No doubt, 2022 has been a hectic yearfor the global cryptocurrency industry. At the start of the year, the market capitalization of the globalcryptocurrency industry stood at $2.19 trillion dollars. However,the market cap collapsed by 63% to about $820.7 billion by mid-June, bearingscars of the wide turn of events that had taken the industry bystorm.
This trails back to 2021, when central banks across theworld implemented expansionary fiscal policies to boost economic recoveryfollowing the battering of COVID-19. These measures boosted the growth of the digital asseteconomy, leading to record highs for leading cryptocurrencies, such as Bitcoin andEther.
However, by early 2022, the apexauthorities begin to implement contractionary fiscal policies to combat global inflation, thereby killing investors’ appetite for speculative assets. On June 13, for instance, the stock market entered a bear market, witnessing one of its worst performances in 40 years. This change in the macroeconomic climate spelt doom for the cryptocurrency industry as the pressure ontraditional assets rubbed off its digital currency counterparts.
Following the breakout of theRussian-Ukraine war in February and the role digital assets played in enablingfinancial circumvention, came the first industry shock in March: the AxieInfinity hack. The attack on the Ronin Network, the blockchain-based sidechainthat powers the non-fungible token-based online gaming video, saw hackers part waywith $625 million. Other hacks would follow in the year.
However, what truly shook the globalcryptocurrency industry was the collapse of the Terra-USD (UST) /LUNA.In April 2022, TerraUSD capped its months-long growth, reaching a record highof $119.20 in April. However, economic pressure took hold of the market and onMay 9, the UST started to fall below its $1 peg. By May 13th, the algorithmicstablecoin had fallen as low as 35 cents for $1. The governance token LUNA,which was used to maintain the stalecoin’s peg to the US dollar, also felt theheat, sinking by 96% in a day to under 10 cents by May 12th.
“The Terra Luna situation in thespring was a poorly constructed stablecoin selling off steeply and quickly onceit lost its peg, and the lesson is that there has never been long-term successstory for an algorithmic stablecoin, so sticking to the ones that have real,hard assets or provable fiat holdings underpinning the coin is likely the bestpath forward for the category,” Ryan Hansen, the Head of Sales at Liquid Mercury,told Finance Magnates.
The tides that swallowed Terra/LUNA swept crypto lenders Celsius Network and Voyager Digital which had lentfunds to crypto hedge funds such as Three Arrows Capital (3AC) that had takenover leveraged positions during the market highs. As a result, the hedge fundsand crypto lenders went bankrupt, forced by the ensuing liquidity crisis andwithdrawal frenzy among customers.
“There was excessive optimism duringBitcoin's bull market, with many in the industry expecting the Bitcoin price toreach $100k by the middle of 2022. This led companies to hold Bitcoins ratherthan dollars in their reserves, which unintentionally made them dependent oneach other's success,” the Lead Developer at Seasonal Tokens, who uses the pseudonym Ruadhan O., told Finance Magnates.
Ruadhan added: “When Terra/Luna got into trouble, itwas necessary to liquidate Bitcoins to try to survive. That destroyed the valueof the reserves of many other big players and led to a cascade of business failuresthat further depressed the price."
In the aftermath of the collapse ofseveral crypto lenders, Sam Bankman-Fried, the Co-Founder and then-CEO of FTX,went on several rescue missions to save collapsing crypto enterprises. Theexchange, once the fastest-growing, in July offered to provideearly liquidity to Voyager’s customers. Additionally, FTX.US, the exchange’s United States subsidiary, offered to buy American crypto lender BlockFi for $240,000. In addition,the exchange acquired Liquid Group, GoodLuck Games and Bitvo.
Check out the recent Finance Magnates London Summit 2022 session on what the future holds for digital assets.
Furthermore, tough macroeconomic conditions contributed to the crypto winter, which saw the prices of cryptocurrencies sink torecord lows. For instance, the price of Bitcoin slumped 14% to under$24,000, which is the lowest since December 2020. As a result, major cryptoactors, including Coinbase, Gemini and now-bankrupt BlockFi announced jobcuts. Experts who spoke toFinance Magnates attributed the mass retrenchment to unpreparedness on the partof these stakeholders. Regardless of this, the ‘deep pockets’ of FTX and Binance enabledthem to expand and thrive amidst the drought. But, who won during the crypto winter:Binance or FTX? The answer would come in earnest.
