The crypto markets experienced a dramatic shift from the highs of 2021 to a downturn in 2022, leading to a significant reduction in trading volumes and a retreat by major market players from order books by mid-2022. However, there is a growing belief that a major upswing is on the horizon for 2024, replacing nightmares with sweet dreams for many investors.
In 2023, the DeFi sector was expected to see considerable growth, largely due to a loss of confidence in centralized institutions following the FTX collapse. Investors began to appreciate the importance of self-custody of assets and took the possibility of trading synthetic cryptocurrencies more seriously.
The ratio of DEX volume to CEX volume peaked at over 21% in May, driven by a memecoin frenzy, but remained high after the craze, sustaining levels above 13% from June to November. This indicates that investors looking for significant gains should be aware that altcoins with potential for exponential returns often start trading on DeFi platforms.
March saw the highest trading volumes for DEXs, similar to CEXs, due to panic caused by the USDC drama. The situation was exacerbated by the imbalance in Curve’s stablecoin swap pool, which is still fresh in the community’s memory.
The trend in derivative markets closely mirrored that of spot markets, with total volumes in futures contracts peaking in March and hitting their lowest in September. However, volumes on the futures front managed to consistently stay above the lows of December 2022.
Open interest in futures and options showed some disparities, with a notable increase in options activities recently, particularly for Bitcoin contracts. This is due to the limited number of assets and platforms available for option trading, making a fair comparison between the two difficult. The size of open interest in BTC options on exchanges climbed to an all-time high of $17.5 billion in November, largely driven by ETF approval expectations.
Open interest in Bitcoin futures also increased throughout the year, though not by as large a margin. Starting at $10.15 billion on the first day of the year, it climbed to a peak of approximately $18.5 billion in November. Despite a $3 billion wipeout in open positions due to inflation fears in August, the market quickly rebounded, reaching some of the highest levels since April 2022.