Although it is still a relatively young technology, many individuals are enthusiastic about cryptocurrency’s potential. In fact, following a sharp rise, cryptocurrency has had a difficult year. Significant coinage, like Bitcoin, have actually seen a significant decline in value.
Was the significant decline in 2022 just a speed bump, or will crypto prices continue to decline as people grow more wary of the technology? We’ll explain everything you need to know and why trends suggest the crypto industry will keep expanding.
Secret Takeaways
- In 2022, the price of Bitcoin decreased by about $30,000.
- The fall of FTX significantly hurt the bitcoin industry, but the more recent failure of Silicon Valley Bank may have increased trust in decentralised banking.
- Investors are uncertain as to whether digital assets will become a more common form of money or if 2022 could have been the beginning of the innovation’s conclusion.
What Is Crypto?
Cryptocurrency, also known as crypto, is a type of digital money that is independent of major institutions like banks or the federal government. To total trades, it operates as a decentralised system.
There are many different types of cryptocurrencies. The most well-known of them was introduced in 2009 and is called Bitcoin.
Although different cryptos operate in different ways, they frequently share some functionalities. Deals are confirmed as part of a blockchain, and devices can connect to the cryptocurrency network to “mine” coins by verifying deals in exchange for coins. As a result, cryptocurrency is getting closer to the gold standard.
Fiat currency, which is used now all across the world, derives its value from the fact that the federal government has determined it to be valuable. The value of the money is not tied to a specific good, like silver or gold, but the federal government trusts businesses to accept it as a form of payment. Although not all cryptocurrencies require mining, bitcoins do. The cost of mining is high, complex equipment is required, and a lot of energy is used.
Since cryptocurrencies gained popularity, exchanges have been set up to help people buy, sell, and swap a variety of cryptocurrencies for fiat money.
Early users of the most well-liked coins have really mostly seen an increase in the thickness of their wallets. In 2010, Bitcoin was only deserving of a cent. Bitcoin reached a high of around $64,000 in 2021.
Financial institutions have actually suffered significant losses due to less common coins.
What Happened In 2022?
The cryptocurrency market saw significant upheaval in 2022.
Crashes early in the year
The crypto winter of 2022 was the year. Stablecoins Luna and TerraUSD plummeted in May, causing sharp declines in the negative cryptocurrency market early in the year. In July, the trading platform Voyager and the cryptocurrency hedge fund Three Arrows Capital both filed bankruptcy. In 2015, Three Arrows Capital faced with $3.5 billion in lender claims, according to its insolvency papers.
Kim Kardashian and other well-known celebrities dealt with the evaluation of cryptocurrencies in 2022. Following her interaction with the SEC in October, Kardashian reached a settlement with the agency for more than $1 million.
The collapse of FTX, however, was the most notable cryptocurrency turbulence of 2022.
FTX Background
The price of cryptocurrencies has historically fluctuated significantly, making the market unpredictably volatile. Between the years of 2012 and 2014, Bitcoin’s price fluctuated between $13.28, $1,237.55, and $687.
The crypto market grew dramatically during the COVID-19 epidemic, rising from $6,635.84 to over $64,000. Numerous established corporations began collaborating with the cryptocurrency industry, offering crypto ETFs or making direct financial investments in cryptocurrencies.
Businesses that specialise in cryptocurrencies, like FTX, have also begun to make large sums of money and gain popularity beyond just the crypto and IT communities.
A cryptocurrency exchange called FTX was one of the key players in the 2015 crypto meltdown.
The company was founded in May 2019 and quickly became one of the largest exchanges. It even made significant financial investments in its marketing, sponsoring the Major League Baseball, the Mercedes-AMG Petronas F1 team, and the basketball arena for the Miami Heat.
FTX Collapse
A short article published on November 2 by Coinbase, a different cryptocurrency organisation, revealed that a trading company run by FTX CEO Sam Bankman-Fried possessed a significant amount of FTX’s own cryptocurrency, FTT. This could artificially increase the coin’s value.
The completing exchange and FTX financier Binance made its FTT holdings available for trading. Costs fell as a result of this. Many FTX customers rushed to withdraw their money from the exchange, causing a liquidity crisis that prevented financiers from withdrawing money.
The SEC and Commodity Futures Trading Commission were reportedly looking into FTX and Bankman-Fried, according to a November 9 Bloomberg article. On November 11th, FTX and 100 of its affiliates declared bankruptcy. According to sources, the exchange had debts worth more than $8 billion.
On the exact same day, FTX made legal transactions to remove $473 million in funds. Currently, experts estimate that billions of consumer cash are still missing.
