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The cryptocurrency industry, in recent months, has suffered some blows: high-profile bankruptcies, the arrest of wunderkind Sam Bankman-Fried and a regulator lawsuit against top crypto exchange Binance.

Despite it all, the price of the largest cryptocurrency, bitcoin, has surged.

Bitcoin has climbed 65% this year, far surpassing the S&P 500, which has jumped 7%. Even the Nasdaq, a tech-heavy index, has delivered just a quarter of bitcoin's gains.

In fact, bitcoin has benefited from crises in the cryptocurrency arena, analysts said, since the unrest has pushed investors away from lesser-known coins and toward the sector's household name.

Plus, the price has gained a boost from wider economic forces like trouble in the financial system and slowing interest rate hikes, they said.

But the coming months pose uncertainty, experts added, as a looming recession could test the performance of an asset less than 15 years old.

The blockbuster performance of bitcoin in 2023 comes after the digital currency's price plummeted last year. In all, the price of bitcoin fell 65% last year, exceeding the losses suffered by the S&P 500, which dropped about 20%.

The price struggles for bitcoin, which extended throughout much of the cryptocurrency sector, coincided with an aggressive series of interest rate hikes that put downward pressure on many assets, including the major stock indexes.

"There had been a big bubble," James Butterfill, head of research at digital asset management firm CoinShares, told ABC News. "The bubble was pricked by the Fed."

The distress in cryptocurrency helped trigger a slew of failures. Last May, a major coin, Terra, collapsed along with its sister coin Luna. Meanwhile, several crypto lenders such as Block Fi, Celsius and Genesis filed for bankruptcy last year.

In dramatic fashion, crypto exchange FTX filed for bankruptcy in November after a collapse in a matter of days that was followed by the arrest of Bankman-Fried, the company's founder and former CEO. Bankman-Fried has pleaded not guilty to all 13 counts he faces, including fraud and conspiracy.

The unrest last year sent crypto investors toward well-known digital currencies, Callie Cox, an analyst at the investment company eToro who tracks cryptocurrencies, told ABC News.

"Bitcoin has been the beneficiary of a flight to quality within the crypto industry," Cox said. "This is the crypto name that my mom and your family probably know."

Butterfill, of CoinShares, echoed the point: "People are becoming a lot more discerning. There are 50,000 crypto coins out there and a lot of them are rubbish."

Ethereum, the world's second-largest cryptocurrency, has surged 52% this year, benefiting as well from the rush toward prominent coins, Butterfill said.

The rise in the price of bitcoin has coincided with favorable developments across the wider economy, since the Federal Reserve has slowed its interest rate hikes and unrest in the traditional banking sector has pushed some investors to seek a digital alternative, experts said.

Since March, three of the nation's 30-largest banks have collapsed. Shares of regional lender PacWest Bancorp plummeted on Thursday after the bank said it lost 9% of deposits last week, suggesting that financial instability persists.

"When the banking system faced threats, a lot of investors saw reason to doubt the financial system," said Cox, of eToro. "They went looking for alternatives."

There is little data available that depositors pulled money out of banks and placed it in bitcoin, Butterfill noted, adding that he had heard anecdotes of bank customers transferring funds to crypto.

If the Fed halts its rate hikes, as many investors expect, bitcoin could continue its rise over the latter part of the year, experts said. However, they cautioned that a potential recession could bring volatility.

"There might be nervousness about bitcoin as we move closer to a recession," Cox said, pointing out that interest rates would remain elevated even after a pause. "There are a lot of crosswinds for crypto right now."

Butterfill acknowledged uncertainty about the outlook of day-to-day performance for bitcoin, but remained optimistic about the remainder of 2023, even if it involves a recession.

"Economic data continues to deteriorate," Butterfill said. "In that environment, bitcoin would be volatile and perform quite well."

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Bitcoin has climbed 65% this year despite crypto woes. Experts explain why. - ABC News

Binance trading volumes and liquidity have been steadily declining in the first quarter of 2023 amid the spate of U.S. banking failures and after ending its zero-fee promotion.

The result?

Its led to even more chop for the price of Bitcoin, Kaiko analyst Dessislava Aubert told Decrypt.

Aubert said that "Overall, Bitcoin liquidity on Binance has more than halved relative to the start of February from around $45 million to $16 million in early May."

The primary reason for the decline in liquidity was the removal of Binances 10-month zero-fee promotion for 13 different BTC pairs, which also caused market makers to leave the platform.

Specifically, monthly trading volumes for the exchanges most-traded pair, BTC-USDT, volume fell from $16 billion in March to $2 billion in April, said the Kaiko analyst.

Aubert added that the drying liquidity has been more pronounced after the spate of banking failures earlier this year. The collapse of two key on-ramps for the industry in Silvergate and Silicon Valley Bank also hit specific firms, including Ripple, Circle, Yuga Labs, and many others.

Bitcoin market liquidity and trading volume on Binance. Source: Kaiko.

The 1% market depth, a measure of liquidity calculated using the bids and asks within 1% of the mid-price, on Binance declined significantly after the banking failures.

The result of reduced liquidity and volumes on Binance has been increased volatility.

Kaikos intraday volatility metric for the 10-minute interval surged considerably around the time liquidity began dropping on Binance.

Bitcoin intraday volatility at 10-minute intervals. Source: Kaiko.

Low-liquidity conditions mean thin order books on exchanges which provide room for wild price swings from large orders.

We have seen this with BTC's recent sudden price move which did not have a clear catalyst, said Aubert. Volatility is unlikely to go away especially after some larger market makers (Jane Street and Jump Crypto) revealed they were reducing down their crypto exposure.

