Crypto prices rise in 2023, but further challenges lie ahead
Cryptocurrencies had a mixed year in 2023. After a challenging 2022, the price of Bitcoin – the world’s leading digital asset – rose substantially in November, while a number of partnerships have signalled the potential of cryptocurrency for cross-border remittances.
The market is currently staging a recovery from the winter it experienced last year. However, some regulators and financial authorities around the world have continued to challenge the crypto industry in 2023 in the wake of FTX and Binance’s fall from grace, as well as the collapse of Silicon Valley Bank (SVB) earlier this year.
The price of Bitcoin recovers in late 2023
On 4 December 2023, outlets reported that the price of Bitcoin had risen to over $42,000, meaning that the currency had effectively recouped the losses it suffered in the wake of the Terra stablecoin collapse in May 2022. In the days since 4 December, the price saw a drop to under $41,000 as part of a broader market correction, but as of 11 December Bitcoin’s price is still up by over 140% compared to a year ago. Meanwhile, the price of Ethereum, the world’s second biggest decentralised digital asset, has risen by more than 70% since last year.
A number of reasons have been stipulated for Bitcoin’s rise, including the investment giant Blackrock filing an application for an exchange-traded fund built on Bitcoin, as well as the suggestion from the US Federal Reserve that it will not raise interest rates again next year.
These developments came after a number of challenges for the crypto market earlier in the year, specifically the continued fallout from the collapses of both FTX and SVB, which had several crypto clients on its books, including Circle. Crypto prices initially fell after SVB’s collapse, but rallied fast after US regulators and Circle stepped in to protect depositors, boosting investor confidence.
As Bitcoin prices rise, crypto exchanges could be set to benefit, including those with a cross-border remittances service. After a difficult year marked by layoffs and cutbacks, US-based Coinbase saw revenues rise 8% in Q3 23, alongside a positive EBITDA margin of around 29%; however, the company still saw a reduction in trading volumes and has been taking steps to diversify away from trading revenues to protect itself from currency volatility.
Crypto’s potential for remittances
Many partnerships in cross-border payments this year have revolved around the potential of crypto for money transfers. In particular, crypto business solutions provider Ripple has partnered with Al Ansari Exchange to enable cross-border transactions via its real-time payments network, built to use the company’s XRP currency.
Other notable partnerships include African fintech Flutterwave pairing up with Hedera to integrate Circle’s USDC; Payoneer integrating with LatAm-focused digital wallet Belo; and Visa extending remittances powered by Visa Direct – its global payments solution – to more than a billion WeChat users in China.
Several of the developments this year have once again been focused on stablecoins – cryptocurrencies that are pegged to the value of a commodity or currency. Having launched its crypto-powered payment services last year, MoneyGram announced in September it would soon be launching a non-custodial wallet powered by Stellar, enabling users to buy, store, transfer and receive USDC stablecoins. After we spoke to MoneyGram CEO Alex Holmes about the company’s crypto strategy last year, the company has continued to bet on crypto remittances – an area that has been the focus of a number of new startups in the last decade. Meanwhile, PayPal launched its own stablecoin in August, with one of the potential applications being for sending remittances.
Elsewhere, companies in the space are exploring how their own technology could support crypto remittances in the future. Swift, which enables millions of cross-border transactions daily, has been exploring how financial institutions can use their connection to Swift to seamlessly interact with emerging blockchain networks worldwide. Meanwhile, crypto exchange Coinbase launched a new Layer 2 solution, Base, which could enable the creation of faster global payments networks.
Cutting ties and trust issues
While there have been a number of partnerships, some companies related to payments have also taken steps away from the industry. Earlier this year, Checkout.com said that it was no longer processing payments for Binance, while Mastercard said that it would stop offering Binance-branded cards in Latin America and the Middle East. The companies cut ties with Binance in August, a couple of months after the U.S. Securities and Exchanges Commission (SEC) filed 13 charges against Binance for money laundering amidst other offenses.
A number of banks have also raised concerns about the use of crypto for payments this year, with Lloyds issuing a public warning over the rising threat of crypto scams; Natwest limiting crypto transfers for customers; and HSBC and Nationwide both banning crypto purchases with credit cards.
While these banks have viewed crypto with scrutiny, there has been increased interest in central bank digital currencies (CBDC). According to the Atlantic Council, 130 countries representing 98% of global GDP are currently exploring the CBDC, up from 35 countries in May 2020. Earlier this year, payments companies NexPay and Monoova claimed to enable the first real-world, cross-border settlement using the Australian CBDC, while the Chinese digital yuan also reportedly registered its first cross-border payment.
It’s important to note that CBDCs are centralised, unlike traditional cryptocurrencies, and so aren’t technically the same thing. However, the continued move into this space from central banks worldwide indicates that they continue to see the potential of digital assets and in many cases want to safeguard against a crypto-led future.
Crypto regulators make moves in 2023
A key theme this year has been how crypto is being regulated. While some countries, such as Japan, are further ahead with developing a regulatory framework, certain countries still regard the crypto industry with scrutiny.
The US – one of the world’s biggest crypto markets – has faced challenges regulating the market this year. Principally, there has been a debate over whether cryptocurrencies should be seen as commodities or securities, with the camp they ultimately fall into dictating differences in regulation.
Amidst this, the country has faced more pressure to crack down on fraud in the industry after the FTX incident, and indeed the SEC continued to crack down on crypto this year, having filed 26 crypto asset and cyber enforcement actions against companies in the space, compared to 23 in 2022.
After first being charged by the SEC last year, FTX founder Sam Bankman-Fried was convicted on all seven criminal counts against him, including wire fraud and conspiracy to commit money laundering, at the start of November. During the same month, Changpeng Zhao, the founder of major crypto exchange Binance, also resigned from his post after pleading guilty to charges of money laundering, which landed the company with a $4.3bn fine. He has now been ordered to remain in the US to await sentencing.
The high-profile US cases have been the centrepoint of a worldwide movement to regulate the industry. In Coinbase’s most recent earnings call, the company noted that it has seen global efforts to bring crypto under regulation, with 83% of the G20 nations adopting crypto frameworks. What’s more, the EU Council recently announced its new Markets in Cryptoassets regulation, which provides a framework for crypto asset service providers across EU countries.
FTX still lingers in the memory, and how crypto is regulated could be the catalyst to the success or failure of the market going forward. In any case, the recovery of Bitcoin’s price could foreshadow further cross-border payments activity in the space in 2024.
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