27 Dec 202215:41
Project update
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CRYPTO 2022 RECAP IN REVIEW
Another eventful year is drawing to a close. To say that 2022 has been a disastrous year for the industry is an understatement. We have lived through one of the worst years in the history of cryptocurrencies.In short: BTC dropped from ATH around $69,000 to $15,000 in 2022. It hasn't dropped below $20,000 since 2020. We have dived deep into the bear market, and now the market sentiment is filled with fear, uncertainty, and FUD.
Highlights
Due to massive crashes, hacks, and regulators' scrutiny, the crypto market has lost most of its market capitalization. This market has tested investors who saw their portfolios go up in flames overnight. But there were also events that restored faith in the blockchain industry, such as the ETH merge, war donations, and the integration of crypto payments.
Here is a brief overview of the key moments of the crypto market in 2022 in chronological order.January
In 2022, the crypto industry got off to a slow start. The downturn, which began in late 2021 in response to an unprecedented bull run in the fall, has dragged on.
NFTs peaked at $17 billion in trading volume in January, caused by OpenSea's astronomical valuation of the Bored Ape Yacht Club collection and LooksRare launch. The market has fallen over 95% since January, staying with a trading volume of ~$500 million in the last 30 days.
February
Russia invaded Ukraine on 24 February 2022, as a result of a major escalation in the Russian-Ukrainian war that began in 2014. This war and the ensuing energy crisis this year had crippled the global economy, without sparing cryptocurrencies. But it also showed what the crypto industry is capable of.
The government of Ukraine has announced that it is open to crypto payments, to the pleasant shock of the community. Along with the tweet, the addresses of two wallets were published requesting donations in Bitcoin and Ethereum. Over $69 million has been donated to Ukraine and NGOs through cryptocurrencies.
The crisis did not just inspire Ukraine to use cryptocurrency. As sanctions brought the Russian economy to a standstill and the rubble to fall, citizens have turned to cryptocurrencies to send money across borders. At the same time, centralized crypto exchanges such as Binance and Coinbase were forced to block Russian citizens.
Moreover, $320 million in crypto was stolen in February when the Wormhole bridge was hacked. Although the popular 'bridge' linking Ethereum and other chains managed to later retrieve the stolen assets, the hack exposed the vulnerability of decentralized finance platforms to hackers.
March
In March 2022, the US government took a decisive step to regulate cryptocurrencies and bring more clarity to the industry under the leadership of President Joe Biden.
Biden issued an executive order directing federal agencies to develop comprehensive plans to regulate and enforce cryptocurrencies in the US. While hostile regulations have a history of causing massive crypto crashes, such as China's crackdown on cryptocurrencies, regulations supporting cryptocurrencies are always welcome. While regulators are taking their time, the decree inspires confidence in the future of crypto.
Additionally, in March, hackers were able to exploit an Ethereum-based sidechain that runs the popular NFT-based online video game Axie Infinity. The hackers managed to siphon 173,600 Ethereum and $25.5 million from a web3 game developed by Vietnamese studio Sky Mavis.
In April, US authorities were able to link the attack to the hacker groups Lazarus and APT38, which carry out cyberattacks against the North Korean government.
May
April was a quiet month with a couple of big fundraising rounds including Circle ($400M), Near Protocol ($350M), OneFootball ($300M), and Binance US ($200M) moving us to May and one of the biggest catastrophes to hit the cryptocurrency market in 2022, Terra meltdown. Terra, a large-cap cryptocurrency ecosystem, was known for its stablecoin UST backed by LUNA tokens. Unlike most stablecoins, UST was not fully backed by fiat currencies or cryptos. Instead, he used an algorithmic mechanism for pegging the token's price to the US dollar.
UST has been one of the preferred cryptocurrencies as investors have taken refuge in stables amid the prolonged crypto winter. Another factor that led to a sharp increase in the market cap of UST and the price of LUNA was the Anchor protocol. The lending platform, built on the Terra blockchain, generated about 20% of the income for users who bet in UST. As the flow of UST funds to Anchor increased, so did the amount of LUNA flowing into the burning wallet.
