Cryptocurrency of the year and stepping into 2023

As we enter 2023, it is time to pause and reflect on the achievements and struggles the global cryptocurrency community has witnessed over the past 365 days. Starting in early 2022, no investment strategy can help restore portfolios that fall between the traditional and cryptocurrency ecosystems. January 2022 bequeathed a somewhat collapsed market, where investments at all-time highs in 2021 resulted in immediate losses.

For many, especially new entrants, falling cryptocurrency prices were seen as the end game. But what was widely overlooked was the community’s resilience and achievements in the face of the global recession, organized attacks and fraud, and an unforgiving bear market.

As a result of falling prices, 2022 also inherited the hype of 2021 around all-time highs for non-fungible tokens (NFTs), Metaverse, Bitcoin (BTC) and other cryptocurrencies.

World economies suffered massive inflation as the most influential fiat currencies succumbed to ongoing geopolitical pressures. Declining investor confidence in traditional markets has seeped into cryptocurrency, and falling ecosystems have only contributed to the bitter sentiment.

A year full of devastation

Amid weak market performance, the crypto community has focused on strengthening its core. This meant releasing blockchain improvements and delivering faster, cheaper, and more secure features and capabilities—all driven by the consensus of their respective communities. As a result, 2022 has been a landmark year for leading cryptocurrency ecosystems.

Bitcoin has received a much-requested upgrade to its Lightning Network (LN) protocol, the Lay-2 protocol. Thanks to the November 2021 update called Taproot, LN has improved privacy and efficiency. Bitcoin’s Taproot upgrade saw various protocol-level implementations to improve privacy and efficiency. It also helped reduce database sizes, an important factor in slowing the exploding Bitcoin ledger size.

By May 2022, Bitcoin was halfway through the next halving, an event that cuts mining rewards in half, the only way new Bitcoin can be released into supply. The reward for confirming Bitcoin transactions is halved every 210.00 blocks. Bitcoin’s last halving event occurred on May 11, 2020, when it traded at $9,200.

The total supply of Bitcoin is limited to 21 million by design. Therefore, the halving event further reduces the amount of Bitcoin that is marketed. The shortage due to the historic halving event worked in favor of the Bitcoin price.

True to the expectations of industry experts, Bitcoin rallied for several months to record an all-time high by November 2021 and could hold its value above $15,000 until the end of 2022, confirms data from Cointelegraph Markets Pro.

Bitcoin price during the last halving event. Source: CoinMarketCap

The Ethereum community welcomed the much-anticipated Merge upgrade, which saw the Ethereum blockchain transition from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism. The most significant effect of the improvement was a drastic reduction in energy consumption. The broader cryptocurrency community believes in this lower energy usage to reignite interest in Ether-power sub-ecosystems like NFTs.

Crypto sustainability versus traditional markets

History proves that two factors play a decisive role in the performance of the cryptocurrency market – the price of Bitcoin and investor sentiment. Both factors seemed to be lacking throughout the year.

Graph of crypto events against market capitalization. Source: CoinGecko

The cryptocurrency ecosystem has faced a series of attacks, unprecedented sanctions and bankruptcy filings, adding to the impact of the global recession on the market. In addition to poor price performance, the most common wounds for 2022 investors include the fall of FTX, 3AC, Voyager, BlockFi and Terraform Labs, where investors lost access to all their funds overnight.

In this turmoil, once-popular entrepreneurs have lost the trust of millions, namely former FTX CEO Sam Bankman-Fried and Terra co-founder and CEO Do Kwo.

Despite the additional hurdles, Bitcoin and the cryptocurrency ecosystem have not only survived but also demonstrated unprecedented resilience. Traditional store-of-value investments such as gold and stocks suffered a similar fate. Between January and December 2022, gold investors saw a net loss of 0.3%.

Major company stocks such as Apple (-25%), Microsoft (-29%), Google (-38%), Amazon (-49%), Netflix (-51%), Meta (-65) also performed poorly this year. . %) and Tesla (-65%).

Annual performance of traditional market goliaths. Source: LinkedIn

Bitcoin started strong in January 2022 with a price point of $47,680, but declining investor sentiment due to rising inflation, energy prices and market uncertainties throughout the year managed to push prices down more than 60% by December.

Laying the groundwork for a stronger foundation

Over time, bear markets have taken on the responsibility of weeding out bad actors and offering a chance for promising crypto projects to show their true value to investors beyond the price point.

The buzz around price volatility hasn’t stopped the Bitcoin network from strengthening its core against double-spending attempts, namely 51% attacks. Thanks to the widespread mining community, hash rate and network difficulty – two important security indicators based on computing power – have assured bitcoins that the blockchain network is well protected. Over the course of the year, the Bitcoin network consistently posted new all-time hash rate highs, ending the year in the 250-300 Exahashes per second (EH/s) range.

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Other prominent players in the cryptocurrency ecosystem have also released system and feature improvements as they prepare for 2023. For Polygon Technology, an Ethereum-based Web3 infrastructure, it was the launch of zkEVM, or zero-knowledge Ethereum Virtual Machine, layer-2. a scalable solution aimed at reducing operational costs and improving scalability. Decentralized finance (DeFi) aggregator 1inch Network has launched its Fusion upgrade to provide affordable, secure and profitable swaps for cryptocurrency investors.

El Salvador’s Bitcoin legalization has not gone unnoticed, especially considering that the country’s Bitcoin supply from 2021 shares the same fate as other crypto investors. Regardless, the President of El Salvador, Nayib Bukele, doubled down on this decision, as the country announced that it will receive BTC on a daily basis starting November 17th.

One of the immediate effects of this move is a decrease in El Salvador’s average purchase price. Buying the planned Bitcoin dips, combined with the market’s subsequent recovery, positions the country well to offset unrealized losses.

In countries with high inflation, Bitcoin has helped many individuals maintain their purchasing power.

Wait for the syringe to be returned

Although 2023 will not be lucky enough to witness the upcoming Bitcoin halving, it will play a crucial role in the comeback of the crypto ecosystem. With aggressive blockchain improvements, updated business strategies and investor vigilance back on the menu, the ecosystem is now gearing up for the next wave of disruption.

For investors, 2023 will be a year of recovery – from losses and lack of confidence to self-control and informed investments. “Making it” in cryptocurrency is no longer just about becoming an overnight millionaire; is to create, support and promote a new vision for the future of money.