Crypto is back in $300 billion frenzy

Hello and welcome to the latest edition of the FT’s Cryptofinance newsletter. This week we take a look at crypto’s market rally in January.

With bankruptcies, job cuts, and arrests in the first few weeks of the year, the crypto industry seemed able to pick up right where it left off after a disastrous 2022. But it’s not all doom and gloom for the turbulent world of digital assets.

In just one month, about $300 billion was tacked to the market value of crypto assets, bringing it back above $1 trillion. Bitcoin is up more than 40 percent to around $23,000, recovering from the drop to $16,000 per token that hit the flagshipcryptocurrency after FTX’s bankruptcy last year.

Bitcoin’s main rival, token Ethereumis also firmly in the green while Solana — the beleaguered “Ethereum killer” that all but died last year — has posted a staggering 140 percent gain in value so far in 2023.

CryptoCompare figures also show that total assets under management for digital asset investment products rose nearly 37 percent to more than $26 billion in January, the highest since May 2022 – the month that saw the unprecedented crisis of confidence in Crypto started. Grayscale’s GBTC — an investment fund designed to track the price of Bitcoin — posted average daily volume of $38.9 million last month, up 23 percent from December, according to the crypto data provider.

The recent surge in digital assets has not taken place in a vacuum, but amid a broader rally for other speculative assets.

So-called meme stocks GameStop and AMC Entertainment Holdings are up about 20 and 30 percent respectively so far this year, and investor and bitcoin evangelist Cathie Wood’s ARKK exchange-traded fund is up over 25 percent, buoyed by HODLing Coinbase shares , which in turn will have more than doubled in 2023.

Jim Bianco, president and co-founder of macro research firm Bianco Research, texted me that we’re “back to 2021,” referring to this year’s red-hot bull run, fueled in large part by retail excitement and fears, Missing out on the fueled crypto boat.

“Log back into your Reddit account and YOLO on meme stocks,” he said.

But during Crypto Twitter™ As the industry prepares for a long-awaited turnaround, it’s important to take the industry’s rally with a grain of salt. January paints a pretty picture for cryptocurrencies, but the shadow cast by FTX’s collapse is still looming. Bitcoin has yet to venture above the mid-$20,000s, a price range it stubbornly held before FTX collapsed, leading me to suggest that the flagship token needed a story to sell .

“Most of the biggest gainers so far this year are actually still the biggest losers over the past 90 days,” Jeff Dorman, chief investment officer at investment firm Arca, told me this week. “Why is the last 90 days important? Because FTX imploded in the first week of November, wiping out what appeared to be a promising recovery in digital assets at the time.”

As I was also told by JPMorgan’s Nikolaos Panigirtzoglou via email, crypto venture capital funding remained weak well into the new year, and an institutional momentum once present in bitcoin futures faded as January drew to a close .

“We suspect that the crypto rally in the second half of January was driven by retail investors rather than institutional investors,” Panigirtzoglou told me.

And as those of you who were around during the industry’s first “crypto winter” of 2017-18 will know, bull runs fueled solely by retail investors can make a dime.

How do you rate Crypto’s recent winning streak? As always, email me your thoughts at scott.chipolina@ft.com.

Weekly Highlights:

• One bullet to start: I spent some time digging through US Senate lobbying records and discovered that Binance was using the same lobbyists to condemn lawmakers in Washington as its US subsidiary. Binance has made significant efforts to emphasize that Binance US – its American arm – operates separately from the broader group, but these results suggest connections between the two. Read my story here.

• The UK has shown its colors when it comes to regulating crypto assets. Unlike the EU – which has created new rules from the ground up – Westminster wants to bring crypto into the UK’s existing financial services regulations. Government is still following Brussels on its path to contain crypto and London’s future as a crypto hub is far from guaranteed, but Finnish MEP Eero Heinäluoma told me UK and European lawmakers should learn from each other and there is “certainly no need”. for a race down”. Find out more about my reporting here and here.

• The latest in crypto roulette with job cuts: The BlockchainAnalytics firm Chainalysis cut about 5 percent of its employees, while crypto exchange Bittrex laid off more than 80 of its employees. You may remember Bittrex from its standoff with U.S. law enforcement, when the exchange agreed to pay nearly $30 million to settle cases related to “apparent violations” of sanctions against countries like Iran, Cuba, and Syria.

• Meta Platforms has embraced Crypto’s Web 3 culture, but its Metaverse unit — Reality Labs — isn’t getting much bang for the buck. In the most recent quarter, revenue for the Metaverse unit fell to $727 million from $877 million a year earlier, and losses also jumped to $4.3 billion from $3.3 billion a year earlier. My colleague Hannah Murphy has the story here.

Soundbite of the week: Munger Dunks on Crypto

Charlie Munger, one of America’s most famous investors, stepped up his criticism of crypto this week, urging the US to ban the volatile asset class.

Munger has long been one of crypto’s most established critics, but the Berkshire Hathaway heavyweight’s recent Wall Street Journal column hasn’t let up.

“What should the US do after a cryptocurrency ban is in place? Well, one more action might be worthwhile: thank the Chinese communist leader for his great example of unusual common sense.”

Data Mining: The Record-Breaking Crypto Hacks of 2022

Almost every major crypto metric is pointing straight down in 2022: token prices plummeted, the crypto market shrank, and a number of major players went bankrupt in what was arguably the industry’s worst year yet.

One metric has managed to buck the trend, but it’s not something crypto evangelists will be bragging about anytime soon. According to blockchain analytics platform Chainalysis, the past year has been the biggest yet for crypto hacking, with nearly $4 billion stolen from cryptocurrency firms. The total number of hacks also fell to 219 last year from 263 in 2021, suggesting that hackers generally have bigger goals.

Finally, North Korean hackers — who I’ve reported on in this newsletter and on FT.com — pocketed about $1.7 billion of the collectively stolen goods. It seems that working for the most financially isolated country in the world is a good way to sharpen someone’s crypto heist credentials.

Cryptofinance is published by Philip Stafford. Please send any thoughts and feedback to cryptofinance@ft.com.

Your comments are welcome.