Bitcoin and Digital Currencies Crash in Crypto Winter 2022 Amid Crises, Unrest and Bankruptcies

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ISTANBUL

Bitcoin and cryptocurrencies crashed in 2022 amid several crises, bankruptcies, and market turmoil, while a lack of regulation and accountability rocked investor confidence in digital currencies and tokens.

Cryptocurrencies started the year strong with great optimism from crypto enthusiasts often using the phrase: “To the Moon!” for bitcoin and many altcoins – popular and unknown.

But macroeconomic uncertainty, interest rate hikes by the US Federal Reserve and other central banks, and inflation hitting record highs have slowly dimmed those high hopes.

Although crypto proponents saw Bitcoin and others as a hedge against record inflation and the devaluation of fiat currencies, such as holding gold and silver against inflation, this view was quickly dismissed. when cryptos started plunging in Q2.

While aggressive central bank monetary tightening and rate hikes have reduced the amount of liquidity in the markets, they have also prevented new investment, particularly in the tech sector.

The cryptocurrency market became highly correlated with the Nasdaq at the end of 2021 and the technology index fell 34.3% in 2022 on Wednesday.

The total size of the crypto market fell to $792.7 billion on Thursday, down nearly 65% ​​from the 2021 close of $2.25 trillion. The market saw over 1, $4 trillion will evaporate this year, according to data compiled by Anadolu Agency.

The value of the crypto market reached an all-time high of $3 trillion in November 2021, but has seen over $2.2 trillion wiped out since then.

Bitcoin’s share of the crypto market, known as dominance, was around 40% on Thursday, and its decline is heavily affecting other digital currencies and tokens.

The price of Bitcoin has fallen 64% this year to around $16,630 on Thursday, after ending last year at $46,224. The world’s largest cryptocurrency by market cap hit its all-time high of nearly $48,163 on March 28, but is down 65.5% from that number.

Ethereum was trading around $1,200 on Thursday, which is a whopping 67.4% drop from its 2021 close of $3,677. The world’s second-largest cryptocurrency by market capitalization and largest altcoin hit nearly $3,889 on January 4, but it’s down 69% from that level.

Luna stablecoin crash

Several crises surrounding stablecoins and exchanges have also fueled the fire, leading to a sell-off in the crypto market.

The crypto market saw $1 trillion evaporate in five weeks from early May as Bitcoin fell below $29,000 – its lowest level in 16 months.

A stablecoin called TerraUSD, or UST, originally designed by Singapore-based Terraform Labs in 2018 to be pegged at $1, fell below $0.26 on May 11, creating fear, uncertainty and doubt among investors. crypto enthusiasts.

While other popular stablecoins use their reserve cash and various assets to manage a 1 to 1 ratio against the dollar to present stability and avoid volatility. UST, on the other hand, uses a burn and mint algorithm from its sister token Luna, and it allows UST to adjust its supply and manage a price close to $1.

With the price of UST plummeting, more Luna were burned to support the price of UST by Luna Foundation Guard.

Despite efforts, Luna, once a top 10 coin, lost more than 95% of its value in days, as crypto investors feared the organization was dumping the billions of Bitcoin it owns. to support the UST.

Those fears came to fruition a week later when it was made public that the organization had sold at least $2.1 billion worth of Bitcoin in 10 days, causing the value of other cryptocurrencies and tokens to decline rapidly. .

US Treasury Secretary Janet Yellen immediately urged US lawmakers to monitor stablecoins after the price of TerraUSD fell.

FTX Implosion

Once the world’s third-largest cryptocurrency exchange by volume, FTX was in “a significant liquidity crunch,” according to Binance CEO Changpeng Zhao in early November.

Although FTX approached rival Binance for a takeover, the world’s largest cryptocurrency exchange by volume pulled out of the deal. This led to a sell-off in the crypto market and took the price of Bitcoin below $16,000 that month.

Gary Gensler, the head of the U.S. Securities and Exchange Commission (SEC), said on Dec. 7 that cryptocurrency companies that facilitate market transactions should comply with applicable laws. “The trail is getting shorter” between crypto firm compliance and SEC enforcement, he said.

A week later, new FTX CEO John J. Ray III told the House Financial Services Committee that the company had “unacceptable management practices” under former CEO Sam Bankman-Fried.

While the SEC charged Bankman-Fried with defrauding investors on Dec. 13, two of his associates, co-founder and former CTO Gary Wang and former Alameda Research CEO Caroline Ellison, pleaded guilty to federal charges that include conspiracy to commit wire fraud, commodity fraud and securities fraud.

Bankman-Fried was extradited from the Bahamas to the United States on December 22 and immediately arraigned in District Court for the Southern District of New York.

Facing eight counts, he was released on $250 million bail and his next hearing is Jan. 3 in Manhattan court.

Bankruptcies

Fraudulent activities, online scams, massive hacks, bankruptcies, and global celebrities promoting coins and tokens that went bankrupt were other crises in the highly deregulated and decentralized crypto market.

Singapore-based crypto hedge fund Three Arrows Capital has lost over $3 billion in 2021 and 2022, becoming the first major crypto firm to fail this year on July 3.

The demise of Three Arrows Capital immediately caused a domino effect as it failed to repay loans of more than $660 million to cryptocurrency firm Voyager Digital, which filed for bankruptcy protection under of Chapter 11 on July 5.

Crypto lending firm Celsius Network, which managed $12 billion in assets in June, also filed for bankruptcy on July 13.

And, digital asset lender BlockFi filed for bankruptcy on Nov. 28, two weeks after announcing it had “significant exposure” to FTX.

2022 could be remembered as “crypto winter” and a major turning point for Bitcoin and cryptocurrencies – either with high hopes turning into shattered dreams for investors, or with lessons learned in a market deregulated with early technology still taking baby steps.

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