Daily Management Review

Cryptoverse: Farewell To The Year That Bitcoin Crashed


Cryptoverse: Farewell To The Year That Bitcoin Crashed
A stumbling Bitcoin entered 2022. The year comes to a close with it slouched in an alleyway, stripped of its cocktail of borrowed funds and leveraged bets, and shunned by the establishment.
The most valuable cryptocurrency has lost 60% of its value, and the entire crypto market has shrunk by $1.4 trillion as a result of falling risk appetite, rising interest rates, and business failures like Sam Bankman-FTX. Fried's
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, illustrating how mainstream finance avoided the market during its "annus horribilis."
According to James Malcolm, head of FX strategy at UBS, he spent 70% of the first half of the year conversing with clients.
Comparatively, last month while traveling for 10 days across North America from Montreal to Miami, "I spent less than 2% of my time discussing crypto."
Cryptocurrencies were realistically seen as being two or three years away from being accepted by mainstream institutional investors even last year, before the decline started in November, Malcolm continued.
The Ethereum blockchain finally completed its "Merge" mega-upgrade in 2022, switching it to a less energy-intensive "proof of stake" system in September. So, it hasn't all been bad news for cryptocurrencies.
"This event was a technological feat and one of the lone positive events in a year that otherwise has been rather dark for crypto," said Anthony Georgiades, co-founder of the Pastel Network blockchain.
"These upgrades will make the Ethereum ecosystem far easier to use for people all around the world. Because of all this progress, it's hard not to be a crypto optimist going into 2023."
The rise in popularity of blockchain-based tools like decentralized exchanges and decentralized finance, according to Ben McMillan, chief investment officer at IDX Digital Assets, has also been a significant development this year.
"So that is very bullish for the ecosystem and something to keep an eye on long-term," he added. "We could see bigger allocations to digital assets once risk appetite resumes in 2023."
In November 2021, Bitcoin reached a record high of $69,000 and the cryptocurrency market reached $3 trillion, supported by fiscal and monetary stimulus from nations around the world attempting to mitigate the negative economic effects of COVID lockdowns.
Inflation rose sharply as societies reopened, forcing central banks to raise interest rates and driving investors away from higher-risk assets like tech stocks and cryptocurrencies.
Because of the limited supply, Bitcoin has long been hailed as a useful store of value during periods of inflation. However, during the test, investors flocked to tried-and-true safe havens like the dollar as rates rose. It decreased by about a third in January, outperforming a decline of 8% for American stocks.
"2022 was a new environment for digital assets. They've never been around in a recession or a rising-rates environment," said Katie Talati, director of research at digital asset firm Arca.
Major projects were put under stress as investors withdrew their money from cryptocurrencies. The so-called "stablecoin" terraUSD and its sister luna were the first to be compromised. In May, the value of the coins fell, causing an estimated $42 billion loss for investors around the world.
The US crypto lender Celsius froze customer assets in June and revealed a $1.2 billion hole as it filed for bankruptcy, sending shockwaves through the market. The same month, the Singapore-based cryptocurrency hedge fund Three Arrows Capital failed.
Over half of the value of Bitcoin and other tokens fell in just 49 days starting at the end of May. Bitcoin experienced its worst day since March 2020, when COVID chaos roiled the financial markets, when it lost over 15% in a single day in June.
The greatest crypto shock, however, was yet to come.
Major exchange FTX abruptly filed for bankruptcy in November. In less than four days, Bitcoin fell by a quarter as Bankman-Fried scurried for cash to save his exchange.
The price of the cryptocurrency is currently around $16,000. Overall, 2022 has largely been a crypto disaster.
Also known as "the year that the leverage-inflated bubble popped, exposing the structural flaws of an industry that had grown too big, too fast," according to economist Noelle Acheson.