Bitcoin and cryptocurrencies collapsed in 2022 amid a series of crises, bankruptcies and market turmoil, while a lack of regulation and accountability undermined investor confidence in digital currencies and tokens.
Cryptocurrencies are often called “Aya!” has had a strong start to the year with high optimism from crypto enthusiasts who use the phrase. For Bitcoin and many altcoins – famous and unknown.
But macroeconomic uncertainty, interest rate hikes by the US Federal Reserve and other central banks, and record inflation have slowly dampened those high hopes.
While cryptocurrency proponents saw Bitcoin and others as a hedge against record inflation and devaluations in fiat currencies like holding gold and silver against inflation, that idea was quickly dismissed as cryptocurrencies started to fall in the second quarter.
While aggressive monetary tightening and interest rate hikes by central banks have reduced the amount of liquidity in the markets, they have also discouraged new investment, particularly in the technology sector.
The cryptocurrency market was highly correlated with the Nasdaq in late 2021, and the tech-heavy index fell a massive 34.3% in 2022 on Wednesday.
On Thursday, the total market cap of the cryptocurrency market fell to $792.7 billion, down nearly 65% from $2.25 trillion in 2021. According to the data compiled by Anadolu Agency, the market has evaporated more than 1.4 trillion dollars this year.
The cryptocurrency market cap reached $3 trillion in November 2021, but more than $2.2 trillion has been wiped since then.
Bitcoin’s dominant share of the cryptocurrency market was around 40% on Thursday, and its decline has a strong impact on other digital currencies and tokens.
The price of bitcoin rose 64% this year to around $16,630 on Thursday after ending last year at $46,224. The world’s largest cryptocurrency by market capitalization reached its all-time high of almost $48,163 on March 28, but is down 65.5% from that figure.
Ethereum was trading around $1,200 on Thursday, down 67.4% from its 2021 high of $3,677. The world’s second-largest cryptocurrency by market cap and largest altcoin hit almost $3,889 on January 4, but is down 69% from that level.
Luna stablecoin crash
Several crises involving stablecoins and exchanges also added fuel to the fire, setting the crypto market on fire.
The cryptocurrency market saw $1 trillion evaporate in the five weeks starting in early May as Bitcoin fell below $29,000 — a 16-month low.
TerraUSD, or UST, a stablecoin originally developed by Singapore-based Terraform Labs in 2018 to be pegged at $1, fell below $0.26 on May 11, sparking fear, uncertainty and doubt among cryptocurrency enthusiasts.
While other popular stablecoins use reserve funds and various assets to manage a 1-to-1 ratio against the dollar to offer stability and prevent volatility. UST, on the other hand, uses the Luna sister token burning and minting algorithm, which allows UST to regulate its supply and control the price close to $1.
With the UST price in free fall, more Luna was ignited by the Luna Foundation Guard to support the UST price.
Despite the efforts, Luna, once a top 10 coin, lost more than 95% of its value within days, while crypto investors worried that the organization would dump billions of Bitcoins it owned to support UST.
Such fears were realized a week later when the organization revealed that it had sold at least $2.1 billion worth of Bitcoin in 10 days, prompting a rapid decline in the value of other cryptocurrency coins and tokens.
US Treasury Secretary Janet Yellen immediately called on American lawmakers to control stablecoins after the TerraUSD price plunge.
In early November, FTX, once the world’s third-largest cryptocurrency exchange by volume, was in a “significant liquidity crunch,” according to Binance CEO Changpeng Zhao.
FTX approached rival Binance for an acquisition, but the world’s largest cryptocurrency exchange by volume backed out of the deal. This led to a huge sell-off in the cryptocurrency market and pushed the price of Bitcoin below $16,000 that month.
Gary Gensler, head of the US Securities and Exchange Commission (SEC), said on December 7 that cryptocurrency companies that facilitate transactions in the market must comply with existing laws. “The runway is getting shorter and shorter” between crypto firms’ SEC compliance and enforcement, he said.
A week later, FTX’s new CEO, John J. Ray III, told the House Financial Services Committee that the company had “unacceptable management practices” under former CEO Sam Bankman-Fried.
While the SEC charged Bankman-Fried on Dec. 13 with defrauding investors, two of its partners, co-founder and former CTO Gary Wang and former Alameda Research CEO Caroline Ellison, were charged with conspiracy to commit wire fraud, wire fraud, and money laundering. pleaded guilty to federal charges. fraud and securities fraud.
Bankman-Fried was extradited from the Bahamas to the United States on December 22 and immediately taken to the District Court for the Southern District of New York.
He has been released on $250 million bail and is due to appear in court in Manhattan on January 3, facing eight charges.
Fraudulent activities, online scams, massive hacks, bankruptcies, and global celebrities promoting failed coins and tokens were other crises during the highly unregulated and decentralized cryptocurrency market.
Singapore-based cryptocurrency hedge fund Three Arrows Capital became the first major crypto company to go bankrupt this year on July 3, losing more than $3 billion in 2021 and 2022.
Three Arrows Capital’s demise caused an immediate domino effect as it defaulted on more than $660 million in loans to cryptocurrency firm Voyager Digital, which filed for Chapter 11 bankruptcy protection on July 5.
In June, the Celsius Network crypto credit firm, which managed $12 billion in assets, also filed for bankruptcy on July 13.
Digital asset lender BlockFi filed for bankruptcy on Nov. 28, two weeks after announcing it had “significant exposure” to FTX.
2022 could be remembered as the “crypto winter” and a major turning point for Bitcoin and cryptocurrencies – either with high hopes turning into dashed dreams for investors, or with lessons learned in an unregulated market with early technology still taking baby steps.
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