Crypto is back with $475 billion frenzy

With bankruptcies, job cuts and arrests packed into the first few weeks of the year, the crypto industry looked set to pick up right where it left off after a disastrous 2022. But it’s not
all doom and gloom for the tumultuous world of digital assets.

In just a month and change, roughly US$300 billion ($475.2b) has been tacked on to the market value of crypto assets, sending it back above US$1 trillion. Bitcoin has surged more than 40 per cent to roughly US$23,000, rebounding from the drop to US$16,000 per token, which marred the flagship cryptocurrency in the wake of FTX’s bankruptcy last year.

Bitcoin’s chief rival token ether is also firmly in the green, while Solana — the beleaguered “ethereum killer” that all but died last year — has registered an eye-popping 140 per cent increase in value so far in 2023.

CryptoCompare figures also show the total assets under management for digital asset investment products increased almost 37 per cent in January to more than US$26b, the highest since May 2022 — the month when crypto’s unprecedented crisis of confidence began.

Grayscale’s GBTC — an investment trust designed to track the price of bitcoin — last month notched up US$38.9 million in average daily volume, a 23 per cent rise from December, according to the crypto data provider.

The recent digital asset surge hasn’t taken place in a vacuum, but amid a wider rally for other speculative assets.

So-called meme stocks GameStop and AMC Entertainment Holdings are up roughly 20 and 30 per cent so far this year, and investor and bitcoin evangelist Cathie Wood’s ARKK exchange traded fund has posted over 25 per cent gains, buoyed by HODLing Coinbase shares, which in turn have more than doubled in 2023.

Jim Bianco, president and co-founder of macro research firm Bianco Research, texted me to say we’re “back to 2021″, referring to that year’s red-hot bull run fuelled in large part by retail excitement and a fear of missing the crypto boat.

“Log back into your Reddit account and YOLO into meme stocks,” he said.

But while Crypto Twitter braces for a long-awaited change of fortune, it’s important to take the industry’s rally with a grain of salt. January paints a pretty picture for cryptocurrencies, but the shadow cast by FTX’s collapse still looms large.

Bitcoin has yet to venture above the mid-US$20,000s, a price range it stubbornly held on to before FTX’s collapse, prompting me to claim the flagship token needed a story to sell.

“Most of the biggest winners so far this year are actually still the biggest losers over the past 90 days,” Jeff Dorman, chief investment officer at investment firm Arca, told me this week.

“Why do the past 90 days matter? Because FTX imploded in the first week of November, killing what looked to be a promising recovery in digital assets at the time.”

As JPMorgan’s Nikolaos Panigirtzoglou also pointed out to me via email, crypto venture capital funding has remained weak well into the new year, and an institutional impulse that was once present in bitcoin futures faded as January came to a close.

“We suspect the crypto rally in the second half of January was more driven by retail rather than institutional investors,” Panigirtzoglou told me.

And, as those of you who were around during the industry’s inaugural “crypto winter” of 2017-18 will know, bull runs fuelled by retail investors alone can turn on a dime.

Written by: Scott Chipolina

© Financial Times