However, in the midst of the crypto winter in summer, The Ethereum Merge, orthe hard fork of the Ethereum blockchain technology from Proof-of-Work toProof-of-Stake, was completed on September 15th. Finance Magnatesreported that investors continue to thread a cautious path despite the significant event.
While FTX appeared as if headed forindustry dominance, its bubble soon burst. In November, a CoinDesk reportrevealed that the Bahamas-headquartered crypto firm was propping its businesswith customers' funds from sister quantitative trading firm Alameda Research. The news, in addition to Binance’s decision to withdraw its FTX Tokensholding, threw FTX into a liquidity crisis that saw the firm runninghelter-skelter for rescue capital. Binance would later abandon a deal to takeover the exchange, citing concerns with its finances. Later, FTX filed for bankruptcyprotection in the US, and Bankman-Fried resigned as the crypto exchange’s CEO.The collapse of the exchange is estimated to have cost investors over $8billion in losses.
Pawel Andruszkiewicz, theChief Operating Officer of VAIOT, believes that the failure of FTX is evidence that "crypto business around the worldoperates in a ‘wild west’ sort of style." He further explained: "They do not have to adhere to anyrules or standards. They are rarely audited from information security,technical or financial management perspectives. They are often founded bydevelopers or technology enthusiasts who need to gain experience runningcompanies and their muti-faceted operations."
In the latest update, Bankman-Friedwas arrested in Bahamas and extradited to the US where he has been charged withfraud by the US Securities and Exchange Commission and the Commodity Futures Trading Commission. However, he was recently released on a $250 million personalrecognizance bond.
Pedro Isaac Lopez, the Chief Growth Officer at THORWallet DEX, believes that "backlash and negative sentiment" that trailed the FTX scandal "will be tough to shake off." He added that "it is not a fatal blow." "There are brilliant people innovating in this space worthy of public trust. Itis their duty to prop up the authentic use cases in DeFi and regain thattrust,” Lopez said.
However, despite these events, arecent study by Eurex, one of the world’s largest derivatives exchanges, foundthat institutional adoption of cryptocurrency is still on track this yeardespite extreme price declines and crypto businesses’ failures that defined themarket this year.
“I would imagine that mostinstitutions believe that crypto is here to stay, and some may even be lookingat this crash as a buying opportunity. Crypto is no longer a completely tabooor fringe asset class. Polygon just struck deals with Starbucks and Disney,”Frank Corva, a Senior Analyst for Digital Assets at Finder, told FinanceMagnates.
Sendi Young, the ManagingDirector for Europe at Ripple, also believes that institutional adoption of blockchain and digital assets will accelerate ascorporations launch pilots and continue to investigate the technology.
"Banksare no longer questioning whether they require a crypto strategy but areinstead asking themselves what their crypto strategy should be. There is arecognition from traditional financial institutions that the technology is hereto stay, creating opportunities to bring greater efficiencies, transparency andspeed to existing financial infrastructure,” Young explained
For the most part, the events of 2022 are keeping regulators on their toes. OnJune 30th, the European Union reached a provisional agreement on theMarkets in Crypto-Assets (MiCA) regulation which seeks to put an end to the‘crypt wild west’ in Europe. However, Finance Magnates reports that the regulation first has to drive uniformity across thecontinent’s fragmented crypto landscape.
In the United States, federallawmakers have introduced bills that are seeking to regulate stablecoins and othercypto assets and enshrine consumer protection. This is even as President Joe Biden’s executiveorder on digital asset regulation in March marked an importantphase of cryptocurrency regulation in the US. But, how will these shape out?
Jez Mohideen, the Co-Founder and CEO of Laser Digital,the digital arm of Nomura Bank, considers that what needs to happen is a pushtoward standards across multiple jurisdictions to allow for crypto establishments towork together "in well-defined, transparent ways."
