SEC) stepped up its scrutiny of the crypto industry. The media coverage surrounding the case was intense, with every new detail being widely reported and analyzed.
The SEC filed multiple lawsuits in its efforts to prevent further swindling, notably against trading and payment platforms Binance and Ripple. While both cases were controversial and came to very different conclusions — with Binance pleading guilty and agreeing to pay over US$4 billion and the charges against Ripple ultimately being dropped — they set a precedent for future regulatory actions in the crypto space.
The SEC has been criticized for its hardline approach, but at the same time, its increased governance has attracted institutional interest. Regulatory oversight, something that was severely lacking during the first crypto boom, has begun to transform the industry from the Wild West into a regulatory frontier.
“I don’t think you’re ever going to get to the end of (that era) … but it’s definitely getting more regulated (and) more mainstream,” Taylor said. “The fact that you’re getting some really big US players starting to look at it and working with regulators to get involved, I think (that’s going) a long way to making it a much better, more stable system, and I think that’s probably a very good outcome long term.”
With more clarity and certainty, investors are starting to see digital assets as safer bets than they were a year or two ago.
“In addition, with the approval of the MiCA, Europe established the first comprehensive and regulated framework for digital asset businesses. As the market gains increased recognition from both retail and institutional participants, governments are taking steps to regulate and safeguard customers.”
The fight for spot Bitcoin ETFs
Alongside the ongoing discussions around regulation, the saga of spot Bitcoin ETFs in the US has captured the attention of the crypto community and market participants. Over a dozen spot Bitcoin ETF applications are awaiting SEC approval, but Chairman Gary Gensler was against them for most of 2023, citing concerns about potential market manipulation and investor protection.
However, that trajectory changed in August when a three-judge panel agreed with digital asset management company Grayscale’s argument that the SEC was acting unfairly by approving futures ETFs but rejecting spot ETF applications. The partial win was a positive development for the cryptocurrency industry, and the price of Bitcoin rose to nearly US$28,000 as the news sparked a renewed interest from potential but wary investors.
A spot Bitcoin ETF would open the door to investors who want to benefit from the price action of Bitcoin but are averse to owning tokens. There is no doubt that the prospect of such a product becoming available is behind the price surge that Bitcoin has been experiencing over the past few months. On October 16, a tweet by Cointelegraph falsely stated that the SEC had approved BlackRock’s spot ETF application, causing the price of Bitcoin to rise further to nearly US$30,000. While the news was quickly rebutted, Bitcoin spent the next two months steadily rising more than 60 percent as talks between the SEC and ETF applicants continued and experts indicated that approval was likely.
The bottom line
Institutional interest has certainly had a hand in revving up the market, offering a sense of legitimacy to potential market participants who are wary of getting involved in crypto due to recent scandalous headlines like the FTX fiasco.
“As much as last year was a rough patch to get through for crypto, I think it’s probably going to be a good outcome over time,” Taylor said. “The trend this year has been probably increased regulation and just building back confidence in the system and that should have a lasting, positive outcome.”
Greco concurs, remarking that the level of market activity in this sector was nothing short of astonishing, far surpassing even his most optimistic predictions. “I believed there was a high likelihood of Bitcoin establishing a cycle bottom when it was trading below $20,000 in 2022,” he said. “My expectation was for a sideways uptrend in 2023, aiming to reach around $30,000, a significant price resistance/support level for multiple times in 2021 and 2022. However, surpassing $40,000 was not within my anticipated range.”
Overall, it seems that the crypto industry is heading towards a more regulated environment, and, with new developments, it is likely that the industry will continue to grow in the coming years.
Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.