This past year has been a turbulent ride for the crypto world in general, as various financial earthquakes shook the sector, along with big scandals that mined trust in digital assets. And while the global economy as a whole suffered for almost the entirety of the year, due to several overarching factors like huge rates of inflation following the societal and macroeconomic catastrophe of the Russian invasion of Ukraine in February, it regained its footing in recent months somewhat, but the same cannot be said for the crypto sector as a whole. The year was not of course wholly negative for the crypto ecosphere: interest in the assets increased exponentially among both companies and investors, and some exciting developments also took place within the sector that leaves some hopeful for the future.
In the early part of the year, when lockdowns were still commonplace within the Western world (and beyond), crypto seemed to be in a relatively good place: bitcoin had reached record highs in 2021, the NFT market was growing exponentially (OpenSea hit a high of $544 million in daily volume in May) and venture capital firms were investing strongly in the sector.
By the time February and March rolled around,central banks started raising interest rates in a bid to stop rampant inflation derived from the covid hangover and the newly occurring invasion of Ukraine. This move destroyed investors’ appetite for investment in more speculative and risky assets such as cryptocurrencies and tech stocks, looking instead for opportunities to hold lower-risk investments in, for example, the dollar. This led to a devastating statistic: by the end of Q2, the crypto market cap had fallen over $1 trillion.
The two most famous instances of crypto failure in the year however are the terraUSD stablecoin collapse and the FTX bankruptcy scandal. The first imploded in May as traders exited the crypto market, forcing the coin to de-peg from the dollar and making investors lose billions. The FTX scandal is even more relevant, as the crypto exchange was involved in the rescue of various crypto companies and CeFi lenders before its eventual demise in November, and was heralded as somewhat of a savior among crypto communities. The exchange went into bankruptcy following its CEO’s ill-advised financial tamperings and involvement with his other company, Alameda Research. This was undoubtedly one of the year’s biggest events not just in the crypto ecosphere, but in finance generally, and really stained the reputation of crypto in the eyes of non-investors.
But, while it may seem that crypto only had an overwhelming amount of negative press in 2022, it was not all terrible – as promised. Despite challenging conditions, the number of crypto owners in 2022 crossed the 400 million threshold and capital investment in crypto projects skyrocketed in the first half of the year like never before, with roughly $29 billion in funding (more than in the whole of 2021), demonstrating that, nevertheless, interest in crypto never really died.
In addition, perhaps the most positive development in the crypto sphere this year was Ethereum’s Merge in September, which transitioned the currency from a PoW (Proof of Work) consensus that was energy intensive, to a PoS (Proof of System) one that relies on validators to verify transactions. As a result, the currency’s energy consumption dropped by 99.95%, and will be a great, positive achievement for the industry as a whole when entities like the European Union decide to tackle crypto regulation in a common manner.
In conclusion, 2022 has undoubtedly been one of the harshest years to date for the crypto ecosphere: however, it is important to note that none of the failures seen this year were caused by shortcomings linked to blockchain technology. The market scenarios were dire due to socio-economic factors outside of the crypto community’s control, and the ill-advised actions of FTX’s Sam Bankman-Fried that caused people to lose millions and deeply tarnished digital assets in the eyes of many, cannot be blamed on anyone but him. The development and funding of a myriad of new crypto projects this past year, and the advancement of Ethereum and other technologies will eventually help pick crypto off the ground and try to help it find the right path, hoping for a brighter 2023.
