Market Highlights
January 6, 2024

2023 Crypto Report

In this final edition for the year, let's quickly look at what happened this year in the world of digital assets. We'll check out the changes in Bitcoin, Ethereum, Derivatives, and Stablecoins and see how things are shaping up for the future.

The past year, 2023, turned out to be quite remarkable for digital assets. Bitcoin's market value went up a whopping 172%, making it a standout performer. Other parts of the digital asset world also did well, with Ethereum and other alternative coins collectively growing by 90% in their market values.

One noteworthy trend is the increasing dominance of Bitcoin. This is a common occurrence as the market bounces back from extended periods of decline, like we saw in 2021-22. Ethereum, on the other hand, had a slower start in comparison. The ETH/BTC Ratio dropped to multi-year lows, reaching around 0.052. This happened despite Ethereum successfully launching the Shanghai update and expanding its Layer 2 ecosystem.

While digital assets consistently outperformed traditional investments like stocks, bonds, and precious metals throughout the year, the real surge in gains happened from late October onwards. It all began with the breakthrough above the psychologically significant $30,000 price level, along with surpassing several other crucial price points.

Unusual Lack of Price Pullbacks in 2023

One remarkable aspect of the 2023 market is the surprisingly small dips in prices and corrections. In the past, when markets were recovering from a bearish phase or experiencing upward trends, Bitcoin often faced significant pullbacks—usually around -25% from the highest point, and sometimes even more than -50%.

However, in 2023, the most significant correction only reached -20% from the highest point. This indicates that the support from buyers and the overall balance between supply and demand have been favorable throughout the entire year.

Ethereum has also seen relatively shallow corrections, with the deepest reaching -40% in early January. Despite the more sluggish performance relative to BTC, this also paints a constructive backdrop where reduced supply issuance from the Merge, is meeting relatively resilient demand flows.

The 2022 bear market was marginally less brutal than the 2018-20 bear cycle, with most major digital assets starting off 2023 at a -75% drawdown from the ATH. The strong performance since the lows recovering a large percentage of their losses. The major assets are currently trailing their ATHs by -40% (BTC), -55% (ETH), -51% (Altcoin excl ETH and Stablecoins), and Stablecoin supplies (-24%).

When we look at the on-chain perspective, the Realized Cap for both BTC and ETH serves as a useful tool for monitoring how capital flows are recovering in these assets. During the bear market in 2022, the total Realized Cap drawdown hit levels similar to what we've seen in previous cycles. This reflected a net capital outflow of -18% for BTC and -30% for ETH.

However, the recovery of capital inflows has been slower this time around. For Bitcoin, the Realized Cap All-Time High (ATeRH) was reached over 715 days ago. In contrast, in previous cycles, it took approximately 550 days for the Realized Cap to fully recover.

The Bitcoin market achieved something extraordinary this year, surpassing various technical and on-chain pricing models. This success underscores the impressive performance throughout the year.

The journey began with a short squeeze in January, lifting the market beyond the Realized Price 🟠, which had been a limiting factor since June 2022. This upward movement also broke through the 200-Day Simple Moving Average (200D-SMA) 🔵 but encountered resistance at the 200-Week Simple Moving Average (200W-SMA) 🔴 in March.

Bitcoin prices then hovered between the 200D-SMA 🔵 and the True Market Mean Price 🟢 until August, leading to one of the least volatile periods in Bitcoin's history (refer to WoC-32 and WoC-33). Shortly after, a rapid deleveraging event caused prices to drop from $29,000 to $26,000 in a single day, falling below both of the aforementioned long-term technical price averages.

The real turning point came in October with a powerful rally, surpassing all remaining price models and breaking through the psychologically significant $30,000 level. Since then, Bitcoin has reached its highest point for the year at $44,500 and is currently stabilizing around $42,000 as of the latest update.

Accelerated Trends Since October

A noticeable theme throughout this article is the increased pace of capital flows, market momentum, and performance since late October. In our previous discussion in WoC-49, we delved into how this acceleration is linked to BTC prices surging beyond the $30,000 mark. We describe this as a shift from the 'uncertain recovery' phase to an 'enthusiastic uptrend.'

Particularly, the October rally surpassed two crucial levels that have historically marked this transition:

Technical Market Mid-Point: This is a price level that generally acts as support in the early bear market and turns into resistance in the late bear market. In this cycle, $30,000 served as the last major support before a series of sell-offs, ultimately leading to the collapse of FTX.

Cointime True Market Mean Price: This reflects the cost basis of active investors. The model was developed through our Cointime Economics research in collaboration with ARK Invest.

We can also see Exchange inflow and outflow volumes for BTC and ETH picking up throughout the year, suggesting a general expansion in spot trading interest. Of note is how BTC volumes are increasing significantly faster than ETH volumes, aligned with the observation of rising Bitcoin dominance. It is common for BTC to lead investor confidence out of the doldrums following long bear markets, and this chart helps visualize this phenomena.

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