After a lackluster cryptocurrency boom in 2021, which saw many new crypto millionaires and several cryptocurrency startups achieve unicorn status, came the dramatic bust of 2022. The industry was fraught with macroeconomic pressures, scandals, and fortune-witting crashes. practically overnight.
As 2022 draws to a close, Many cryptocurrency advocates are perplexed by the state of the industry, especially in light of the recent FTX crash and the contagion it has caused, bringing down several associated firms..
Many of those who were constantly talking about cryptocurrencies and recommending their family to invest in them last year at Christmas dinner could see how things change this year and have a lot of explaining to do about the current state of crypto . As awkward as that conversation is going to be, Cointelegraph has put together a short summary to help “crypto bros and sisters” explain what really happened to cryptocurrencies in 2022, when market pundits expected the rally to continue for all year.
The crash was universal, but crypto made it a contagion
The start of the cryptocurrency decline was triggered by external factors, such as rising inflation, rate hikes by the US Federal Reserve, and the international conflict between Ukraine and Russia.which shook investor confidence in the market and caused selloffs in both traditional and cryptocurrency markets.
External market conditions, aided by unchecked centralized decision-making, claimed their first big player in this bullish cycle on Terra. The $40 billion ecosystem was reduced to ruins in a matter of days. And what is more important, created a crypto contagion that claimed the lives of at least half a dozen crypto actors, primarily cryptocurrency lenders who were exposed to the Terra ecosystem.
The collapse of the Terra ecosystem had the biggest impact on lenders, bankrupting Three Arrows Capital and many others. Celsius stopped withdrawals due to extreme market conditions, which caused the prices of cryptocurrencies to fall, and then filed for bankruptcy. BlockFi had to be bailed out by FTX with a $400 million cash injection.
At the time, FTX seemed all too eager to bail out several troubled cryptocurrency lenders.. But, barely a quarter later, it turned out that FTX was not as liquid or cash rich as it claimed to be. In fact, the cryptocurrency exchange was using its native tokens and non-existent internal projects as leverage against valuations and multi-billion dollar loans. It was discovered that his sister company, Alameda Research, was involved in the construction of a house of cards that ended up collapsing in November.
FTX cryptocurrency exchange and its founder, Sam Bankman-Fried, who had built a philanthropic outlook for the world, turned out to be an outright fraud and stole client funds.. The former CEO was found to be misappropriating client funds and was ultimately arrested in the Bahamas on December 11.
Bankman-Fried was extradited to the United States on charges of securities fraud and misappropriation of funds. However, the former CEO got him set on $250 million bail paid by his parents, who put up his house as collateral to cover his astronomical bail.
Although Bankman-Fried’s arrest and trial in the US have given some hope to FTX users, the chances of many customers getting their funds back are very slimas lawyers have predicted that it could take years and even decades to recover the funds.
Two consecutive crypto infections caused by a series of bad decisions and the greed of some people may not be an easy thing to explain to the family. Therefore, Let’s face it: everyone makes mistakes in the bull market, thinking they’re doing the right thing by involving their family. However, you can always talk about the positive side and the lessons learned from mistakesand the cryptocurrency contagion of 2022 is no different.
Coins and centralized exchanges may come and go, but bitcoin will remain
The collapse of the Terra ecosystem was a major setback for the cryptocurrency industry, both in terms of value and perception by the outside world. Cryptocurrencies managed to bear the brunt of the crash and were on their way to redemption, only to be dealt another blow with the FTX crash. The FTX saga is far from over, but it highlighted what corruption and big donations can do to your public image, even when you’ve stolen people billions of their money..
The mainstream media frenzy saw the likes of the New York Times and Forbes write propaganda articles in favor of the former CEO before charges were brought against him. Bankman Fried was portrayed as a victim of bad decisions when FTX and Alameda were involved in illegal operations from day oneas mentioned by the SEC in its accusations.
The FTX crash and the crypto contagion are being portrayed by many as the end of trust in the crypto ecosystem. US regulators warn this is just the beginning of the crackdown on cryptocurrencies, with SEC chief Gary Gensler comparing cryptocurrency brokers and platforms to casinos.
However, any cryptocurrency veteran will tell you that the sector has seen far worse and has always bounced back. While the collapse of the third largest cryptocurrency exchange (FTX) is undoubtedly significant, it doesn’t come close to the Mt. Gox hack in the early days of cryptocurrency exchanges..
Mt. Gox was once the biggest external factor casting doubt on the cryptocurrency industry, especially bitcoin (BTC). When the exchange was hacked in 2014, it accounted for more than 70% of BTC transactions at the time.. The hack had a very noticeable impact on the BTC price at the time, but the market spiked again in the next cycle.
Years later, the FTX crash once again reminded users of the risks of centralized entities, triggering a significant movement of funds from centralized exchanges to self-custody wallets. Self-custody wallets allow users to act as their own bank, but the trade-off is that the security of the wallet also becomes their sole responsibility.
Cryptocurrency users are withdrawing their funds from cryptocurrency exchanges at a rate not seen since April 2021with almost $3 billion worth of bitcoin removed from exchanges in November, moving it to use self-custody wallets.
New data from on-chain analytics firm Glassnode shows that the number of wallets receiving BTC from exchange addresses reached nearly 90,000 on Nov. 9. Movement of funds off exchanges is usually a bullish sign that BTC is being hodled for the long term..
All other tokens can look lucrative on a bullish rally, as evidenced in the last one, in which LUNA, Shiba Inu (SHIB) and Dogecoin (DOGE) cracked the top 10. But nowadays, these projects, whether they are Terra-LUNA or meme coins, are either obsolete or far from successful.
Bitcoin, the original cryptocurrency, has seen several major exchanges crash in the last decade and yet has risen to the top of each of those crashes in the next cycle.. This is why most early cryptocurrency investors and bitcoin proponents often advocate self-custody and BTC hoarding rather than investing in new altcoins that might look lucrative in a bull run, but there is no guarantee that they reach the next bull run.
The collapse of these centralized entities in 2022 could also prompt policy makers to come up with some kind of universal official regulation to ensure investor safety..
Conclution
The core technology of decentralization and bitcoin, the “OG cryptocurrency” or “original cryptocurrency”, is here to stay, regardless of the crypto entities involved in facilitating different use cases and services on top of them.. 2023 could see a new wave of crypto-related reforms, with more conscious users believing in self-custody rather than letting their funds stay on exchanges. Besides, it is better not to give financial advice to anyone, especially in a bull market.
Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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