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How Previous Years Shook Our Belief in Crypto: Recap of Feats and Clashes
January 17, 2023

How Previous Years Shook Our Belief in Crypto: Recap of Feats and Clashes

Previous years were not a smooth ride for crypto investors

From bullish optimism at the start of the year, fueled by true crypto believers like El Salvador’s President Nayib Bukele’s crypto price predictions that Bitcoin could hit $100,000, to the detrimental effects of Russia’s invasion of Ukraine, the collapse of the Terra Luna (now LUNC), the bankruptcy of FTX and the abrupt freeze of crypto lenders’ withdrawal.

DeFi investors (individuals investing in volatile cryptocurrencies and crypto-based assets such as non-fungible tokens (NFTs)) found themselves facing a number of daunting challenges. 

It’s no surprise then that by the end of the year, Bitcoin had dropped to a little under $17,000. Looking back on the events of 2022, it’s clear that it was a year that shook investors’ beliefs in crypto. 

In this recap, we’ll explore the feats and clashes of the year that quaked the crypto landscape the most.

Bear in Mind the Bear Market

According to  ‘A brief history of Bitcoin crashes and bear markets’ a review written by Helen Partz, a crypto expert, 2022 became the third most bearish year after the insane fall of 2011 when Bitcoin collapsed from $32 to $0,01 over the course of a few days, and 2015 spectacular downhill from $1,000 to below 200. Right after showing all-time highs in 2021, Bitcoin and Ethereum, the Nr.1 and Nr.2 cryptocurrencies, halved down this year. 

This year’s Bitcoin’s fall was especially spectacular in absolute numbers as it went down from $68,000 in November 2021 to around $17,500 just recently. Ethereum repeated the trend, spiraling from $4,800 in late 2021 to just over $1,000 in 2022.

However, traders must consider crypto money’s high volatility and be prepared for new ups and downs, not shaping a weak hands pattern. Cryptocurrency will be here in the future and will not go anywhere, so its high volatility can be considered an advantage rather than a hindrance. 

It is just the nature of digital money, so we must deal with it. Bear and bull markets are constantly alternating in the global economy and crypto. That is why the panic of 2022 will finally go away, opening up new opportunities and horizons. 

FTX Collapse and Rise of Cold Wallets

FTX, which was one of the largest crypto exchange platforms, is now a bankrupt company. This was the single notorious event in the crypto world in 2022, contributing to overall negative trends of the year. 

This high-profile crash caught the world’s attention and initiated a scrutiny of the problem identified, motivating investors to become more safety-conscious. 

As confidence in crypto exchanges diminished, crypto users tended to move their digital assets to cold wallets and semi-cold platforms, such as MetaMask or Trust, instead of hot wallets. Indeed, hot wallets are more convenient for operational purposes, such as quick transactions and crypto exchange. However, when it comes to security and reliability, there is no better option than cold crypto storage. 

This slump, with investments evaporating and the FTX main currency, FTT, vanishing, was about more than losing faith or funds in the crypto world. What was a bearish trend for whales turned out to be the loudest rekt for common fish, especially those outside of the US.

On the Hook of the Global Financial System

2022 revealed another sign of digital assets’ reliance on the traditional financial system and the global economy. It has become evident in 2022 that the Federal Reserve’s rate hikes can be a headwind to digital currencies.

It worked just like the rest of the financial system: with the printing press on, the cryptocurrency price was getting high, showing some spectacular growth from 50% to 90%. Like it or not, cryptocurrency is now a part of the global financial system. Being a part of something bigger just ties hands, and you can’t take a sidestep and watch blankly.

It is no secret that the US Federal Reserve decisions create a correlation between the governmental regulators’ activities and major events in the crypto world. For instance, as mentioned in NextAdvisor’s ‘How Another Fed Rate Increase Could Impact Bitcoin’s Price’, if the stock market dips because of a Fed rate hike, the crypto market likely will, too. NextAdvisor is a leading international finance analytics project created in collaboration with TIME. Things also work the other way around. In fact, any Fed rate change could influence the crypto market. 

Upcoming Crypto Regulation

While there’s still a long way to go, 2022 has seen some progress on the regulatory front regarding crypto assets. The shock in the crypto space must have led to more government intervention. Industry experts immediately reflected on this rising trend. 

According to ‘Future of Cryptocurrency’, another crypto market review by NextAdvisor, after the catastrophic events that have unfolded in the crypto market, it is clear that more regulation could arrive soon. Marcus Sotiriou, a market analyst at digital asset broker GlobalBlock, thinks that the collapse of DeFi lenders is the reason why regulators have been looking to implement draconian controls over cryptocurrency.

It is probably too early to speak in terms like ‘draconian,’ but it is evident that more regulation is coming.

Back in March 2022, President Joe Biden signed an executive order calling on government agencies to study the ‘responsible development’ of digital assets, including stablecoins.

Later, the U.S. Department of the Treasury published the first framework to stem from President Biden’s executive order on cryptocurrency, outlining how the US should engage with other countries regarding digital assets. 

It would lead to more control in three fields — exchanges, lending, and broker-dealers. This also led to more communication with industry participants on how to come into compliance or, in cases where the framework already exists, modify some of that compliance. 

Brief Summary

2022 has brought some significant events that shook’n’shaped the current trends in the crypto world. Let’s sum up what has become the actual due date:

  • Clear current bear cycle with leading cryptocurrencies, such as Bitcoin and Ethereum, going down.
  • FTX collapse led to heavier reliance on cold wallets, such as Trust or MetaMask, in search of more safety.
  • Apparent signs of crypto dependence on the world financial policy: the government or Fed decisions could influence crucial indicators, such as the $/crypto exchange rate.
  • More regulation: crypto was meant to be incorruptible, decentralized, and independent of any government regulations; however, things are changing because digital money is a part of the world financial system now. This is the reason why regulators tend to be more inclusive.

With those mentioned above, only one thing is clear: crypto went through stormy seas in 2022 but now searches for a route to a safe haven. This is why the bear may well turn into a bull in 2024.

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