Authorities arrested Bankman-Fried on December 12 in the Bahamas on suspicion of wire fraud and conspiracy.
Crypto Prices in 2022
Unsurprisingly, the events that damaged some of the biggest exchanges in the world significantly impacted the value of cryptocurrencies.
At the start of the year, the price of one bitcoin was $47,733.40. Through the first several days of April, it fluctuated before beginning a steady decrease. On November 21st, it hit a low of $15,760.10, although it later recovered. It currently stands at well over $30,000.
Not all of the factors that contributed to the 2022 rate decline included FTX and several crypto crashes. Unpredictability in the financial world, the conflict in Ukraine, and constant inflation mixed with interest rate hikes all contributed to scepticism about buying cryptocurrencies.
Other events that decreased the value of cryptocurrencies this past year include:
- A 2022 prediction that Russia would forbid cryptocurrency
- A problem with Binance in June 2022 that temporarily stopped Bitcoin withdrawals
- Celsius Network’s June 2022 announcement regarding the suspension of withdrawals and transfers
How Has Crypto Recovered?
At the end of 2022, investors were uncertain as to whether this was the beginning of the end for cryptocurrencies or only another hiccup in the path. Despite previous significant rate falls, cryptocurrency has continued to soar.
It’s important to remember that even at its lowest point in the autumn of 2022, Bitcoin’s value was higher than it had ever been before 2020. Since the low point at the end of 2015, Bitcoin’s value has significantly increased and is currently over $30,000.
Many experts claim that this increase in price was justified by lower inflation, readiness for rate decreases later in 2023, and fewer concerns about a recession. The failure of the Silicon Valley Bank earlier this year may have persuaded investors to consider digital assets like cryptocurrencies. Due to the American banking crisis, many investors are sceptical about central banks’ capacity to manage money.
Customers have not yet used cryptocurrencies like Bitcoin frequently enough to be considered a real alternative to fiat money. If difficulties with centralised banks continue, investors may turn to blockchain technology.
Could Crypto Be On The Way Out?
Some factors against a full cryptocurrency recovery include the Chinese government’s reluctance and crackdowns on the technology, considerable concerns about the impact of cryptocurrencies on the environment, and the history of security issues and breaches at cryptocurrency exchanges.
Given the nature of crypto, recovering funds after a hack can be difficult, if not impossible.
Recently, crypto policy has also grown, eliminating one of its key benefits: being a decentralised, ungoverned money.
On the other hand, economies that rely on agreements can benefit significantly from blockchain innovation. By eliminating the need for currency conversion and middlemen, cryptocurrencies can increase the accessibility of online and international transactions.
Some claim that cryptocurrency can be a wonderful store of value in the long run since many coins have restrictions on the types of tokens that can exist.
Financial professionals should exercise caution owing to the volatility and unpredictability of cryptocurrencies. Those who decide to invest should use conventional risk-management strategies, such as maintaining a diverse portfolio.
Additionally, investors may only want to preserve a small portion of their portfolio in cryptocurrencies to reduce the risk of suffering a catastrophic loss should the price of cryptocurrencies fall once more.
Arguments on the worth of cryptocurrency
Cryptocurrency sceptics often question if the asset has any hidden value. This claim is supported by related monetary theories. We have historical history for currencies linked to “made” things, but the world we know today uses fiat currency that is traded on global markets and not tied to any specific goods.
For many years, countries used the gold standard because it offered special advantages including controlling inflation and limiting the ability of the federal government to print money. It also had certain peculiar flaws, such as rigidity and difficulty adapting to crises like war. Wider debates regarding currency may interest you if you’re perplexed by the value of cryptocurrencies, especially given that many businesses do not accept them as forms of payment.
The Bottom Line
The incredible invention of cryptocurrency has attracted a lot of attention over the past few years. Numerous financiers suffered losses the year before as the value of cryptocurrencies fell.
Financers weren’t optimistic about the digital asset, as expected, given the failure of the cryptocurrency exchange FTX, the rise of stablecoins like Luna and TerraUSD, and the SEC’s enforcement action against celebrity recommendations of cryptocurrencies.
Cryptocurrencies like Bitcoin have recovered some of their value in 2023, giving rise to high hopes that they will return and regain the majority of their value in the years to come. We’ll have to wait and see whether this happens, but it’s still true that the world of cryptocurrencies is unstable, and investors should be prepared to lose anything they invest in it.
How Has Cryptocurrency Survived the Crash? The first appearance of The State of Crypto in 2023 was on Due.
The author’s thoughts and opinions are expressed here, and they do not always reflect those of Nasdaq, Inc.