Crypto in 2022 is certainly one for the history books. The collapse of some of the biggest platforms and the winding journey of highs and lows have defined an increasingly unpredictable and volatile market while we enter 2023.
Yet, with nuanced macroeconomic factors, and even more nuanced Web3 developments taking place, this overview will be abundantly simplified. Starting with the contexts of the years entry and how everything went so horribly wrong, so fast. Conversely, we will highlight how everything may not be as grim as we think.
2022: A Prologue
There is no denying that any sort of deep dive into the events of the year requires an understanding of context. Specifically, in the world of cryptocurrencies, it was a macroeconomic context that signaled a trend downward.
The economy that preceded 2022 had allowed the flourishment of the cryptocurrency sector. The interest rate hikes had yet to begin, and a strong economy allowed investors to embrace digital assets. Moreover, the public’s embrace of crypto allowed the year to kick off with a bang.
Conversely, entering 2022, banks around the world were raising interest rates, a practice that still hasn’t ended. It was an attempt to slow inflation and decrease economic expansion. For Americans, it was an attempt to quell fears of a recession. Subsequently, that set the precedent for investors’ risk assessment, affecting not just digital assets, but all asset classes.
The All-Time High
At the beginning of the year, it seemed as though cryptocurrencies’ market caps were hitting another level. NFT marketplace OpenSea was valued at $13.3 billion, up more than $12 billion in just a few months. Bitcoin and Ethereum had all reached all-time highs, with the cryptocurrency total market cap exceeding $3 trillion.
Cryptocurrency exchanges were witnessing massive growth periods, with their yields inviting investors eager to enter the space. Moreover, newly developing cryptocurrency projects like Terra were in the spotlight. The world was watching an industry boom.
The metrics weren’t the end-all-be-all; it was the publicity as well. Celebrities were becoming the faces of exchanges like FTX. Massive Super Bowl ads and stadium deals saw the first few months develop a hunger for digital assets that was unquenchable. The mainstream potential was proving to be viable, and venture capital was pumping the industry to handle the craze.
But, the hype was short-lived.
What goes up…
The second quarter of 2022 was not a good time for any financial institution, and crypto certainly didn’t help itself. Central banks began their year-long hike of interest rates, and speculative assets began to decelerate. Subsequently, the decrease in price saw many investors sell off, watching the cryptocurrency market cap plummet by more than $1 trillion.
Unfortunately, it wasn’t just the interest rate hikes that hindered the industry. Terra, a developing project that garnered attention, had imploded. Some traders exited crypto trading entirely, with the UST stablecoin de-pegging from the U.S. dollar. The implosion of a promising cryptocurrency entity led to billions in losses for investors, thus fighting the pressure of the market even more.
Terra’s collapse was, for many, the first domino. Centralized Exchanges were overleveraged, and hedge funds like Three Arrows Capital lost exponentially in the sell-off following the collapse. Hedge funds like Three Arrows defaulted on loans owed to other exchanges, with bankruptcy their only viable option.
Once promising companies like Celsius Network and Voyager Digital failed, and user assets were frozen through bankruptcy filings. Yet, the summer began to show hopeful signs. Venture capitalists were still investing massive funds, and Sam Bankman-Fried’s FTX was rising up to aid other cryptocurrency companies.
Beginning with FTX’s rescue of cryptocurrency lender BlockFi, the former began to distinguish itself in its strength. Bailing out other platforms on the brink, Bankman-Fried was the future of the industry. He was “the JP Morgan” of crypto. For the macroeconomic pressures and the decline forming, maintaining the crypto case was in the hands of SBF and others. Representing crypto’s great hope.
The Hope That Kills
Confidence in cryptocurrencies continued until the month of November 2022. It began with the plummeting of FTT, the FTX native token. Binance had stated its intention to liquidate all of the FTT on its books, causing the token to freefall. The latter was still the largest cryptocurrency exchange by volume and had voiced legitimate concern over the self-issued FTX token. Fear expanded, and investors began to pull their funds out of FTX.
Subsequently, the entire exchange was in trouble, with it seeking aid in liquidity issues. That aid had seemingly arrived in the form of Binance, and its CEO, Changpeng Zhao. That acquisition would end up being reverted, and the worst news was yet to come.
It was revealed that FTX, and its sister platform Alameda Research, was misusing customer funds to finance risky bets. The fraud dominated the headlines, and as the year had seen crypto dominate the mainstream in a positive way, negative coverage then flooded in. Sam Bankman-Fried was arrested this month, an act to cap off his meteoric fall from grace.
The devastation of the FTX bankruptcy is still being felt and has led to a new engagement in regulatory talks. Moreover, exchanges left in its wake are embracing transparency to win back customer trust. Meanwhile, Bitcoin and other cryptocurrencies are experiencing treacherous depreciation.
An Outlook on 2023
As we exit the year, the situation in crypto is quite complicated. The interest rate hikes will still have their own affect on the market. Additionally, indictments of those involved in the FTX fraud will run their course, and regulation discussions will likely gain more traction. Specifically in America, with an election year on the horizon, cryptocurrency regulation will be a main topic of discussion.
Still, there are reasons to be positive in the world of crypto coming into 2023. Web3 and blockchains are still developing, with Ethereum and Binance both ending as bright spots in how they’ve handled a year of controversy. Moreover, there is no shortage of investment thus far, with mergers and acquisitions likely to be a massive aspect of the coming year.
Conclusively, with Bankman-Fried becoming the example of risk, the move forward is possible in the coming year. Investors learned from the hype, subsequent case, and platforms embracing transparency. The year was a treacherous one, but lessons were undeniably learned.