Cryptoverse: Farewell to the year that broke Bitcoin

Dec 20 (Reuters) – Bitcoin staggered into 2022. It ends the year slumped in an alley, stripped of its cocktail of cheap money and leveraged betting, shunned by the establishment.

The preeminent cryptocurrency has lost 60% of its value, while the broader crypto market has shrunk by $1.4 trillion, crushed by rising interest rates, fading risk appetite and corporate meltdowns. , including Sam Bankman-Fried’s FTX.

Crypto funds have seen net inflows of $498 million in 2022, up from $9.1 billion in 2021, according to data from digital asset manager CoinShares, reflecting how mainstream finance has drifted away from the market through its annus horribilis.

James Malcolm, UBS’s director of currency strategy, said that in the first half of the year he had spent 70% of his time discussing cryptocurrencies with clients. By contrast, during 10 days in North America last month, from Montreal to Miami, “I spent less than 2% of my time discussing crypto.”

Even last year, before the decline began in November, it was considered realistic that cryptocurrencies were two to three years away from gaining acceptance from mainstream institutional investors, Malcolm added.

“Now it’s completely in the far future.”

CRYPTOMOPTIMIST FOR 2023?

It hasn’t been all bad for cryptocurrencies, though: 2022 was also the year the Ethereum blockchain finally got its mega “Merge” upgrade, which moved it to a less consuming “proof-of-stake” system. power in september.

“This event was a technological feat and one of the only positive events in an otherwise pretty dark year for cryptocurrencies,” said Anthony Georgiades, co-founder of the Pastel Network blockchain.

“These updates 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 going into 2023.”

Ben McMillan, chief investment officer at IDX Digital Assets, said the growing popularity of blockchain-based tools, including decentralized exchanges and decentralized finance, has also been a major development this year.

“So that’s very bullish for the ecosystem and something to watch out for in the long term,” he added. “We could see higher allocations to digital assets once risk appetite resumes in 2023.”

BITCOIN ENCOUNTERS A RECESSION

Bitcoin hit a record high of $69,000 in November 2021, with the crypto market touching $3 trillion, buoyed by fiscal and monetary stimulus from countries around the world trying to avoid economic damage from COVID lockdowns.

But as companies reopened, rising inflation forced central banks to tighten rates and led investors to flee riskier assets: tech stocks and cryptocurrencies.

Bitcoin, long heralded as a useful store of value in times of inflation due to its limited supply, failed during the test, with investors turning to tried-and-true safe havens like the dollar as rates rose. It fell about a third in January, outpacing the 8% drop in US stocks.

“2022 was a new environment for digital assets. They’ve never been in a recession or rising rate environment,” said Katie Talati, director of research at digital asset firm Arca.

YEAR THE BUBBLE BURST

As investors pulled money out of cryptocurrencies, major projects took a hit. The first to crack was terraUSD, supposedly a “stablecoin”, and the moon sister of it. The value of the coins plunged in May, with investors globally losing an estimated $42 billion.

Shockwaves reverberated through the market: US crypto lender Celsius froze client assets in June and revealed a $1.2 billion hole when it filed for bankruptcy. Singapore-based cryptocurrency hedge fund Three Arrows Capital went bankrupt the same month.

Bitcoin and other tokens took a hit, falling by more than half in just 49 days since the end of May. On a single day in June, bitcoin fell more than 15%, its worst day since March 2020 as COVID chaos rocked financial markets.

But the biggest crypto impact was yet to come.

In November, the main exchange FTX suddenly crashed into bankruptcy. Bitcoin fell by a quarter in less than four days as Bankman-Fried struggled to raise funds to rescue their exchange.

The cryptocurrency is now around $16,000. Overall, 2022 has pretty much been a crypto calamity.

Or, as economist Noelle Acheson puts it, “the year the leverage-inflated bubble burst, revealing the structural weaknesses of an industry that had grown too much, too fast.”

Reporting by Tom Wilson in London and Medha Singh and Lisa Mattackal in Bangalore; Edited by Pravin Char

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