"Lawmakers need to view Web3and DeFi as extensions of the existing economy, rather than a separate entity.The nuances of this space should be considered, as well as theinterdependencies of platforms both in cryptocurrency and their connection tolegacy offerings,” Mohideen explained.
Across the world, the race forcentral banks' digital currencies continued with the launch of new experimentalprojects in the United States and across Europe including in Spain. Central banks are alsolooking to impose limits on banks’ exposure to crypto assets by 2025.
“It is important that a fine balance be struck between theimposition of rules and a softer 'first do no harm' approach. Regulators mustbe careful to ensure that the industry remains user friendly," Doug Brooks, a Senior Advisor at XinFin for the XDC Network,told Finance Magnates. "Regulation isright and much needed right now, but over-regulation will stifle future growthand innovation,” Brooks added.
In a year like 2022, full of dramaand industry-defining events, how will the cryptocurrency industry play out in2023? Experts who spoke to Finance Magnates believe that crypto regulation willbe a big part of 2023. Others think the storm might not be over just yet.
“I strongly believe that 2023 will bethe year for institutional adoption on a global scale of stablecoins and biggertransparency in the market and we’re here for it,” Simone Mazzuca, the CEO & Co-Founder of Wallex Custody, toldFinance Magnates. "On the regulatory side, Iexpect to see a speeded advance in regulatory measures, driven by all thathappened in 2022," Mazzuca added.
For Frank Corva, a SeniorAnalyst for Digital Assets at Finder, it would not be surprising if a new handful of firms blow up in the next year. This might happen "before the dust in the crypto spacetotally settles," Corva said.
"Many are still waiting anxiously to see whether cryptoborrowing and lending firm Genesis – the firm that powers crypto exchangeGemini’s Earn program – will process the $900 million in redemptions that itowes Gemini Earn customers. If it doesn’t process these redemptions and if itgoes under, these events may trigger the next wave of liquidations. So, theremay be more pain to come in the first quarter of 2023."
No doubt, 2022 has been a hectic yearfor the global cryptocurrency industry. At the start of the year, the market capitalization of the globalcryptocurrency industry stood at $2.19 trillion dollars. However,the market cap collapsed by 63% to about $820.7 billion by mid-June, bearingscars of the wide turn of events that had taken the industry bystorm.
This trails back to 2021, when central banks across theworld implemented expansionary fiscal policies to boost economic recoveryfollowing the battering of COVID-19. These measures boosted the growth of the digital asseteconomy, leading to record highs for leading cryptocurrencies, such as Bitcoin andEther.
However, by early 2022, the apexauthorities begin to implement contractionary fiscal policies to combat global inflation, thereby killing investors’ appetite for speculative assets. On June 13, for instance, the stock market entered a bear market, witnessing one of its worst performances in 40 years. This change in the macroeconomic climate spelt doom for the cryptocurrency industry as the pressure ontraditional assets rubbed off its digital currency counterparts.
Following the breakout of theRussian-Ukraine war in February and the role digital assets played in enablingfinancial circumvention, came the first industry shock in March: the AxieInfinity hack. The attack on the Ronin Network, the blockchain-based sidechainthat powers the non-fungible token-based online gaming video, saw hackers part waywith $625 million. Other hacks would follow in the year.
However, what truly shook the globalcryptocurrency industry was the collapse of the Terra-USD (UST) /LUNA.In April 2022, TerraUSD capped its months-long growth, reaching a record highof $119.20 in April. However, economic pressure took hold of the market and onMay 9, the UST started to fall below its $1 peg. By May 13th, the algorithmicstablecoin had fallen as low as 35 cents for $1. The governance token LUNA,which was used to maintain the stalecoin’s peg to the US dollar, also felt theheat, sinking by 96% in a day to under 10 cents by May 12th.
“The Terra Luna situation in thespring was a poorly constructed stablecoin selling off steeply and quickly onceit lost its peg, and the lesson is that there has never been long-term successstory for an algorithmic stablecoin, so sticking to the ones that have real,hard assets or provable fiat holdings underpinning the coin is likely the bestpath forward for the category,” Ryan Hansen, the Head of Sales at Liquid Mercury,told Finance Magnates.
