2023, a year of two extremes.

By: Gyro Finance

2023 was undoubtedly a year of two extremes for the cryptocurrency market.

For the first half of the year, the market was mired in the aftermath of the Black Swan events of 2022, experiencing continued depression and reevaluation of demand. The industry reshuffle accelerated, and the tightening macro environment accompanied by strengthened compliance led to a market on the brink of collapse amidst pessimism, a wave of layoffs, and the prevalence of meme coins. After a brief appearance of new regulations in Hong Kong, the cryptocurrency market seemed to be merely an alternative gambling arena.

In the latter half of the year, the market finally began to rebound, with the spot ETF acting as a stimulant, injecting vitality into the market. The entry of traditional institutions invigorated the industry, and the booming of the NFT ecosystem gave rise to a new bull market. With the rise of Solana proving the resilience of public chains and the potential restructuring of FTX attracting widespread attention once again.

As 2023 comes to a close and 2024 approaches, what exactly happened in the fleeting year of 2023? Here, we review the top ten events of 2023, marking a satisfactory conclusion to the year that is about to become history.

01. Banking industry faces wave of closures, USDC briefly unpegs

Macro-economics undoubtedly became the most important theme of the year. It is evident that almost everyone in the industry began to learn how to understand inflation and closely monitor the US Federal Reserve's interest rate meetings and dot plot. Starting from March, the US interest rate became the lifeblood of the global economy. In 2023, the US raised interest rates four times, pushing the benchmark interest rate from the already high 4.25%-4.5% at the beginning of the year to the range of 5.25-5.5%, causing a liquidity crisis to spread rapidly in the financial sector.

When the crypto-friendly bank Silvergate Bank postponed its annual report, the market was still under control. However, on March 10, the US Silicon Valley Bank was closed by the financial regulatory authorities due to insolvency, and the California Department of Financial Protection and Innovation announced that it had taken over and appointed the US Federal Deposit Insurance Corporation to manage the liquidation of Silicon Valley Bank. This triggered a chain of bank closures.

As Silicon Valley Bank was friendly to deposits within the industry, many crypto institutions such as Circle, a16z, Ripple, The Struck Crypto Master, and BlockFi had business partnerships with it, causing a ripple effect in the crypto community. After its bankruptcy announcement, Circle confirmed through a tweet that Silicon Valley Bank was one of six banking partners used by Circle to manage about 25% of its USDC cash reserves, with about $33 billion of the $40 billion USDC reserves still remaining in Silicon Valley Bank. This risk exposure directly led to a run on the stablecoin USDC, with over $2 billion worth of USDC exiting the market, causing the USDC price to plummet to as low as $0.8776, a nearly 14% intraday decline.

Although the currency quickly rebounded, this blow also caused the USDC market share to once again decline. Currently, the USDC market share has fallen to less than 19%, far below the level when the company withdrew from public listing in December last year.

02. Arbitrum revitalized, ARB launches with the most hyped airdrop in history

Surviving in a bear market is already fortunate, and launching a token that is highly sought after is even more difficult. However, Arbitrum managed to achieve this.

As a leading project in Layer2, the comparison between Optimism and Arbitrum has never stopped. As early as June last year, OP had already launched and triggered a frenzy of airdrops, so the Arbitrum token was highly anticipated by industry professionals. On March 23, Arbitrum officially launched the ARB token and opened it for airdrops. There were a total of 625,143 addresses eligible for the Arbitrum airdrop, accounting for 23.5% of the total number of addresses on the chain, which, although not insignificant, was not friendly to airdrop hunters and could even be considered very strict. The design focused more on the participation of ecosystem participants, not only establishing anti-whale strategies but also allocating qualification points through Nansen's on-chain data, making it one of the most hyped airdrops in history.

Regardless of the airdrop, Arbitrum's development this year has been relatively stable, and a wave of liquidity has also flowed into the Layer2 concept at the end of the year. Currently, ARB is priced at $1.35, lower than OP's $3.39.

03. Ethereum completes the Shanghai upgrade, unlocking staked amounts sparks controversy

From the perspective of Ethereum, this year's new hotspots are truly unremarkable. The most important event was undoubtedly the Shanghai upgrade in April, which garnered significant attention as staked amounts began to gradually unlock after the upgrade was completed.