Subsequently, the price of LUNA rose higher and higher, causing investors to wonder if this is too good to be true. Much of the crypto market collapsed due to Terra, including Bitcoin and Ethereum, destroying millions of dollars.June
While the crypto market was slowly reviving, the next shock came on June 12th. The lending company, Celsius, went bankrupt shortly after it suspended withdrawals. The situation was exacerbated by the news that CEO Alex Mashinsky was engaged in unauthorized trading on the company's balance sheet.
Soon the company was declared insolvent. The chain reaction continues to this day. Platforms such as Maker, Compound, and Aave, as well as investment firms such as Genesis, Galaxy Digital, and Three Arrows Capital, which had loan relationships with Celsius, took the brunt. The hardest hit was 3AC, which also fell following an alleged default on a $3.5 billion series of loans. The collapse of FTX is in some way also a consequence of the Celsius bankruptcy.
July
The Central African Republic (CAR) adopted bitcoin as a legal tender following El Salvador's decision in 2021, but the reality of both countries is different.
El Salvador has 4 million crypto users (65% of the population), while the Central African Republic has much less adoption in a country of approximately 4.8 million people, only 11% of the population has internet access and only 14% has electricity, so, naturally, a minority of people can use it.
August
On August 8, the Tornado Cash was sanctioned by the Office of Foreign Assets Control (OFAC), an enforcement agency of the US Treasury Department. According to a US Treasury Department press release, Tornado Cash has been used to launder more than $7 billion in virtual currency since its founding in 2019, including more than $455 million stolen by the Lazarus Group, a cyberterrorist group sponsored by the North Korean government.
Despite protests, both centralized and DeFi platforms have been called upon to blacklist wallets that used Tornado cash. As a result, the Fiscal Information and Investigation Service of the Netherlands arrested Alexey Pertsev, the main developer of Tornado Cash.
The incident became a black mark in the history of cryptography, as it was the first time that the authorities sanctioned the use of open source instead of a platform. The event also raised concerns about the ability of the blockchain industry to resist censorship.
September
Ethereum Merge was completed on September 15, which helped Ethereum to bounce back a bit. While the Merge did not bring the broad market growth that was expected, it did bring more clarity to the future of crypto. The market will move further if the projects drive innovation and create value.
The Merge also helped quell criticism of the environmental impact of Ethereum, which was originally launched as a proof-of-work blockchain. The transition to Proof-of-Stake has helped Ethereum improve energy efficiency and reduce its carbon footprint. It also dispelled any suspicion that the “ETH killers” are actually killing the cryptocurrency, as the blockchain is at the forefront of a revolution with constant dedication.
October
This year, the entire crypto world watched as Elon Musk bought Twitter for $44 billion. This purchase, which has been going on for several months, has been finalized in October, and brought some significant implications for digital assets. The crypto community, which is active on Twitter, has been buzzing about how the social network could change under Musk's leadership and how the service will integrate with crypto or issue its own token.
Elon has even caused a small Bull Run for Dogecoin. Dogecoin, like the rest of the industry, fell victim to a series of crypto crashes this year but bounced back because of the rumors around Dogecoin’s integration into the Twitter payment system. This also worked out well for other popular meme coins like Floki Inu and Tamadoge.
November - December
The second knockout blow to the industry this year was the bankruptcy of FTX. FTX is a trusted crypto exchange that has gained a large community in a short amount of time thanks to its creative approach to making cryptocurrencies more profitable and accessible. For example, FTX was known for its high-profile partners and sponsors, which included Tom Brady and Steph Curry.
In the middle of this drama, Binance stepped in and said it would buy the company, but pulled out of the deal the next day. The next day, FTX filed for bankruptcy. A few weeks later, in December, Sam Bankman-Fried (SBF) was arrested in the Bahamas. SBF could face up to 115 years in prison if convicted on all counts.
Final Thoughts
Yes, 2022 has been a tough year for crypto, but all investors should see this as a turning point in the sector. While industry experts such as Binance CEO Changpeng Zhao believe that the crashes set the industry back several years, they also believe that the tragedies will set the industry in the right direction. According to Ethereum founder Vitalik Buterin, bearish sentiment and insolvency highlight the importance of decentralization.
Sooner or later, the market will return to its previous course. An industry can only move onto a sustainable path if it continues to innovate. In fact, 2022 is not the worst year in the history of cryptography, but the most instructive.