The tides that swallowed Terra/LUNA swept crypto lenders Celsius Network and Voyager Digital which had lentfunds to crypto hedge funds such as Three Arrows Capital (3AC) that had takenover leveraged positions during the market highs. As a result, the hedge fundsand crypto lenders went bankrupt, forced by the ensuing liquidity crisis andwithdrawal frenzy among customers.
“There was excessive optimism duringBitcoin's bull market, with many in the industry expecting the Bitcoin price toreach $100k by the middle of 2022. This led companies to hold Bitcoins ratherthan dollars in their reserves, which unintentionally made them dependent oneach other's success,” the Lead Developer at Seasonal Tokens, who uses the pseudonym Ruadhan O., told Finance Magnates.
Ruadhan added: “When Terra/Luna got into trouble, itwas necessary to liquidate Bitcoins to try to survive. That destroyed the valueof the reserves of many other big players and led to a cascade of business failuresthat further depressed the price."
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In the aftermath of the collapse ofseveral crypto lenders, Sam Bankman-Fried, the Co-Founder and then-CEO of FTX,went on several rescue missions to save collapsing crypto enterprises. Theexchange, once the fastest-growing, in July offered to provideearly liquidity to Voyager’s customers. Additionally, FTX.US, the exchange’s United States subsidiary, offered to buy American crypto lender BlockFi for $240,000. In addition,the exchange acquired Liquid Group, GoodLuck Games and Bitvo.
Check out the recent Finance Magnates London Summit 2022 session on what the future holds for digital assets.
Furthermore, tough macroeconomic conditions contributed to the crypto winter, which saw the prices of cryptocurrencies sink torecord lows. For instance, the price of Bitcoin slumped 14% to under$24,000, which is the lowest since December 2020. As a result, major cryptoactors, including Coinbase, Gemini and now-bankrupt BlockFi announced jobcuts. Experts who spoke toFinance Magnates attributed the mass retrenchment to unpreparedness on the partof these stakeholders. Regardless of this, the ‘deep pockets’ of FTX and Binance enabledthem to expand and thrive amidst the drought. But, who won during the crypto winter:Binance or FTX? The answer would come in earnest.
However, in the midst of the crypto winter in summer, The Ethereum Merge, orthe hard fork of the Ethereum blockchain technology from Proof-of-Work toProof-of-Stake, was completed on September 15th. Finance Magnatesreported that investors continue to thread a cautious path despite the significant event.
While FTX appeared as if headed forindustry dominance, its bubble soon burst. In November, a CoinDesk reportrevealed that the Bahamas-headquartered crypto firm was propping its businesswith customers' funds from sister quantitative trading firm Alameda Research. The news, in addition to Binance’s decision to withdraw its FTX Tokensholding, threw FTX into a liquidity crisis that saw the firm runninghelter-skelter for rescue capital. Binance would later abandon a deal to takeover the exchange, citing concerns with its finances. Later, FTX filed for bankruptcyprotection in the US, and Bankman-Fried resigned as the crypto exchange’s CEO.The collapse of the exchange is estimated to have cost investors over $8billion in losses.
Pawel Andruszkiewicz, theChief Operating Officer of VAIOT, believes that the failure of FTX is evidence that "crypto business around the worldoperates in a ‘wild west’ sort of style." He further explained: "They do not have to adhere to anyrules or standards. They are rarely audited from information security,technical or financial management perspectives. They are often founded bydevelopers or technology enthusiasts who need to gain experience runningcompanies and their muti-faceted operations."
In the latest update, Bankman-Friedwas arrested in Bahamas and extradited to the US where he has been charged withfraud by the US Securities and Exchange Commission and the Commodity Futures Trading Commission. However, he was recently released on a $250 million personalrecognizance bond.
