2022, the ‘destructive’ year of Bitcoin and cryptocurrencies
Bitcoin losing 60% of its value in 2022, and the cryptocurrency market also “evaporated” $ 1.4 trillion in the face of rising interest rates, fear of investors and the collapse of a series of big names. According to data from CoinShares, inflows into crypto funds were a mere $498 million compared with $9.1 billion in 2021, showing how alienated the crypto market is.
James Malcolm, FX Strategist at UBS, said that if in the first half of the year he spends 70% of his time talking to clients about cryptocurrencies, in 10 days of November, that percentage is less than 2%. Last year, it was expected that the cryptocurrency would be accepted by mainstream institutional investors.
However, the market also has some bright spots, such as the Ethereum blockchain that has completed the Merge upgrade, changing the consensus mechanism from Proof of Work (PoW) to a more energy-efficient Proof of Stake (PoS). Anthony Georgiades, co-founder of the Pastel Network blockchain, commented that this is a technical step forward that makes the Ethereum ecosystem easier to use for people around the world. Therefore, he remains optimistic about cryptocurrencies in 2023.
As for Ben McMillan, Investment Director of IDX Digital Assets, the popularity of blockchain-based tools such as decentralized exchanges and decentralized finance is also an important step forward this year.
Bitcoin “bumps” into recession
Bitcoin peaked at $69,000 in November 2021 when the cryptocurrency market hit $3 trillion thanks to fiscal and monetary stimulus packages from many countries around the world. However, as the world reopened, soaring interest rates forced central banks to tighten rates and drove many investors away from riskier assets like tech stocks and cryptocurrencies.
Bitcoin, once seen as a haven during inflationary times due to its limited supply, has failed the crucial test. Investors quickly turned to other certified havens like USD. Bitcoin lost a third of its value in January, while US stocks fell an average of 8%.
According to Katie Talati, Arca Research Director, 2022 is a whole new environment for digital assets. They have never been in a recession or rising interest rate environment.
When investors withdraw their money, large crypto projects also appear to be intact. The first faults are terraUSSD and luna. These two coins dropped in shock in May and investors lost $42 billion. The wave reverberated throughout the market: crypto lender Celsius had to freeze customer assets in June and declare bankruptcy. Crypto hedge fund Three Arrows Capital collapsed the same month.
Bitcoin and other tokens lost half their value in just 49 days, from the end of May. In just one day of June, Bitcoin price fell more than 15%, the deepest level since March 2020 when Covid-19 did shaken the global financial markets.
However, the biggest shock has yet to come. In November, the FTX exchange suddenly went bankrupt. Bitcoin continues to lose 1/4 of its value in just 4 days. Currently, the world’s largest digital currency trades around the $16,000 mark. After all, 2022 was a disaster year for cryptocurrencies. Or, as economist Noelle Acheson points out, this is the year when the structural weaknesses of an industry that are growing too fast and too large are exposed.
(According to Reuters)
