2023 was a bull year for digital assets, with Bitcoin's market cap increasing at a peak of +172%. The rest of the cryptocurrency ecosystem also had a good year, with Ethereum seeing a +90% increase in capitalization.

This highlights the growing dominance of BTC, which is often seen as a recovery from a prolonged bear market such as 2022. The ETH/BTC ratio has dropped to multi-year lows of ≈0.052, despite the successful Shanghai upgrade and the growth of the L2 ecosystem.

Minimum kickbacks

One of the outstanding features of 2023 was the surprisingly shallow depth of all pullbacks and price corrections.

Historically, periods of recovery from a bear market and the start of a bull market for BTC regularly see pullbacks of at least -25% from the local high, in many cases even -50%. (remember 2021)

However, the deepest correction in 2023 closed just -20% below the local high, suggesting that buying support and the overall balance of supply and demand were in favor of the bulls throughout the year

The 2022 bear market was slightly less brutal than the 2018-20 bear market. Major cryptocurrencies are currently underperforming their ATH by -40% (BTC), -55% (ETH)

Volumes and inscriptions

It was the October rally with a breakthrough of the $30,000 resistance that played a key role in the continuation of the upward trend.

The rally doubled transfer volumes on the Bitcoin network from $2.4 billion per day to more than $5 billion per day, the highest level since June 2022.

Transfer volumes to crypto exchanges BTC and ETH increased throughout the year, indicating an overall increase in interest in spot trading.

The number of transactions on the Bitcoin network has reached new all-time highs this year, largely due to the unexpected rise in popularity of ordinals and inscriptions.

  • 🟠 Total number of transactions (unfiltered)

  • 🔵 Regular transactions reaching highs of 372.5 thousand per day

  • 🔴 Transactions with captions, which added another 175 thousand transactions per day in addition to classic transactions

Interestingly, while inscriptions account for about 50% of confirmed transactions, they surprisingly only take up 10% to 15% of block space. This is the result of the small size of text files that are attached to satoshi (1 BTC = 100 mln sat)

Ethereum and its derivatives

Activity on the Ethereum blockchain has been a bit sluggish this year, with October again being a notable turning point.

  • Active addresses were relatively constant - 390 thousand per day

  • The number of transactions increased from 970 thousand per day to 1.1 million per day

  • ETH sending volume increased from $1.8 billion per day to $2.9 billion per day

The key growth area for Ethereum was the total amount of ETH locked through Proof-of-Stake.

The amount of ETH staked has increased by 119% since the beginning of the year, reaching 34.64 million ETH ($77 billion)

Long term view

Despite the incredible rise in Bitcoin's price, the majority of BTC remains dormant and held by long-term holders.

Of the total circulating supply of 19.574 million BTC, more than 14.9 million (76.1%) are held on exchanges and have not moved for 155 days.

This figure has increased by 825 thousand BTC since January 2022

The chart below shows BTC price cycles for each calendar year since 2015.

  • 🟠 The end of the bearish period and gradual recovery

  • 🔵 Early bull market

  • 🟢 Euphoria and the last breath of the bulls

  • 🔴 Bear starts after the peak

Derivatives Markets

2023 turned out to be a big year for the options markets as they outperformed the futures markets in terms of open interest.

Derivatives exchange Deribit continues to dominate (90% open interest) in the options space.

This hints at growing institutional interest in Bitcoin as traders use options for their more complex trading, risk management and hedging strategies.

The futures market has also seen a remarkable shift in dominance.

Open interest on the regulated exchange CME surpassed the amount of open interest on Binance for the first time in history. October played a major role here too, hinting at an influx of institutional capital.

Futures trading volume for both BTC and ETH increased in October

Total daily volume was $52 billion per day. Bitcoin contracts accounted for 67% of trading volume, compared to 33% for Ether contracts.

Stablecoins

Stablecoins have played a huge role this year, becoming the currency of choice for traders and the main source of market liquidity.

Stablecoin capitalization has been declining since March 2022, falling 26% from its peak

This is due to a combination of regulatory pressure (the SEC designated BUSD as a security), capital rotation (preference for US bonds over low-interest stablecoins) and waning investor interest during the Bear Market.

October turned the situation around 180 degrees, when the MCap of stablecoins reached the bottom of 120 billion, and after that the supply began to grow by 3% per month.

This is the first increase in stablecoin capitalization since March 2022 and a likely sign of returning investor interest.

The dominance between stablecoins also saw significant changes from 2022 to 2023.

Previously rising stablecoins such as USDC and BUSD have significantly reduced their dominance, with BUSD going into redemption-only mode (Paxos said in January it would stop minting) and USDC dominance falling from 37.8% to 19.6%

Tether (USDT) has once again established itself as the largest stablecoin, with the total supply growing to over 90.6 billion and taking 72.7% of the market share.

Results

2023 in crypto could not have turned out as well as it did.

From a long decline and downtrend in 2022, 2023 has sparked renewed interest in digital assets

The lion's share of BTC is held by long-term holders, and most investors are currently in profit as the Bitcoin spot ETF is almost certain to be approved in January 2024, plus the halving is just around the corner in April, so the crypto community is ready for a new, exciting year