Bitcoin Liquidity Hits 10-Month Low Amid US Banking Crisis

Story continues

Notably, Bitcoins price dropped this week despite favorable conditions such as a positive CPI report and market expectations largely inclined toward an interest rate cut in the future by the U.S. Federal Reserve.

A low-interest rate environment enables cheaper debt in the economy which fuels a rise in speculative assets like Bitcoin.

However, the asset failed to stage an uptrend likely due to poor liquidity.

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Bitcoin Liquidity on Binance Has More Than Halved Since February: Kaiko - Yahoo Finance

May 10 (Reuters) - Bankrupt cryptocurrency exchange Bittrex Inc received court permission Wednesday to borrow $7 million in bitcoin to fund the start of its Chapter 11 case.

Seattle-based Bittrex filed for bankruptcy Monday, saying it intended to return customer funds and wind down its U.S. operations. The company's international affiliates will continue to operate crypto exchanges for customers outside of the U.S., but Bittrex said that the U.S. regulatory environment had become untenable after the SEC sued the company for allegedly running an unregistered securities exchange.

Before filing for bankruptcy, Bittrex stopped accepting new deposits from U.S. customers and told its existing users to withdraw their crypto from the platform.

Bittrex's U.S. operations made up a minority of its overall users. Affiliated exchanges based in Liechtenstein and Bermuda accounted for about 77% of the company's 5.4 million users as of March 27, according to court filings.

Bittrex believes that it has enough cryptocurrency to fully repay all remaining customers, and the bankruptcy loan will ensure a smooth wind-down that protects customer assets, attorney Susheel Kirpalani told U.S. Bankruptcy Judge Brendan Shannon at a Wednesday court hearing in Wilmington, Delaware.

Shannon approved the loan on an interim basis, allowing Bittrex to borrow 250 bitcoin from its parent company Aquila Holdings, which is not filing for bankruptcy. Bittrex will seek permission to borrow an additional 450 bitcoin at a hearing in June, and the total value of its proposed loan is $19.7 million, based on bitcoin prices when it filed for bankruptcy.

Shannon said he was persuaded to accept a "novel currency" for the loan because it offered favorable terms compared to other bankruptcy loans, including a relatively low 4% interest rate and built-in protections related to bitcoin's price volatility. Bittrex intends to repay the loan in bitcoin, and it will not be forced to pay more than 110% of bitcoin's current value if it is later forced to acquire more bitcoin to make loan repayments, according to court documents.

Shannon also approved temporary privacy protections allowing Bittrex to remove customer names from court documents. Bittrex attorney Patricia Tomasco pointed out that one large accountholder has more than $14 million in crypto still on Bittrex's platform, saying that revealing that customer's name would subject them to a barrage of phishing emails.

"That's a pretty hefty prize for low-tech skullduggery," Tomasco said.

Shannon said he will revisit the privacy issue at a later hearing.

The case is Bittrex Inc, U.S. Bankruptcy Court for the District of Delaware, No. 23-10598.

For Bittrex: Susheel Kirpalani and Patricia Tomasco of Quinn Emanuel Urquhart & Sullivan

Read more:

Crypto exchange Bittrex files for bankruptcy after SEC complaint

US SEC charges Bittrex with operating unregistered securities exchange

Reporting by Dietrich Knauth

Our Standards: The Thomson Reuters Trust Principles.

Read more:
Bittrex approved to borrow $7 mln bankruptcy loan in bitcoin - Reuters

Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult ourwebsite policyprior to making financial decisions.

OKX and Unisat, the open-source Chrome wallet extension for Bitcoin Ordinals, announced on Friday they entered into a partnership to establish a BRC-20 token standard. BRC-20 and Ordinals have been a popular subject in recent weeks and the reason behind the division in the Bitcoin community.

Cryptocurrency exchange OKX joined forces with UniSat Wallet to create a cross-verification process for BRC-20 transaction indexing on the Bitcoin blockchain. As part of the partnership, UniSat is set to become OKXs BRC-20 market data supplier.

We are delighted to announce that @OKX and @unisat_wallet are collaborating to develop a cross-verification process for BRC-20 transaction indexing on the #Bitcoin blockchain. This marks the initial stride towards decentralized indexing, enhancing the overall robustness and reliability of BRC-20.

BRC-20 refers to an experimental token standard introduced in March 2023 by an anonymous crypto developer known as Domo. Like ERC-20 standards on Ethereum, BRC-20 allows users to issue fungible tokens using Bitcoins Ordinals protocol.

Since the standard was rolled out, the demand for Bitcoin Ordinals reached sky-high levels, causing congestion on the worlds biggest blockchain and propelling its network fees to a 2-year high earlier this month. In addition, Binance said on May 9 it would add support for Bitcoin Ordinal inscriptions on its non-fungible token (NFT) marketplace in late May.

A big part of the Bitcoin community welcomed the introduction of the BRC-20 standard, as many wanted to join Ethereum proponents in issuing NFTs on their favorite blockchain. On the other hand, some have loudly criticized this idea.

These include the so-called Bitcoin purists, who believe Ordinal inscriptions enabled by the BRC-20 standard represent a departure from the original intent of Bitcoin, which was primarily meant to be used as a medium of exchange and a decentralized store of value. Moreover, purists also think that Ordinals have added elements of centralization and jeopardized the idea of Bitcoin being a decentralized, value-neutral currency.

As a result of their discontent, some Bitcoin developers have proposed to cancel Ordinals and BRC-20 tokens, which have been primarily responsible for the recent network bottleneck and mounting fees. Earlier this week, around 400,000 unconfirmed Bitcoin transactions in the mempool were waiting to be added to a block.

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About the author

Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.

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OKX to Establish Bitcoin BRC-20 Industry Standard with Unisat - The Tokenist