2022 Crypto Chronicles: Drama and Disruption, 2023 Prospects.
In Q12022 The cryptocurrency bull market lasted from the second quarter of 2020 through the final months of 2021. This was a period marked by a global battle against the COVID-19 pandemic. In the final quarter of 2021, the US Federal Reserve announced the end of this monetary policy and a switch to a more restrictive monetary policy.
| Quarter | Event | Impact on Crypto Market |
| Q1 2022 | The shift in the economy and global events (inflation, Russia-Ukraine war) | Market decline |
| Q2 2020 – End of 2021 | Bull market for cryptocurrencies | Peak market capitalization of $3 trillion and record high Bitcoin price of $69,000 |
| Q1 2022 | The shift towards tightening monetary policy by global central banks | End of the bull market |
| Q1 2022 | Russia-Ukraine war affecting global supply chains and production costs | Further fueling inflation |
| Q1 2022 | Bitcoin found support at $37,000 and rebound to $48,000 in March | Positive reaction to slowing inflation growth and the Fed’s initial interest rate hike of 25 basis points |
In Q2 2022, the crypto market faced a decline due to the slowdown in the global economy and the withdrawal of support from institutional investors. The collapse of the Terra ecosystem and the bankruptcy of crypto companies resulted in a liquidity crisis and billions of dollars in losses for individual investors. TerraForm Labs’ algorithmic stablecoin UST has struggled to remain stable, which has had a negative impact on LUNA, the reserve unit of UST. The financial crisis spread to major crypto companies including Three Arrows Capital, Celsius and Genesis, leading to the collapse of the entire industry. In addition, rising energy costs and a sharp drop in the price of Bitcoin had a negative impact on cryptocurrency miners, causing the price of Bitcoin to fall below $20,000 by the end of Q2.
| Quarter | Event | Impact on Crypto Market |
| Q2 2022 | The slowdown in the global economy and the withdrawal of institutional investor support | Market decline |
| Q2 2022 | The collapse of the Terra ecosystem and the bankruptcy of crypto companies | Liquidity crisis and billions of dollars in losses for individual investors |
| Q2 2022 | TerraForm Labs’ algorithmic stablecoin UST struggling to remain stable | Negative impact on LUNA, the reserve unit of UST and the value of cryptocurrency plummeted |
| Q2 2022 | The financial crisis spread to major crypto companies including Three Arrows Capital, Celsius, and Genesis | The decline of the entire industry |
| Q2 2022 | The rise in energy costs and a sharp drop in Bitcoin price | Negative impact on cryptocurrency miners and fall in Bitcoin price to below $20,000 by end of Q2. |
In Q3 2022, the crypto market saw a recovery due to the summer slowdown in US inflation and a decrease in purchases. However, the market was affected by events such as OFAC’s sanction on Tornado Cash, a platform for encoding transactions on the Ethereum network, which had a negative impact on the Ethereum network. There have also been positive developments, such as the collaboration between Coinbase and BlackRock for crypto asset trading and MiCA custody and settlement services by the European Union, which has the potential to drive global crypto regulation. However, the Ethereum network merger, which aimed to make the network environmentally friendly by moving from a proof-of-work mechanism to a proof-of-stake consensus, has raised concerns about network security and decentralization. As a result, the price of Ethereum continued to fall along with the rest of the market and did not experience the expected rise after the merger.
| Quarter | Event | Impact on Crypto Market |
| Q3 2022 | Summer slowdown in U.S. inflation and dip buying | Recovery in Bitcoin’s value from $19,000 to $25,000 |
| Q3 2022 | The sanction imposed by OFAC on Tornado Cash | Negative impact on the Ethereum network |
| Q3 2022 | Collaboration between Coinbase and BlackRock | Positive development in crypto asset trading and custody services |
| Q3 2022 | Finalization of MiCA by the European Union | Potential to guide global crypto regulations |
| Q3 2022 | Ethereum network’s Merge | Transition to the environmentally friendly proof-of-stake mechanism, but raised concerns about network security and decentralization |
| Q3 2022 | Ethereum price falling post-Merge | Failure to see expected uptick in a market in turmoil post-Merge. |
In Q4 2022, the crypto market was dealt a serious blow by FTX’s troubled balance sheet, which revealed that a significant portion of its assets was in FTX Token, an illiquid crypto coin minted by FTX. This sent the market on the rising crypto star reeling and led to panic among crypto investors. This also led to the acceleration of FTT sales and the suspension of withdrawal requests. FTX filed for bankruptcy and Alameda Research uncovered allegations of cover-ups and misappropriation of customer funds. The founder of FTX, Sam Bankman-Fried, was charged with defrauding exchange customers, securities fraud, money laundering and campaign finance fraud and was arrested in December. This led to a loss of confidence in FTX and crypto exchanges, and withdrawals of crypto assets from centralized exchanges skyrocketed. The sudden termination of cooperation with crypto companies by audit firms further damaged trust in centralized exchanges. Bitcoin also took a hit, hitting a low of $15,000 in the last quarter of the year.
| Event | Impact on Crypto Market |
|---|---|
| FTX’s problematic balance sheet | Market souring on a rising crypto star, acceleration of FTT sales, suspension of withdrawal requests, and FTX’s bankruptcy |
| Alameda Research’s use of customer funds | Loss of trust in FTX and crypto exchanges, acceleration of crypto asset withdrawals from centralized exchanges |
| Charges against FTX founder Sam Bankman-Fried | Negative impact on the crypto sector and loss of trust in centralized exchanges |
| Sudden termination of cooperation with crypto companies by auditing firms | Negative impact on the crypto sector and loss of trust in centralized exchanges |
| Bitcoin falling as low as $15,000 | The market decline in the last quarter of the year |
Outlook to 2023: Regulation, CBDC, Growth and Struggles
Regulation: After the interconnected incidents and negative events of 2022, countries that have been slow to regulate cryptocurrencies may take concrete steps to dominate the market in 2023. This may include stricter laws and regulations regarding crypto exchanges, trading, and initial coin offerings ( ICOs). The threat of contagion from the crypto sector into traditional finance may also lead to increased regulation.
Central Bank Digital Currencies (CBDCs): The development of CBDCs may present a new challenge for cryptocurrencies. Governments and central banks have been working on CBDCs for several years and may use them to compete with cryptocurrencies in 2023. This may lead to a shift in the balance of power between crypto and traditional finance.
Growth: Despite the negative events of 2022, many financial giants decided to expand their services into the crypto space during the year and established various strategic partnerships in this direction. This move may create the means for institutional money to return to the crypto space depending on more favorable macroeconomic conditions.
Struggles: The crypto industry may still be under pressure in 2023 due to a lack of liquidity and fear of contagion. This can lead to a decrease in the overall value of cryptocurrencies as well as increased volatility in the market. Additionally, increased regulation and competition from the CBDC may also pose a challenge to the crypto industry.
2023 is expected to be a year of challenges and opportunities for the cryptocurrency market. Due to regulation, CBDCs, growth and struggles are likely to shape the future of cryptocurrencies. The crypto market and the traditional financial industry must co-exist, and the competition between the two industries may accelerate in 2023. The crypto industry must adapt to changing market conditions in order to survive and thrive.
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Disclaimer: Crypto products are unregulated as of this date in India. They could be highly volatile. At Unocoin, we understand that there is a need to protect consumer interests as this form of trading and investment has risks that consumers may not be aware of. To ensure that consumers who deal in crypto products are not misled, they are advised to DYOR (Do Your Own Research).
