Bitcoin’s 160% surge in 2023 is a risky bet on ETF ‘demand shock’ in crypto markets.

A year after experiencing a $1.5 trillion loss, the prevailing feeling of despair in the cryptocurrency markets has now transformed into a strong desire for wealth.

Bitcoin stormed back by more than 160% this year, adding about $530 billion to its market cap. Since then, countless smaller tokens, from the Sam Bankman-Fried-backed Solana to dog- and frog-themed memecoins, popped up as investors again took the risk. An investor who bought $100,000 of Solana at the start of 2023 would now have a profit of over $800,000.

Much of the bonanza is fueled by optimism that U.S. regulators will soon give their first blessing to an exchange-traded fund that invests directly in Bitcoin. Investors will find out by January 10th whether the bet, which crypto bulls consider a near-certain winner, will come true.

“The adoption of spot ETFs is going to be a major catalyst, it’s definitely going to cause a demand shock,” as mainstream investors currently lack a “high-bandwidth” investment channel for the token, Michael Saylor, Bitcoin’s founder. holder MicroStrategy Inc., said Bloomberg Television.

There are still many naysayers in the digital asset market who claim that cryptocurrencies are essentially worthless and a haven for criminals. Binance, the largest exchange, agreed in November to pay a $4.3 billion fine for multiple violations, and CEO Changpeng Zhao was forced to resign. Bankman-Fried has been jailed for fraud at FTX and liquidity has not yet fully recovered from the collapse of his empire.

Here is a selection of charts showing how crypto will fare in 2023.

Bitcoin’s rally outpaced stocks and gold this year. Proponents say the quadrennial event in 2024, known as the halving — or halving — will curb supply growth and provide a token to complement potential ETF demand. The dominant cryptocurrency is still trading well below its November 2021 high of nearly $69,000.

Bitcoin miners Marathon Digital Holdings Inc. and Riot Platforms Inc., leading U.S. crypto exchange Coinbase Global Inc. and software company-turned-Bitcoin investor MicroStrategy all jumped as crypto markets recovered. Coinbase’s nearly 400% gain halted a lawsuit filed by the Securities and Exchange Commission for operating an unregistered platform, which the company denies.

Bitcoin derivatives boomed in 2023. Bitcoin options interest on Deribit – the largest crypto options exchange – exceeded $16 billion for the first time in December, according to CCData. Open interest in Bitcoin futures also hit CME Group, which now competes with Binance for the top market place for such instruments.

The decentralized finance sector has yet to recover from the collapse of the TerraUSD stablecoin project to more than $40 billion in 2022. One exception is liquid stakes, where the total value of locked assets hit a record this year, DefiLlama data shows. Liquid staking protocols provide easier access to the rewards earned when tokens are pledged to help blockchains run. Staking grew in popularity on Ethereum after the network’s Shanghai update in April.

Weekly trading volumes for non-fungible tokens — digital collectibles — have peaked at less than $50 million in October and have reached about $180 million this month, according to Nansen figures. But they are a fraction of the 2022 peak of $1.8 billion, suggesting that crypto generally has a lot of work to do to rekindle interest levels in the industry during the pandemic, when the world was awash with stimulus.

Although the price of Bitcoin has soared, the crypto market still bears the scars of the collapse of Bankman-Fried’s FTX platform and his trading house Alameda Research in November 2022. The wipeout contributed to a drop in liquidity, making it difficult to trade the token.

Market depth, or the ability of the crypto market to receive relatively large orders without undue impact on prices, illustrates the problem. The daily value of trades within 1% of the average Bitcoin price on centralized exchanges has fallen 55% to about $680 million from $1.5 billion in April last year, Kaiko data shows.

There have been major changes in the market share of crypto exchanges this year. Binance remains the largest exchange, but its share of spot trading fell to about 44 percent by mid-December, from more than 65 percent in early 2023, according to Kaiko. Asia-focused platforms such as Upbit, Bybit and OKX absorbed a large portion of Binance’s loss.