On April 12 at 22:42, Ethereum officially completed the Shanghai upgrade, allowing users to withdraw staked Ether, unlocking over 16 million Ether staked on the network for over two years. Ten days after the upgrade, data showed that 1.3 million ETH had been withdrawn, worth approximately $25 billion, of which 65.8% were staking rewards or partial withdrawals, and 34.1% were principal or full withdrawals. Contrary to the expected selling frenzy, apart from 14,249 validators making frequent withdrawals on the day of the upgrade, the subsequent market withdrawal frenzy gradually declined. In the week after the upgrade, the price of Ethereum even rose to $2110, demonstrating strong economic resilience. In fact, although the price of Ethereum has continued to rise this year, the increase is far less than that of Bitcoin, and even lags behind Solana, leading to criticism from some quarters.

The next step for Ethereum is the Cancun upgrade, which industry insiders expect to be officially implemented between March and April 2024, increasing the network's transaction capacity per second and opening a new stage of development for Ethereum's data storage and retrieval capabilities, which may be a turning point for Ethereum.

04. Emotional fervor erupts in Hong Kong, new crypto regulations draw attention

Throughout April, Hong Kong became a key word in the Chinese cryptocurrency market.

Since the policy announcement in October last year, Hong Kong has caught the eye of the cryptocurrency market. In April, the "Hong Kong Web3 Festival 2023" organized by Wanxiang Blockchain Lab and HashKey Group kicked off the first wave of activities in Hong Kong, catalyzing 146 surrounding events and unleashing the emotions suppressed by the epidemic for years in the cryptocurrency market. During this event, social gatherings, event walks, and business banquets were in abundance, with industry insiders socializing and outsiders checking in, making Hong Kong a well-known gathering place for Web3 celebrities.

Subsequently, on June 1, the Hong Kong Securities and Futures Commission implemented the "Guidelines for Virtual Asset Trading Platform Operators" and the "Anti-Money Laundering Guidelines" ("Guidelines"), transitioning from a voluntary licensing regime to a mandatory licensing regime, with Securities 1, 7, and VASP licenses becoming necessary support for exchanges based in Hong Kong. Currently, only HashKey Exchange and OSL Exchange have obtained the required licenses, with HashKey Exchange officially opening retail investor services at the end of August. In terms of the introduction of the Hong Kong ecosystem, over 180 Web3 institutions have settled in Cyberport.

Although it seems to be hot, the development of Web3 in Hong Kong is not as satisfactory as expected. The difficulty in opening the mainland's money channels is a fact, leading to Hong Kong's lack of global competitiveness. The continuous collapse of institutions such as JPEX and Hounax at the end of the year also made people realize that Hong Kong's local education in crypto is still far from sufficient. On the other hand, under the push for compliance, securities firms have begun to take action. As of now, more than 60 securities firms, including Victory and Futu, have started to engage in virtual asset business.

05 MEME coins are once again on fire, BRC-20 takes the stage

The keywords for May are BRC-20 and MEME.

BRC-20 officially took the stage this month, laying the foundation for the widespread enthusiasm for NFTs at the end of the year. The representative project Ordinals led the way, with the token $ordi rising from $0.002 to $25.78 in the same month, an increase of over ten thousand times. Many BRC tokens emerged, and the Bitcoin NFT protocol Ordinals minted over 10 million NFTs in just one month, quickly causing congestion on the Bitcoin network.

Amid the low sentiment at the time, the market was once again dominated by meme coins, with meme coins on Ethereum gaining popularity with the slogan "better than pumping air." PEPE, AIDOGE, XEN, and other meme coins stood out, leading the upward trend, with PEPE being particularly prominent. Due to its meme design and excellent overseas marketing, PEPE quickly rose in the crypto community, with a peak price increase of over 2143.75% after its listing on April 17, making it the fastest-growing ERC-20 token in cryptocurrency history. With the increasing minting of meme coins, Ethereum continued to experience congestion, and gas prices soared. Data shows that Ethereum gas reached its highest point of 150Gwei in mid-May, the highest this year. In a sense, the appearance of meme coins this month was just a way to vent in the bear market.

