By Tom Wilson, Medha Singh, Lisa Pauline Mattackal
(Reuters) – Bitcoin staggered in 2022. It ends the year shunned away from the establishment, robbed of cheap money and a cocktail of leveraged bets, and crashing in an alleyway.
The prominent cryptocurrency has lost 60% of its value and the broader crypto market has shrunk by $1.4 trillion, crushed by rising interest rates, loss of risk appetite and the collapse of companies including Sam Bankman-Fried’s FTX. rice field.
There was a net inflow of $498 million in 2022, compared with $9.1 billion in 2021, according to data from digital asset manager CoinShares.
James Malcolm, head of FX strategy at UBS, said he spent 70% of his time with clients talking about cryptocurrencies in the first half of this year. By contrast, in the 10 days in North America from Montreal to Miami last month, “less than 2% of the time was spent discussing cryptocurrencies.”
Malcolm added that even last year, before the decline began in November, it was realistically expected that cryptocurrencies would take two to three years to gain acceptance from mainstream institutional investors.
“Now is a completely far, far future.”
Graphics: How Federal Reserve Board Decisions Affect Cryptocurrencies? (https://www.reuters.com/graphics/FINTECH-CRYPTO/WEEKLY/zgpobbjnovd/chart.png)
A crypto optimist in 2023?
2022 is also the year the Ethereum blockchain finally went through a successful “merge” mega-upgrade, moving to a less energy-intensive “proof-of-stake” system in September.
Anthony Georgiades, Co-Founder of Pastel Network Blockchain said, “This event was a technical feat and one of the only positive events in what would otherwise be a pretty dark year for cryptocurrencies. .
“These upgrades will make the Ethereum ecosystem much easier to use for people around the world.With all this progress, it’s hard not to be a crypto optimist heading into 2023.”
Ben McMillan, chief investment officer at IDX Digital Assets, said the growing popularity of blockchain-based tools such as decentralized exchanges and decentralized finance is also a key development this year. .
“It’s very bullish for the ecosystem and we need to monitor it long-term,” he added.
GRAPHIC: Crypto Corrections (https://www.reuters.com/graphics/FINTECH-CRYPTO/WEEKLY/movakkyqova/chart.png)
Bitcoin faces recession
Bitcoin hits all-time high of $69,000 in November 2021, crypto market reaches $3 trillion. This is underpinned by financial and monetary stimulus from countries around the world seeking to avoid economic damage from COVID lockdowns.
But as society reopened, soaring inflation forced central banks to raise interest rates and investors fled riskier assets like tech stocks and cryptocurrencies.
Bitcoin has long been known as a convenient store of value during inflation due to its limited supply, but it crashed during the test period, prompting investors to scramble to see evidence such as the dollar as interest rates rose. I turned my attention to the already-prepared shelter. It fell about a third in January, outpacing his 8% decline in U.S. stocks.
“2022 was a new environment for digital assets. We have never been in a recession or a rising interest rate environment,” said Katie Talati, director of research at digital asset firm Arca.
The year the bubble burst
Major projects were under strain as investors withdrew money from the cryptocurrency. The first to be cracked was probably the alleged “stablecoin” terraUSD and its sister luna. The coin plummeted in value in May, with investors worldwide losing an estimated $42 billion.
Shockwaves echoed across the market. U.S. crypto lender Celsius has revealed it left a $1.2 billion hole when it froze the assets of its clients and declared bankruptcy in June. Singapore-based cryptocurrency hedge fund Three Arrows Capital went bankrupt in the same month.
Bitcoin and other tokens have taken a hit, dropping more than half in just 49 days since the end of May. One day in June, Bitcoin fell past his 15%. This is his worst day since March 2020, when the COVID turmoil roiled financial markets.
But the biggest cryptocurrency shock was yet to come.
In November, major exchange FTX suddenly went bankrupt. Bitcoin fell a quarter of its size in less than four days as Bankman-Fried scrambled for funds to bail out the exchange.
The cryptocurrency is currently hovering around $16,000. All in all, 2022 was almost a crypto catastrophe.
Or, as economist Noel Acheson puts it, “the year the leveraged bubble burst, revealing the structural weaknesses of an overgrown and fast-growing industry.”
* Rolling On In 2023? The Cryptoverse Will Be Back On January 10th
(Reporting by Tom Wilson, London; Meda Singh and Lisa Matakkal, Bangalore; Editing by Pravin Char)
