In the year 2022, a Crypto Collapsing year saw Bitcoin stutter. It closes the year slouched in a back alley, stripped of its cocktail of borrowed money and leveraged bets, and rejected by the establishment.
Due to rising interest rates, declining risk appetite, and corporate failures like Sam Bankman-FTX, Fried’s most important cryptocurrency has lost 60% of its value, and the overall cryptocurrency market has decreased by $1.4 trillion.
According to data from digital asset manager CoinShares, crypto funds saw net inflows of $498 million in 2022 compared to $9.1 billion in 2021, which illustrates how mainstream finance has avoided the industry during its dreadful year.
According to James Malcolm, head of FX strategy at UBS, he spent 70% of his time with clients discussing cryptocurrencies in the first half of the year. Comparatively, “I spent less than 2% of my time talking crypto” during a 10-day trip to North America last month from Montreal to Miami.
Prior to the collapse starting in November of last year, Malcolm said, it was realistically believed that institutional investors would not accept cryptocurrencies for two or three years.
It is currently entirely in the distant future.
THE 2023 CRYPTO OPTIMIST?
However, 2022 was also the year that the Ethereum blockchain finally completed its “Merge” mega-upgrade, which allowed it to switch to a less power-intensive “proof of stake” mechanism in September.
Co-founder of the Pastel Network blockchain Anthony Georgiades commented, “This event was a technological marvel and one of the lone positive occurrences in a year that has otherwise been very bleak for crypto.”
“These improvements will make the Ethereum ecosystem far more user-friendly for users all across the world. It’s challenging not to be a crypto optimist moving into 2023 given all this advancement.
Ben McMillan, chief investment officer at IDX Digital Assets, noted that another significant development this year was the growing acceptance of blockchain-based solutions, such as decentralised exchanges and decentralised financing.
Therefore, he continued, “it is really positive for the environment and something to keep an eye on in the long run.” Once risk appetite picks back up in 2023, we might start to see larger allocations to digital assets.
Bitcoin Experiences a Decline
In November 2021, Bitcoin reached a record high of $69,000, and the cryptocurrency market reached $3 trillion.
This growth was fueled by monetary and fiscal stimulus from nations throughout the world striving to prevent the economic harm caused by COVID lockdowns.
However, as society began to function again, soaring inflation prompted central banks to raise interest rates, which in turn caused investors to leave higher-risk assets like tech stocks and cryptocurrencies.
Bitcoin, which has long been hailed as a useful store of value in times of inflation due to its scarcity, failed throughout the test, with investors gravitating to tried-and-true safe havens like the dollar when rates rose. It decreased by roughly a third in January, exceeding the 8% decline in U.S. stocks.
“The year 2022 brought new conditions for digital assets. According to Katie Talati, head of research at the digital asset company Arca, “They have never existed in a time of recession or rising rates.”
The Bubble Popper’s Year
Major projects were strained as investors took their money out of cryptocurrencies. TerraUSD, a purported “stablecoin,” and its sister luna were the first to be compromised.
Investors worldwide lost an estimated $42 billion when the value of the coins dropped in May.
The market was rocked when American cryptocurrency lender Celsius filed bankruptcy in June after freezing customer funds and disclosing a $1.2 billion deficit.
Three Arrows Capital, a Singapore-based cryptocurrency hedge fund, failed that month.
In just 49 days from the end of May, the value of bitcoin and other digital tokens plummeted by more than half. Bitcoin experienced its worst day since the financial markets were rocked by COVID turmoil in March 2020 on a single day in June when it plunged over 15%.
The biggest cryptocurrency shock, though, was yet to come.
A significant exchange, FTX, abruptly declared bankruptcy in November. As Bankman-Fried scurried for cash to save his exchange, bitcoin plummeted by 25% in less than four days.
Currently, the price of cryptocurrency is around $16,000. The year 2022 has essentially been a crypto disaster.
Or, in the words of economist Noelle Acheson, “the year in which the leverage-inflated bubble burst, exposing the structural flaws of an industry that had grown too big, too fast.”
