Crypto is back with a $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 recovery in January.

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

In just a month and change, roughly $300 billion has been transferred to the market cap of crypto assets, sending it back over $1tn. Bitcoin has surged more than 40 percent to about $23,000, rebounding from the drop to $16,000 per token that marred the flagship cryptocurrency in the wake of FTX’s bankruptcy last year.

Bitcoin’s main rival token ether is also firmly in the green, while Solana — the beleaguered “ethereum killer” that nearly died last year — has recorded an eye-popping 140 percent increase in value so far in 2023.

CryptoCompare figures also show that total assets under management for digital asset investment products rose nearly 37 percent in January to more than $26 billion, the highest since May 2022 — the month when crypto’s unprecedented crisis of confidence began. Grayscale’s GBTC — an investment fund designed to track the price of bitcoin — raised $38.9 million in average daily volume 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 roughly 20 and 30 percent so far this year, and investor and bitcoin evangelist Cathie Wood’s ARKK exchange-traded fund has posted over 25 percent gains, fueled by HODLing Coinbase shares, as in turn has more than doubled in 2023.

Jim Bianco, president and co-founder of macro research firm Bianco Research, texted me to say we’re “back to 2021,” referring to this year’s red-hot bull run, fueled largely by retail excitement and fear of missing the crypto boat.

“Log back into your Reddit account and YOLO at meme shares,” he said.

But while CryptoTwitter™ hoping for a long-awaited change of fortune, it is important to take the industry’s rally with a grain of salt. January paints a beautiful picture for cryptocurrencies, but the shadow of FTX’s collapse still looms large. Bitcoin has yet to venture above the mid-$20,000s, a price range it stubbornly held onto before FTX’s collapse, leading me to argue that the flagship token needed a story to sell.

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

As JPMorgan’s Nikolaos Panigirtzoglou also pointed out to me via email, crypto venture capital funding has remained weak well into the new year, and 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 more by retail than institutional investors,” Panigirtzoglou said.

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

What’s your take on crypto’s recent fortunes? As always, email me your thoughts at [email protected].

Weekly Highlights:

• One scoop to start: I spent some time digging into US Senate lobbying records and discovered that Binance was using the same lobbyists to pitch to Washington lawmakers as its US affiliate. Binance has gone to great lengths to emphasize that Binance US – its American arm – operates separately from the wider group, but these findings point to connections between the two. Read my story here.

• The UK has stuck its colors to the mast when it comes to regulating crypto assets. Unlike the EU – which has constructed new rules from scratch – Westminster wants to bring crypto into the UK’s existing financial services regulatory framework. The government is still following Brussels on the path to reining in crypto, and London’s future as a crypto hub is far from guaranteed, but Finnish MEP Eero Heinäluoma told me that UK and European lawmakers should learn from each other and there is “absolutely no need for a race towards the bottom”. Follow my coverage here and here.

• The latest in crypto jobs cut roulette: blockchain analytics firm Chainalysis laid off roughly 5 percent of its staff, while crypto exchange Bittrex laid off more than 80 of its workers. You may remember Bittrex from its run-in with US law enforcement, when the exchange agreed to pay nearly $30 million to settle cases for “apparent violations” of sanctions against countries including Iran, Cuba and Syria.

• Meta Platforms has embraced crypto’s Web 3 culture, but its metaverse unit — Reality Labs — isn’t generating much bang for its buck. In the latest quarter, the metaverse unit’s revenue fell to $727 million from $877 million a year ago, and losses of $4.3 billion also widened from $3.3 billion a year earlier. My colleague Hannah Murphy has the story here.

Soundbite of the week: Munger bangs on crypto

Charlie Munger, one of America’s best-known investors, stepped up his criticism of crypto this week, calling for 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 pulled no punches.

“What should the US do after a cryptocurrency ban is in place? Well, one more action might make sense: Thank the Chinese Communist leader for his wonderful example of unusual common sense.”

Data mining: 2022’s record-setting crypto hack

Almost every crypto that matters pointed straight down in 2022: token prices collapsed, the crypto market shrank, and a bunch of big players went bankrupt in what was arguably the industry’s worst year to date.

One metric managed to buck the trend, but it’s not something crypto evangelists want to brag about at first. Last year was the biggest ever for crypto hacking, with nearly $4 billion stolen from cryptocurrency businesses, according to blockchain analytics platform Chainalysis. The total number of hacks also fell last year to 219, down from 263 in 2021, indicating that hackers were generally going after bigger targets.

And finally, North Korean hackers — who I’ve covered for this newsletter and on FT.com — pocketed roughly $1.7 billion of the collectively stolen goods. It seems that working for the world’s most economically isolated country is a good way to sharpen someone’s cryptoran credentials.

Cryptofinance is edited by Philip Stafford. Send any thoughts and feedback to [email protected].

Your comments are welcome.