By the end of the year, NFTs once again topped the industry's hot searches, sparking a frenzy of widespread minting. Ordi and Sats market values soared, and mainstream exchanges Binance and OKX successively listed NFTs. Animal-themed NFTs represented by Rats continued to emerge. Against this backdrop, there was even a phenomenon of public chains rising in value due to NFT applications at the end of the year.

06 Bitcoin spot ETFs debut together, BlackRock ignites market enthusiasm

Bitcoin spot ETFs were the biggest topic of the year. Since the first application in 2013, at least in the United States, no institution has successfully obtained approval for such a product, and the market has not been expecting it. In fact, in April, Cathie Wood's ARK Invest submitted its third application for a Bitcoin spot ETF, but there was no response from the market at that time.

By June, BlackRock's high-profile entry instantly made ETFs a hot topic. As the world's largest asset management institution, with assets under management reaching $9 trillion, and a strong political and economic position, BlackRock's previous record of 575 ETF applications with only one rejection also gave the market confidence. With this news, Bitcoin surged significantly, breaking through the $30,000 mark for the first time this year.

Currently, 13 institutions have applied for Bitcoin spot ETFs, and in the past week, the SEC has met with several institutions, including Grayscale and Fidelity. This has led the market to believe that spot ETF approval is imminent. The latest review date is January 15, 2024, with a deadline of March 15. Although Ark Invest is the first to be reviewed, according to Cathie Wood, the first does not mean the only one, and there may be more than six applications approved at once.

07 Coinbase and Binance sued by the SEC, compliance impact significant

In June, in addition to ETFs, compliance was the focus of the month.

Coinbase and Binance were sued by the SEC one after the other, causing the market to fall into uncertainty and panic over compliance. The SEC stated that Coinbase violated regulatory structures and did not meet the disclosure requirements set by Congress and the SEC to protect the national securities market and investors. It also filed 13 charges against Binance and Zhao Changpeng, including mishandling customer funds and misrepresenting their operations to regulatory agencies and investors.

After being accused, Zhao Changpeng posted a "4" on the X platform, stating that this was just FUD news, sparking a counterattack in public opinion. Focused on the United States, Coinbase faced a survival crisis due to the accusations and stated that it would resist to the end.

Currently, both parties' lawsuits with the SEC have not been resolved. However, it is worth noting that Coinbase has become a popular custodian for spot ETF applications, with nine institutions listing it. Does the approval of the ETF mean the end of the lawsuit for Coinbase? The final outcome is still unknown.

08 Three-year lawsuit comes to an end, Ripple "saves" the crypto market

In June, after a crackdown on regulations, market sentiment became increasingly negative, but in July, Ripple's victory seemed to bring a glimmer of hope to the industry.

The feud between Ripple and the SEC began in 2020, when the SEC noticed Ripple due to frequent sales and cash-outs, combined with its transcendent position in the industry. On December 21, the SEC filed a lawsuit against Ripple Labs, CEO Brad Garlinghouse, and co-founder Chris Larsen, accusing them of exchanging over 14.6 billion units of unregistered securities XRP for assets worth $1.38 billion, officially firing the first shot in the lawsuit. On January 29, 2021, Ripple submitted a response to the SEC's lawsuit, denying that XRP was a security and accusing the SEC of harming XRP holders' interests.

Since then, the lawsuit between the two parties has never stopped, and Ripple was once at a disadvantage. Many institutions predicted that Ripple would lose the lawsuit in 2023. However, contrary to expectations, in July, the U.S. District Court for the Southern District of New York ruled that using XRP to invest in others, providing aid with XRP, and transferring XRP to executives are not considered securities. With this ruling, Ripple finally gained a glimmer of hope in the three-year lawsuit.

This interim victory has had a significant impact on the industry, as if XRP does not constitute a security, then the SEC's charges against SOL, ADA, MATIC, and FIL may also not be considered securities. However, the court also emphasized that since the SEC's lawsuit was about the sale and distribution of XRP violating securities laws, the court did not discuss whether the secondary market sale of XRP constitutes an investment contract sale.

In August, the SEC announced that it would appeal some of the rulings made in July. However, the SEC has since withdrawn all charges against Ripple CEO Brad Garlinghouse and co-founder Chris Larsen and canceled the trial scheduled for next year.

