Cryptocurrency: 2022, In A Nutshell

If you thought that bear invading the crypto town was bad enough, the arrival of a series of collapses unexpectedly dragged you right down to the bottom. As we’re moving forward to a hopefully better future, take a moment to review the wild ride the crypto market has been through in 2022.

Cryptocurrency Meltdown

There’s one quote I fancy in a Netflix series (which I failed to remember its name) – “when you’re up that high, the only way is down.” And that seems true when it comes to the cryptocurrency market.

Bitcoin dropped drastically from its November peak to around $16,800 at the time of writing. Changes were brutal and most likely linked together. Part of the cause lies in the moderate correlation between Bitcoin and the stock market (Nasdaq) which is affected by the rise of interest rates.

As Bitcoin tended to follow the downtrend, altcoins found themselves in struggles. The entire market has experienced a serious setback since the beginning of the year. Ethereum (ETH), the second-largest cryptocurrency dropped by almost 70% year-to-date. At the same time, Solana (SOL) took a deep dive, plunging over 90% during the year.

There is some degree of correlation. But since we’ve been more drawn to correlation, we’ve allowed it to foreshadow some separate moments. The fact that the bear trend has existed since November 2021 when the stock hadn’t even tanked yet suggests that Bitcoin wouldn’t always follow tech stocks.

Investors are looking for signs of a rebound in a faltering economy. Unfortunately, the winter will likely extend to the end of 2023, as Coinbase’s report suggested, mostly due to the recent collapse of FTX that shook the market foundation to its core.

Cruel Expositions

If the crypto market is a MET Gala, this year’s theme could be “liquidity crisis.”

As much as I love fashion, and of course revolutionary prospect of cryptocurrencies, the liquidity crisis is far from my preferred expectation.

To sum up, the catastrophes were initially formed by the collapse of Terra (LUNA), fueled by the bankruptcies of Three Arrows Capital (3AC), Celsius, and Voyager Digital, and eventually left the whole market traumatized with FTX’s demise.

In May 2022, TerraUSD (UST), the algorithmic stablecoin developed by Terraform Labs, de-pegged, leading LUNA to the death spiral, and the price of LUNA plummeted by 91% in 24 hours. Panic sales arose as investors quickly swapped to other stablecoins while the price kept falling.

The collapse of Terra brought its mates misfortunes. Shortly afterward, the news of 3AC in liquidation and the bankruptcy announcement of Celsius Network and Voyager Digital were splashed in headlines across all the publications.

But the pressure pot ultimately exploded when FTX made the grand finale in November 2022. Alameda Research, an investment branch of the former top exchange was reportedly on the brink of insolvency, according to Coindesk.

Rumors turned into reality with FTX’s filing for bankruptcy. As a matter of consequence, the fallout left far-reaching effects on other projects holding a close connection to FTX, including BlockFi. The list of followers of the FTX contagion is expected to go on.

The good thing is that the power of the laws came into effect – the disgraced founder of FTX Sam Bankma-Fried is currently facing 8 criminal charges including fraud, conspiracy, and money laundering. But luck might be still on the side of Do Kwon, Terraform Labs’ co-founder Do Kwon.

Growing Adoption

The market setback might challenge the trust of people, but it doesn’t completely deter global enthusiasm. Crypto adoption is right in progress just as it should. Ironically, macroeconomic pressure negatively influenced the price but turned out to stimulate institutional and national interest.

A large number of banks such as Wells Fargo, Bank of America, and tech giants like PayPal, and Microsoft started to add crypto-related services to their offering systems. It seems just a matter of time until financial institutions sink their teeth into the realm of innovations.

Additionally, 2022 is also a year of crypto regulatory boost. The most significant is the Markets in Crypto-assets Regulation (MiCA) which was previously passed by the E.U. By establishing a certain level of enforcement on crypto businesses, the new laws are expected to bring protection to customers, and ensure market transparency while enabling innovations to grow.

Disclaimer: Website content is for informational purposes only and should not be considered investment advice.