One of the key themes in the 2023 financial markets has been strength in the cryptocurrency sector.

Bitcoin (BTC) is up roughly 83% so far this year and strength in Bitcoin has carried over to other parts of the sector. 

So far in 2023, the vast majority of digital coins with market capitalizations above $1 billion are in positive territory on the year. Of the laggards in that group, only a handful are trading with a negative return. 

What’s most amazing about the current rally is that it emerged during a turbulent time for the broader crypto sector. Last year, Bitcoin bottomed out below $16,000/coin in early November when FTX filed for Chapter 11 bankruptcy protection. 

Since then, Bitcoin has risen back above $30,000/coin and is trading at roughly $30,350/coin as of April 17.

Bitcoin’s performance was especially strong in the wake of the recent bank failures in the U.S. After Silicon Valley Bank went bust, Bitcoin rallied by about 40% from March 10 to March 21. During that short window, Bitcoin prices rose from roughly $20,000/coin to $28,000/coin.

The broader crypto sector has benefited immensely from the recent rally in Bitcoin, with many other well-known digital coins posting impressive returns so far in 2023.

Crypto assets to look for

When filtering the crypto universe for coins with market capitalizations above $1 billion, one can find 15 digital coins that have outperformed Bitcoin so far in 2023, as highlighted below:

• Conflux Network (CFX), +1,630%
• Stacks (STX), +310%
• Aptos (APT), +260%
• ImmutableX (IMX), +208%
• The Graph (GRT), +200%
• Rocket Pool (RPL), +195%
• Lido DAO Token (LDO), +165%
• Fantom (FTM), +155%
• Solana (SOL), +144%
• Decentraland (MANA), +115%
• Filecoin (FIL), +110%
• OKB (OKB), +105%
• Hedara (HBAR), +87%
• Near Protocol (NEAR), +84%
• Wrapped Bitcoin (WBTC), +84%
• Bitcoin (BTC), +83%

Based on the sector’s outperformance in the wake of the recent bank failures, cryptocurrencies have clearly been a popular alternative store of value in 2023, much like gold.

Historically, cryptocurrencies have performed fairly well during isolated, sovereign financial crises. In 2015, Bitcoin jumped by 150% when the government in Greece imposed capital controls on its citizens to avert widespread bank runs. 

Along those lines, Ilan Solot, the co-head of digital assets at Marex Solutions, recently told Cointelegraph, “Fears over the stability of the banking system, along with declining real interest rates, create a good environment for Bitcoin to rebound.” Solot added that the broader crypto industry “is seen by some investors as a hedge against systemic risks.”

That said, one can’t overlook the fact that the crypto rally started in January, well ahead of the Silicon Valley Bank implosion, suggesting that current optimism in the crypto space extends beyond its role as an alternative store of value. 

Nvidia and cryptomining

Beyond the digital coins themselves, other crypto-related assets have also been rallying in 2023. Some of the biggest winners include Nvidia (NVDA), crypto-focused stocks and Bitcoin ETFs. 

When it comes to the stock market, one company that sticks out is Nvidia, and that’s due in part to its close association with the cryptocurrency industry.

Crypto mining requires high-end graphics processing units (GPUs) and those made by Nvidia are some of the most coveted in the industry. Nvidia’s close affiliation with the cryptocurrency industry has undoubtedly helped fuel the stock’s 86% year-to-date gain in 2023. 

Of companies that posted more than $10 billion in revenue last year, Nvidia has been one of the top five performers in the stock market, along with Travelcenters of America (TA, +99%), Carvana (CVNA, +86%), Meta Platforms (META, +80%) and Spotify (SPOT, +65%). 

Shares in Nvidia have also benefited from surging interest in the artificial intelligence sector (AI) because Nvidia also produces some of the world’s most advanced AI chips. These chips are critical for training and deploying AI systems such as ChatGPT. 

Chatbots require hundreds of these chips, such as the H100 processor, which currently sell for around $40,000 per unit on eBay. 

Considering the strong performance in both the cryptocurrency and artificial intelligence sectors, it’s no surprise that Nvidia has performed so well in 2023. The three-month correlation between Nvidia and Bitcoin currently stands at about 0.80, which also reflects the strong association between the two.

Other stocks linked to the crypto sector have also outperformed in 2023, with Coinbase (COIN) and MicroStrategy (MSTR) both up more than 100% year-to-date. 

Several of the smaller capitalized stocks in the crypto sector have also logged impressive gains in 2023, with Hut 8 Mining Corp (HUT), Marathon Digital Holdings (MARA) and Riot Platforms (RIOT) rising by 160%, 250% and 300% so far this year. 

Crypto stocks offer exposure to digital assets without buying/selling the coins directly. Alternatively, equity investors/traders can also utilize crypto-focused ETFs for the same purpose. 

Highlighted below are some of this year’s top-performing Bitcoin-focused ETFs. These ETFs are highly correlated to the underlying price of Bitcoin and have posted similar year-to-date returns:

• Betashares Crypto Innovators ETF (CRYP), +80%
• Bitwise Crypto Industry Innovators ETF (BITQ), +110%
• Bitwise 10 Crypto Index Units Beneficial Interest (BITW), +110%
• Global X Blockchain ETF (BKCH), +106%
• Global X Blockchain & Bitcoin Strategy ETF (BITS), +90%
• Grayscale Bitcoin Trust (GBTC), +110%
• ProShares Bitcoin Strategy ETF (BITO), +73%
• Valkyrie Bitcoin Strategy ETF (BTF), +80%
• VanEck Bitcoin Strategy ETF (XBTF), +80%

At this time, crypto-focused ETFs can only own crypto futures or crypto equities and can’t own cryptocurrencies directly. However, that could change at some point in the future, pending a decision by the U.S. Securities and Exchange Commission (SEC).

To learn more about trading crypto options, check out this installment of Crypto Concepts on the tastylive financial network. To follow everything moving the markets, tune into tastylive, weekdays from 7 a.m. to 4 p.m. CDT.

Sage Anderson is a pseudonym. He’s an experienced trader of equity derivatives and has managed volatility-based portfolios as a former prop trading firm employee. He’s not an employee of Luckbox, tastylive or any affiliated companies. Readers can direct questions about this blog or other trading-related subjects, to support@luckboxmagazine.com.