H1 2023 Crypto Recap: Bitcoin Remains Resilient Amid Uncertainty

 | Jul 31, 2023 09:06

The first half of 2023 was quite eventful for the global financial markets and the crypto industry. Macro factors, particularly inflation, continued to play a major role, and while the US Federal Reserve put a (temporary?) pause on its 10-month aggressive rate hike in June, the rate of inflation is yet to come down to the Fed’s 2% desired target.

Nevertheless, both equities and riskier assets such as crypto recorded positive gains in H1, with the S&P 500 up over 14%, while Bitcoin’s price almost doubled from its year opening of $16.5K to more than $30K. That said, there were several noteworthy events that shaped the macro and crypto outlook in H1 2023.

In this special edition, we take a step back to highlight some of the major developments and trends that took place in the first half of 2023. Additionally, we present our views on some of the moving pieces in the crypto industry that will likely take center stage in the second half of the year.

h2 Banking Industry Turmoil /h2

US Regional Banks were in for a rough ride in H1 as Silicon Valley Bank (SVB) became the largest bank to collapse since the 2008 financial crisis. This sent shockwaves through Silicon Valley and the crypto industry, as most of SVB’s clients fell within these two operational domains.

SVB’s woes began when it announced on March 8 that it had liquidated $21 billion worth of securities portfolio and was looking to sell an additional $2.25 million from its treasury stock. The news did not sit well with the markets, leading to a bank run that saw clients withdraw $42 billion just a day after.

Notably, SVB was not the only US bank that went under; other crypto-oriented banks that also bit the dust include Silvergate Bank and Signature Bank (OTC:SBNY). These two banks were reeling from the aftermath of the FTX collapse, which saw clients withdraw billions of dollars in Q4 2022, stretching beyond their ability to meet withdrawal demands.

However, on the other hand, the Fed’s continued rate hike also played a hand. For instance, in SVB’s case, the bank had purchased a huge chunk of US treasuries when rates were highly lucrative in 2020. But with the Fed raising rates throughout the better part of 2022, these treasuries were out of the money (not profitable).

Silicon Valley Bank Collapse Explained

For a better context on how the events at SVB unfolded, check out this in-depth LinkedIn post.

h2 US Regulators on the Heels of Crypto /h2

Regulators, especially in the US, have been cracking down on crypto activity for quite some time. But this year, the momentum has increased, with several crypto companies falling victim to this ongoing purge.

First, it was Kraken Exchange, which agreed to a $30 million settlement with the SEC for offering crypto staking services. Then Paxos was issued a Wells Notice to halt the issuance of the BUSD stablecoin, and as of writing, several other crypto companies, including Binance, are facing charges from the SEC.

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According to the court filing documents, Binance is being accused of 13 charges spanning around calculated evasion of the law, lack of disclosure, conflicts of interest, and deception. Notably, this mounting regulatory pressure has led Binance’s market share to drop from 60% during Q1 2023 to 52% as of June.

That said, there is a glimmer of hope: a US Judge recently ruled that XRP does not meet the criteria for being an investment contract. This development is a significant milestone for the crypto industry as the debate on whether cryptocurrencies are securities has long dragged on. However, this is not to say that all crypto assets targeted as ‘securities’ by the SEC are off the hook.

Moving away from the US, regulators in Europe finally passed the MiCA bill, which is set to come into enforcement next year. And in the East, Hong Kong is gradually emerging as a potential crypto hub, with the authorities pushing large banks such as HSBC (LON:HSBA) and Standard Chartered (OTC:SCBFF) to tap into the crypto clientele market.

h2 Bitcoin Beat the Odds to Soar Past $30K/h2

Despite the macro and regulatory uncertainties, BTC managed to close the first half of 2023 above the $30K mark. This resilience has brought renewed optimism in the market, with some analysts leaning towards the possibility of a new bull run. However, there are still a lot of factors at play that could see BTC range in its current level or take a dive during the second half of the year.

But what’s interesting to observe are the fundamental and technical trends that have previously been a catalyst for Bitcoin’s rally:

  • Bitcoin has decoupled from equities, with the correlation dropping to a 17-month low, according to a recent report by K33 Research.
  • The number of whole Bitcoiners (holding 1 BTC or more) is at an all-time high.
  • Bitcoin’s market dominance is slowly climbing back up, now at 46.7%, according to Coingecko.
  • Computational power on the Bitcoin network is on the rise.

To top it up, traditional financial institutions are becoming increasingly bullish on Bitcoin. Standard Chartered (LON:STAN) recently predicted that Bitcoin’s price could eclipse $120K by the end of 2024. This news came against the backdrop of Blackrock’s Bitcoin ETF application, which has triggered a new wave of ETF applications.