Crypto market above $1trln for first time since FTX collapse

The total market capitalization of virtual currencies has climbed by almost $250 billion so far in January

The crypto currency market is now valued at more than $1 trillion for the first time since the collapse of FTX in November, signalling a strong bounce back in investor confidence even as the industry faces volatility.

The world’s largest crypto currency, Bitcoin, hit a five-month peak above $23,000 over the weekend and is up nearly 40 per cent in January, headed for the best month since October 2021. So far in January, the total market capitalization of digital currencies has jumped by around $250 billion.

It shows a turnaround in sentiment after a volatile 2022, a year dubbed a ‘crypto winter’, that saw the market capitalization of virtual currencies crash by more than $1.4 trillion, and bitcoin lose 64 per cent of its value as the industry suffered a string of high-profile crypto bankruptcies including FTX and Three Arrows Capital (3AC).

The advances come even as the impact of FTX collapse continues to be felt across the digital asset industry. Even last week, crypto lender Genesis Global filed for bankruptcy protection.

After the collapse of FTX, crypto market capitalization had dropped to nearly $745 billion during late November. A year earlier, it briefly topped $3 trillion at the height of the digital-asset frenzy during the later part of 2021.

The latest crypto rally shows a rise in investor optimism across riskier assets including stocks, as cooling US inflation stokes hopes an end is in sight to the US Federal Reserve’s most aggressive cycle of interest-rate hikes since the 1980s. Reports that FTX has recovered more than $5 billion in assets to repay creditors also lent some support.

According to the latest data, the annual rate of consumer-price increases in the US slowed to 6.5 per cent in December, from a 40-year high reached last June. The Fed reduced the rate hikes to 50 basis points last month, after four consecutive hikes of 75 basis points each.

An end to interest-rate hikes would bode well for risk assets, as that means funding costs for investors and businesses would stop rising.