Pedro Isaac Lopez, the Chief Growth Officer at THORWallet DEX, believes that "backlash and negative sentiment" that trailed the FTX scandal "will be tough to shake off." He added that "it is not a fatal blow." "There are brilliant people innovating in this space worthy of public trust. Itis their duty to prop up the authentic use cases in DeFi and regain thattrust,” Lopez said.
However, despite these events, arecent study by Eurex, one of the world’s largest derivatives exchanges, foundthat institutional adoption of cryptocurrency is still on track this yeardespite extreme price declines and crypto businesses’ failures that defined themarket this year.
“I would imagine that mostinstitutions believe that crypto is here to stay, and some may even be lookingat this crash as a buying opportunity. Crypto is no longer a completely tabooor fringe asset class. Polygon just struck deals with Starbucks and Disney,”Frank Corva, a Senior Analyst for Digital Assets at Finder, told FinanceMagnates.
Sendi Young, the ManagingDirector for Europe at Ripple, also believes that institutional adoption of blockchain and digital assets will accelerate ascorporations launch pilots and continue to investigate the technology.
"Banksare no longer questioning whether they require a crypto strategy but areinstead asking themselves what their crypto strategy should be. There is arecognition from traditional financial institutions that the technology is hereto stay, creating opportunities to bring greater efficiencies, transparency andspeed to existing financial infrastructure,” Young explained
For the most part, the events of 2022 are keeping regulators on their toes. OnJune 30th, the European Union reached a provisional agreement on theMarkets in Crypto-Assets (MiCA) regulation which seeks to put an end to the‘crypt wild west’ in Europe. However, Finance Magnates reports that the regulation first has to drive uniformity across thecontinent’s fragmented crypto landscape.
In the United States, federallawmakers have introduced bills that are seeking to regulate stablecoins and othercypto assets and enshrine consumer protection. This is even as President Joe Biden’s executiveorder on digital asset regulation in March marked an importantphase of cryptocurrency regulation in the US. But, how will these shape out?
Jez Mohideen, the Co-Founder and CEO of Laser Digital,the digital arm of Nomura Bank, considers that what needs to happen is a pushtoward standards across multiple jurisdictions to allow for crypto establishments towork together "in well-defined, transparent ways."
"Lawmakers need to view Web3and DeFi as extensions of the existing economy, rather than a separate entity.The nuances of this space should be considered, as well as theinterdependencies of platforms both in cryptocurrency and their connection tolegacy offerings,” Mohideen explained.
Across the world, the race forcentral banks' digital currencies continued with the launch of new experimentalprojects in the United States and across Europe including in Spain. Central banks are alsolooking to impose limits on banks’ exposure to crypto assets by 2025.
“It is important that a fine balance be struck between theimposition of rules and a softer 'first do no harm' approach. Regulators mustbe careful to ensure that the industry remains user friendly," Doug Brooks, a Senior Advisor at XinFin for the XDC Network,told Finance Magnates. "Regulation isright and much needed right now, but over-regulation will stifle future growthand innovation,” Brooks added.
In a year like 2022, full of dramaand industry-defining events, how will the cryptocurrency industry play out in2023? Experts who spoke to Finance Magnates believe that crypto regulation willbe a big part of 2023. Others think the storm might not be over just yet.
“I strongly believe that 2023 will bethe year for institutional adoption on a global scale of stablecoins and biggertransparency in the market and we’re here for it,” Simone Mazzuca, the CEO & Co-Founder of Wallex Custody, toldFinance Magnates. "On the regulatory side, Iexpect to see a speeded advance in regulatory measures, driven by all thathappened in 2022," Mazzuca added.
For Frank Corva, a SeniorAnalyst for Digital Assets at Finder, it would not be surprising if a new handful of firms blow up in the next year. This might happen "before the dust in the crypto spacetotally settles," Corva said.
"Many are still waiting anxiously to see whether cryptoborrowing and lending firm Genesis – the firm that powers crypto exchangeGemini’s Earn program – will process the $900 million in redemptions that itowes Gemini Earn customers. If it doesn’t process these redemptions and if itgoes under, these events may trigger the next wave of liquidations. So, theremay be more pain to come in the first quarter of 2023."
