Kaiko: Ten Charts Reviewing the Trends of the Cryptocurrency Market in 2023

Wu said blockchain
2023-12-31 09:52:17
Collection
Bitcoin is expected to be one of the best-performing assets by the end of the year, with an increase of over 160%, even outperforming all major traditional assets on a risk-adjusted basis.

Original Title: The 10 Charts That Defined 2023

Original Author: Kaiko Research

Original Compilation: GaryMa, Wu Says Blockchain

1. Bitcoin Leads the Charge Under the ETF Narrative

Bitcoin is expected to be one of the best-performing assets by the end of the year, with an increase of over 160%, even outperforming all major traditional assets on a risk-adjusted basis. The price movement of Bitcoin this year can be mainly divided into three phases: an early rebound from the cycle low, a stagnation in the middle of the year, and a rebound at the end of the year, which has sparked predictions of a new bull market.

The mid-year stagnation was a peculiar period; from March to October, Bitcoin oscillated between $25,000 and $30,000. This summer, trading volumes hit their lowest point in years, and it seemed all enthusiasm had left the market. Then, optimism about a spot Bitcoin ETF began to grow, followed by a false tweet from a cryptocurrency publisher claiming that the ETF had been approved, seemingly opening the floodgates for the market.

Since then, Bitcoin has risen from $28,000 to nearly $45,000. Thus, despite being relatively dull in the middle of the year, Bitcoin still has the second-highest Sharpe ratio among all major assets this year, second only to semiconductor giant Nvidia, whose stock price doubled from January to May, fueled by artificial intelligence.

2. A Tough Year for Binance, but Ending on a Positive Note

At the beginning of this year, Binance was in the most dominant position ever, holding nearly 70% of the spot trading market share among all centralized exchanges. Notably, the exchange had several zero-fee trading pairs, significantly boosting trading volume. These promotional activities ended in March, directly leading to a 50% drop in market share.

Today, Binance offers zero-fee trading on its BTC-FDUSD tool, but its market share has failed to recover due to a series of significant legal setbacks.

At the end of March, Binance was accused by the CFTC of attempting to transfer high-volume U.S. traders from Binance.US to Binance. In June, the SEC filed a lawsuit against Binance and Binance.US, making similar allegations to the CFTC, while also claiming that entities related to the exchange engaged in wash trading on Binance.US.

These allegations severely damaged Binance.US, leading to a massive outflow of liquidity and a market share close to zero. Ultimately, in November, Binance reached a settlement with the U.S. Department of Justice for violating anti-money laundering regulations; Binance also reached an agreement with the CFTC. Notably, its battle with the SEC is still ongoing.

Despite paying a hefty $4 billion fine, the market viewed the settlement news as a positive, allowing the exchange to continue operating.

3. The Alameda Gap: The Liquidity Damage from the FTX Collapse Persists

The Alameda Gap was introduced by Kaiko Research last November when FTX collapsed, and it remains relevant over a year later. The dollar value of trades within a 1% range of the mid-price of tokens, or 1% market depth, is still 50% lower than before the FTX and Alameda collapse. While FTX's liquidity (light blue) has clearly vanished, the liquidity that has disappeared from other exchanges (dark blue) has yet to recover, even with rising prices and trading volumes. This gap is largely attributed to institutions and market makers that suffered significant losses during the collapse, either going bankrupt or managing funds more cautiously.

4. Liquidity Becoming Increasingly Concentrated

In a new liquidity analysis released this fall, we found that the vast majority of trading volume and market depth is concentrated in a very small number of exchanges. The top 8 exchanges account for 91.7% of market depth and 89.9% of trading volume, with most liquidity concentrated in the largest exchange—Binance.

The highly concentrated crypto market has both advantages and disadvantages. There is no doubt that liquidity shortages, when spread across many exchanges and trading pairs, can exacerbate volatility and disrupt the price discovery process. Naturally, market forces inevitably lead to this liquidity concentration on a few platforms, which benefits ordinary traders.

However, a highly concentrated crypto market may create failure points for the industry (e.g., the collapse of FTX). Many centralized exchanges still lack basic measures to protect traders in the event of failures, hacks, or market manipulation.

