Investors began to pose major existential issues at the end of the year as a result of the rapid series of crashes, contagions, and breakdowns.
To paraphrase Queen Elizabeth of the United Kingdom, the bitcoin industry won’t look back on 2022 with pure joy.
Investors began to pose major existential issues at the end of the year as a result of the rapid series of crashes, contagions, and breakdowns.
After all, the biggest cryptocurrency, bitcoin, has struggled to maintain its value for longer than a week at a time and has dropped by almost 75 percent from its peak of $69,000 in November of last year.
Many of the 22,000 or so tokens and coins are comatose, if not dead, and their market value is currently less than a third of their high $3 trillion worth in November 2021.
That came as a harsh reality check for an industry that began 2022 with hopes for widespread institutional adoption, the replacement of gold as the primary inflation hedge by bitcoin, endorsements from people like Tesla Inc. CEO Elon Musk, and the frenzied celebration of non-fungible tokens valued at billions of dollars.
The Fed’s extreme hawkishness didn’t just hit cryptocurrencies hard; TerraUSD’s collapse, a stablecoin, also caused a “Lehman moment” when funds and brokers like Celsius and Voyager went bankrupt.
The collapse of Sam Bankman-FTX Fried’s exchange last month, which some perceived as the death knell for cryptocurrencies, was one such event.
There are much fewer ardent crypto enthusiasts forecasting a bounce this time around than there were in 2017, when bitcoin dropped just as severely.
Instead, 2022 will serve as the “I told you so” moment for authorities, who have mostly kept a distance from the cryptocurrency industry or even outlawed trading in cryptocurrencies.
The tiny uptick in bitcoin prices this month, according to the European Central Bank, is an “artificially created final gasp before the path to irrelevance.”
The key mitigating element this year has been how mainstream finance has mostly avoided spreading the virus. The crypto ecosystem has seen a disproportionate amount of excess, unrestrained lending, and money laundering.
At the same time, it now seems illogical to think that private cryptocurrencies and decentralized finance can survive by operating outside of the established financial system.
A number of policymaker voices, including crypto billionaires, are joining U.S. SEC Chair Gary Gensler in advocating for regulation as institutional and retail investors lose faith in operators of cryptocurrencies.
James Malcolm, a strategist at UBS, cites the rising connection between cryptocurrencies and small-cap U.S. equities as evidence that bitcoin and other tokens may thrive as specialized, diversified assets in investing portfolios.
There are aspects of it that can be beneficial in other sectors, and there is definitely a little cryptocurrency market that will continue to survive on the periphery of financial markets, so it is incorrect to suggest that this thing is going to coil up and die entirely, according to him.
However, it may take months or even years to put in place the kind of regulation that investors want in order to feel secure working with cryptocurrency brokers and exchanges, whether it is transparency or capital adequacy.