09 Institutions continue to exert influence, PayPal releases stablecoin, SEC suffers another defeat

In August, institutions made frequent moves.

On August 7, PayPal announced the launch of the PayPal USD (PYUSD) stablecoin for transfers and payments. The stablecoin is issued by Paxos Trust Co. and is backed by the U.S. dollar, short-term government bonds, and cash equivalents. It will gradually be made available to PayPal customers in the United States. At a time when Coinbase and Binance were sued, and Paxos was forced to stop issuing BUSD, the release of stablecoins by traditional institutions was quite delicate.

But under the dual drive of profit margin crisis and stock downturn, PayPal still picked up the stablecoin business that had already shown signs in January 2022 but was shelved due to regulation. Despite the rhetoric of changing the stablecoin landscape and high centralization at the time, even though PYUSD has been listed on multiple exchanges such as Crypto.com, Bitstamp, Coinbase, and Kraken, its current performance is still mediocre. According to Coinmarketcap data, the total market value of PYUSD has reached $158 million, with a 24-hour trading volume of $4.88 million, still significantly lacking compared to mainstream stablecoins.

Another key event in August came from Grayscale. Following Ripple, the SEC suffered another defeat. The background of this event is that Grayscale requested to convert the closed-end Bitcoin trust fund GBTC into a Bitcoin spot ETF but was blocked by the SEC. On August 29, the U.S. court ruled on the lawsuit between Grayscale and the SEC regarding the Bitcoin spot ETF, ruling that the SEC had lost and deeming the SEC's refusal to allow Grayscale to issue a Bitcoin spot ETF as unreasonable, requiring the SEC to reconsider Grayscale's request. This event greatly raised industry expectations for the approval of a Bitcoin spot ETF and made the market reevaluate the seemingly invincible SEC.

10 CZ exits, Binance reaches a historic settlement with the United States

The most sensational event at the end of the year was the major settlement between Binance and U.S. regulators.

On November 22, Binance announced that it had reached a settlement with the U.S. Department of Justice (DOJ), the Commodity Futures Trading Commission (CTFC), the Office of Foreign Assets Control (OFAC), and the Financial Crimes Enforcement Network (FinCEN) regarding Binance's historical registration, compliance, and sanction issues. CZ admitted to violating the Bank Secrecy Act, the International Emergency Economic Powers Act, and the Commodity Exchange Act by conducting unlicensed money transfers, conspiracy charges, and prohibited transactions, including providing funds to designated terrorist organizations such as Hamas and Al-Qaeda, violating channels for the flow of funds related to U.S. sanctions against Iran and Russia, and illegally providing trading services to U.S. citizens.

As a result, Binance paid approximately $4.368 billion to the four major U.S. regulatory agencies, setting a record high in crypto history. Founder CZ announced his exit, and Richard Teng took over as the new leader, officially ushering Binance into the 2.0 era. Although there was a temporary outflow of funds from Binance on the day of the event, it quickly recovered. This event was generally seen as positive within the industry, as it was seen as a concession by regulators, laying the groundwork for subsequent compliance and ETF approvals. For Binance, the settlement allowed it to shed its historical baggage, giving it the opportunity to return to the U.S. and expand its influence in marginal areas. However, despite this, Binance's market competitiveness still faces challenges. According to data from The Block, Binance's share of the spot market has dropped from over 62% at the beginning of the year to 37%.

Conclusion

In fact, whether from the perspective of individuals or events, the review of 2023 is far more than just a few lines. The bear market at the beginning of the year, the onslaught of compliance, and the departure of industry leaders have had a far-reaching impact on the industry. But at least this year, we have learned that there are no "too big to fail" banks, but there are speculative bubbles that refuse to die, the importance of expected management, and the objective laws of the business world, such as "no rose without a thorn."

On a personal level, as one domino after another falls, even a small gust of wind is enough to make the sand fly. In this bear market, some have lost their jobs, lost money, and even ended up in jail, but others have seized the opportunity and achieved financial freedom in the hundreds and thousands.

Overall, the industry has undoubtedly been cold this year. Fortunately, even in such a cold winter, there are still countless contributors, and institutions have once again opened the door to crypto.

What will the future hold? It remains to be seen, but one thing is certain: 2024 will definitely be better than this year.

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