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There’s a phrase that cryptocurrency enthusiasts use to cross their fingers in the hope that the value of a particular digital currency will rise: “Moon!”
By early 2022, when enthusiasm was astronomically high, most of the cryptosphere would graze the stratosphere, but a few months later it would all fall to Earth.
Bitcoin’s value is roughly a quarter of what it was a year ago, and the industry is just beginning to grapple with the aftermath of the catastrophic FTX explosion.
In the future, 2022 could be seen as a turning point for the world of virtual currencies, as they have lost their luster and are treated with skepticism and caution by most people. Or it could simply be remembered as excruciating growing pains for an industry still in its infancy.
Regardless, 2022 has been a year for the cryptocurrency history books.
How did it start?
Advertisements were everywhere – on TV, at bus stops and even on fortune cookies. Crypto companies flooded the Super Bowl with ads, spending tens of millions of dollars on marketing. Currencies and tokens may be virtual, but in the early months of the year, cryptocurrencies became more real to many Americans.
Cryptocurrency skeptic Molly White of Harvard University says the industry reached “peak hype” in January and February. He runs the Web3 is Going Just Great site.
“Prices were at an all-time high,” he says. “People were making irrational amounts of money.”
The value of the most popular cryptocurrency, bitcoin, had just hit a record high, and the industry was trying to “make itself mainstream,” as White put it. In other words, crypto companies were doing their best to attract more customers.
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Paris Hilton, a woman who defines fashion trends more than finances, appeared The Tonight Show Starring Jimmy Fallon in January. After recently talking about her marriage and trip to Burning Man, the former reality TV star went deep into NFTs, or non-workable signs, she’s been hawking.
The audience looked a little confused when he promised, Oprah-style, to give each one an NFT — another type of digital asset that’s basically cartoon cryptocurrency art. They cheered as Fallon, himself an NFT enthusiast, was stunned.
Although it was “pure hype”, it rose rapidly.
How is it going?
Like everything in finance, cryptocurrency saw its price rise when the Federal Reserve began raising interest rates to combat high inflation.
This shocked many of bitcoin’s biggest backers, many of whom believed the virtual currency would be an inflation hedge like gold. They predicted that bitcoin would increase in value during a period of high inflation; fell instead.
The so-called “crypto winter” – the ongoing recession – began before 2022, even halfway.
“You know, we’ve been living in ‘crypto winter’ for the better part of a year,” says Lee Reiners, who teaches cryptocurrency law at Duke University.
Individual investors, especially people who bought digital assets near the highs, suffered. But according to Reiners, the crypto winter has also revealed larger, systemic problems in the industry.
“It really exposed a number of crypto firms that were, you know, overextended, had poor risk management, or were otherwise engaged in fraudulent activities,” he said.
In May, a series of failures began: a pair of cryptocurrencies called Terra and Luna, the trading platform Voyager, a crypto hedge fund called Three Arrows Capital, BlockFi, Celsius …
The list goes on and highlights something problematic about cryptocurrency, according to Reiners.
“These firms are deeply interconnected, and so the moment you have a problem in the crypto sector, it spreads very, very quickly,” he says.
Financial regulators also began to press. They even went after another celebrity for how he promoted “EMAX tokens”. None other than Kim Kardashian had to settle with the Securities and Exchange Commission In October for more than $1 million.
And what will happen next
This brings us to FTX.
At the beginning of 2022, the value of the crypto company was 32 billion dollars. Now it’s bankrupt, more than a million people are worried their money has disappeared, and the company’s founder, Sam Bankman-Fried, has been charged with criminal fraud.
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Bankman-Fried created a character that made her memorable and seemingly approachable, with crazy hair and a penchant for wearing shorts and a T-shirt. His goal was to get more everyday people to buy cryptocurrency and more traditional Wall Street firms and funds to invest in it.
The 30-year-old was so successful in bringing cryptocurrency to the masses that he was considered the industry’s unofficial spokesperson. He is currently under house arrest at his parents’ home in Palo Alto, California.
Reiners calls the rapid and complete collapse of FTX “the biggest event in the history of crypto” – he adds that it was “filled with many failures and frauds and scams and hacks.”
Now people are wondering what the next domino could be.
Binance is the world’s largest cryptocurrency exchange, and after a few big waves of panic, it has the potential to become that domino.
But the company is generally pushing back against fears and cryptocurrency skepticism. It’s necessary, White said.
“If people start questioning the industry as a whole or cryptocurrency as an asset class, that’s devastating for Binance,” he said. “So they’re doing everything they can to prevent that from happening.”
For many, it’s confusing to see how quickly crypto’s fortunes have reversed, and they struggle to gauge the depth of the damage from FTX.
“I think cryptocurrencies would be lucky if they all retreated [was] several years,” White says.
True believers expect bitcoin to bounce back and melt away at the end of this “crypto winter.”
But for people who are not deeply interested in cryptocurrency – perhaps those who saw ads or were driven by the fear of losing engagement in buying tokens – it’s a different story, especially with the daily revelations of Bankman-Fried’s former colleagues about how client money was transferred from FTX. own pockets.
“I think people are starting to think of crypto as this big scam where they don’t want anything,” says White.
And that poses an existential problem for cryptocurrency, he adds. Because in order for it to work, it requires an ever-increasing stream of people to keep buying it.