A chaotic year! Yes, that’s how 2022 was for the markets, with falls of 15 percent in the US stock market, more than 20 percent in the bond markets and over 50 percent in the crypto universe since its peak in 2021.
After euphoric levels in 2021, the cryptocurrency market has faced a difficult environment that has caused sell-offs, implosions of new projects such as TerraLuna, bankruptcies of companies such as Celsius and Voyager Digital and the sudden fall of exchange from FTX.
The two most important digital currencies, bitcoin and ethereum, have lost three quarters of their value. This occurred in the last 12 months since bitcoin peaked at over $68,000, in November 2021.
Thus, the crypto market, valued at its best at about 3 trillion dollars, is now around 900,000 million; that is, it had a loss of 2.1 trillion, which occurred mostly during 2022.
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What else has happened in the cryptocurrency market this year?
- In the blink of an eye, FTX plunged from a $32 billion valuation into bankruptcy as liquidity dried up, clients demanded withdrawals and rival exchange Binance broke its non-binding agreement to buy the company.
- Coinbase reported a revenue drop of more than 50 percent in the third quarter from a year earlier, and a loss of $545 million. In June 2022, the company cut 18 percent of its workforce.
- When TerraUSD and its sister token – called luna – fell below the one dollar mark, confidence in the stablecoins it evaporated and over $40 billion in wealth was wiped out in the lunar collapse.
- In June, the Celsius lending platform halted withdrawals due to extreme market conditions, and Binance halted withdrawals as well. Meanwhile, crypto lender BlockFi cut 20 percent of its workforce after quintupling it since late 2020.
The cryptocurrency market downdraft began in late 2021, when inflation rates began to rise and raised concerns that the US Federal Reserve (Fed) would begin raising interest rates and removing dollars from circulation, following on going. Back then (it was December) bitcoin fell 19 percentbut the decreases were extended in the following months.
What has been commented above is just a small summary of how chaotic 2022 was for the market, because we could go on and on talking about bankruptcies of cryptographic companies that brought it down.
That crash also ended (again) the dreams of thousands (or millions) of micro-investors who believe they can get rich with crypto.
It is worth remembering, for example, that according to research in the journal Money, more than 70 percent of Americans investing in cryptocurrencies they believe they have the tools to become billionaires.
Younger generations, who invest in cryptocurrencies more than older groups, say they may one day achieve billionaire status, around 55 percent of respondents said. millennials and 66 percent of Gen Zers surveyed.
This reveals to us that, without a rational justification, many investors believe that crypto will make their dreams of high wealth come true – investing just a few hundred or thousands of dollars.
That’s why I tell you that this crash has taken more than just market capitalization. For now, the hopes of millions of naive people have once again been dashed until the next bull market. An endless cycle in which reality always ends up hitting hard.
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Let it not be misunderstood. We at Top Money Report believe that crypto and the virtual world have a great future, but you can by no means be sure of that: the risk of failure factor will always be there. Technology is like that: it comes, it innovates and then it is displaced by new technology. Bitcoin and other cryptos will not be the exception.
For this reason, invest with care, intelligence and rationality, with the advice of reliable sources such as the one in this financial bulletin.
The most famous “youtuber”, the “tiktoker” with the most followers and others, may not be the best sources to decide what to invest in. Keep it in mind!
Editor’s Note: This text belongs to our Opinion section and reflects only the author’s vision, not necessarily the High Level point of view.
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William Beard Master in Economics from the Austrian School; liberal, gold market specialist and editor of investment newsletter Top Money Report