5. Bitcoin's Correlation with Traditional Assets is Decreasing

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Bitcoin has long been touted as an inflation hedge, a digital alternative to gold, or a new asset class altogether. However, in its recent history, its price has primarily been linked to macro conditions, a strong dollar, and the stock market. This year, that trend began to reverse, with Bitcoin's price showing a sustained decline from January to July, followed by a counter-trend rebound after dipping below $30,000 at the end of summer. Recently, as Bitcoin broke through $40,000, its correlation with other assets has rapidly weakened. It remains unclear whether this decoupling will persist, as indices, including the Nasdaq 100, continue to reach new historical highs.

6. Solana's Comeback

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After the collapse of FTX, some believed that Solana, which had the backing of FTX and SBF, would perish. However, Solana has achieved significant success. It is often compared to Ethereum, and relative to ETH, it has performed much better, rising from a price ratio of 0.01 to 0.03, with most of the increase occurring in the past few months. Solana has garnered widespread attention in the market, partly due to the success of its airdrop campaigns, first with PYTH and then with JTO. Both tokens have performed relatively well since their launch, sparking a new wave of airdrop mining enthusiasm, contributing to increased network activity.

7. Stablecoin Decoupling is Becoming More Common

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The banking crisis in March may now seem like a thing of the past, but it highlighted the vulnerabilities of the crypto market and its reliance on stablecoins. During the crisis, USDC experienced a severe decoupling, threatening the entire DeFi ecosystem that relied on this stablecoin, including lending protocols and decentralized exchanges. Then, during the summer, for unknown reasons, Tether began trading at a discount, highlighting the mysterious forces that often dictate stablecoin market prices.

The term "decoupling" has never been successfully defined and has always been overused or underused. In an in-depth study, we adopted a new approach to analyze USDC, BUSD, USDT, DAI, and TUSD to understand the severity of decoupling since the beginning of 2023, finding that while it has been common in 2023, true "decoupling" is much less frequent.

8. FTX-Related Assets Rise, Turning the Fate of Its Legacy

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As the bankruptcy proceedings continue, the shadow of FTX looms over the crypto industry, with SBF found guilty in a dramatic trial. However, the recent bull market has completely changed the bankruptcy proceedings, with creditors now having a real chance of recovering a larger proportion of their losses than previously thought, leading to a surge in debt trading.

The billions of dollars in crypto assets held by FTX have significantly increased in value since September, largely due to SOL being the exchange's most important crypto asset. In the chart, we show a significant increase in the liquidity of the tokens held by the exchange, indicating that when liquidation begins, the price impact may be minimal. The exchange stated that they would liquidate positions to return cash to claim holders.

9. Curve Faces a Crisis of Trust

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Curve Finance is one of the largest decentralized exchanges and has long been a major market for stablecoin swaps, favored by DeFi whales and a significant source of liquidity for USDT, USDC, and DAI. However, against the backdrop of a general decline in DeFi activity, the protocol has experienced a series of crises this year, leading to a massive outflow of liquidity.

First, Curve's founder Michael Egorov found himself in trouble in June when Twitter users noticed he deposited $200 million in CRV on Aave to secure a $60 million USDT loan. This sparked speculation that he was effectively cashing out, and if his loan reached the liquidation threshold, it would cause widespread chaos in DeFi. The chart shows the borrowing positions frequently taken by the CEO over the year.

Then, in August, the protocol suffered a $70 million attack, threatening the price of the protocol's native CRV token, which could pose problems for Egorov's loan.

Although Egorov later repaid his Aave loan, Curve's liquidity remains far below previous highs. The protocol is still an important source of liquidity and one of the largest DEXs.

10. stETH Liquidity Dwindles

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Lido Staked Ether (stETH) continues to be the most prominent liquid staking derivative for Ethereum to date. Since the Shapella upgrade, this has raised concerns among Ethereum enthusiasts about Lido's influence on the network. Additionally, concerns about stETH's liquidity in the secondary market have been growing, having significantly decreased since the beginning of the year.

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