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The cryptocurrency market, which faced a tumultuous year in 2022 marked by the collapse of crypto exchange FTX and other major industry players, is now displaying signs of a remarkable resurgence. This turbulent period had led to plummeting cryptocurrency prices, significant damage to the industry’s reputation, and a wave of regulatory crackdowns.
FTX CEO Sam Bankman-Fried Found Guilty
In a significant legal development, a New York jury recently found Sam Bankman-Fried (SBF), the former CEO of FTX, guilty of defrauding FTX’s customers prior to the abrupt collapse of the exchange in November 2022. This verdict comes in contrast to SBF’s initial plea of not guilty. He maintained that while he had mismanaged the company, he had not engaged in fraudulent activities.
Bitcoin’s Rollercoaster Ride
FTX’s downfall was one of the pivotal incidents that sent the price of Bitcoin (BTCUSD) crashing to its lowest point since 2020. In the wake of the collapse of FTX and other industry meltdowns, Bitcoin and other major cryptocurrencies witnessed a substantial decline in their value.
Bitcoin’s Resurgence in 2023
However, the cryptocurrency market has shown remarkable resilience in 2023. Bitcoin, the flagship cryptocurrency and a key barometer of market sentiment, has more than doubled in value this year. This performance marks 2023 as the best year for Bitcoin since 2020, in terms of percentage gains.
In late 2021, Bitcoin achieved a historic high, reaching $69,000 in November of that year. But as central banks began to hike interest rates in early 2022, riskier assets like cryptocurrencies began to feel the pressure, and Bitcoin lost more than 65% of its value during that year, falling below $16,000 in November 2022.
Spot Bitcoin ETFs Offer Hope
Analysts attribute this resurgence to growing excitement surrounding the possible approval of spot Bitcoin exchange-traded funds (ETFs) by U.S. regulators. Several major financial institutions, including BlackRock, have filed applications with the U.S. Securities and Exchange Commission to launch Bitcoin ETFs. If approved, these ETFs could potentially attract billions of dollars in institutional investments, keeping traders optimistic.
Central Banks’ Rate-Hiking Cycles
The resurgence in cryptocurrencies is further fueled by the expected conclusion of central bank rate-hiking cycles. With the U.S. Federal Reserve and the Bank of England both maintaining their interest rates, it signals a possible plateau for rate hikes, drawing cash back into high-risk assets like cryptocurrencies.
Market Cap Rebound
The overall value of the cryptocurrency market reached its peak at $3 trillion in November 2021. However, it faced a significant decline throughout 2022, hitting a two-year low of $796 billion as FTX imploded. Since then, the market has managed to recover, with its value hovering above $1 trillion for most of this year. As of Thursday, the global cryptocurrency market’s value stood at $1.35 trillion, thanks in part to the October surge in Bitcoin’s price.
Bitcoin, known for its price volatility, exhibited some level of stability in the aftermath of the FTX collapse. However, this relative calm did not necessarily benefit market participants. Many investors are drawn to cryptocurrencies because of their inherent volatility, which provides opportunities for quick profits. Notably, since mid-October, Bitcoin’s price swings have expanded again, reflecting renewed market activity. Market players appear to remain unfazed by the unconfirmed speculation of a spot Bitcoin ETF approval.
VC Funding Slowdown
In 2021, venture capital (VC) investors poured substantial investments into emerging crypto firms. However, in 2022 and 2023, the flow of VC funds into the crypto space began to taper. U.S. VC investments in the crypto sector in the third quarter of 2022 amounted to just $704 million, a stark decline from the staggering $6.12 billion in the first quarter of 2022. This slowdown was not solely due to FTX’s failure but was already in progress, partly influenced by the collapse of the terraUSD ecosystem. Venture investors are now proceeding with caution in their approach to crypto investments.
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