Popular cryptocurrencies like Bitcoin and Ethereum have given investors a lot of fun over the past year. 2022 has been full of highs and some spectacular lows, including the LUNA and FTX Scandals. How have digital currencies fared over the past year?
It was not the best year for the world economy. The US stock market fell more than 15 percent and the bond market fell more than 20 percent. However, little can beat the crypto market, which has more than halved from the highs set in 2021.
In this brief overview, we will try to acquaint you with the ups and downs of digital currencies this year.
End of 2021 with big crypto gains
Even at the end of 2021, cryptocurrencies were in a very strong position - amid concerns about the weakening of the position of traditional assets, new types of assets, such as cryptocurrencies, saw opportunities for themselves. Both BTCwhat kind Ethereum set all-time highs of $68,789.63 and $4,891.70, respectively. The entire crypto market has exceeded $3 trillion.
Centralized exchanges (CeFi exchanges) were very popular but were also fresh and ambitious crypto projects. One of them was the Terra ecosystem, based on the algorithmic stable token UST and the child cryptocurrency LUNA.
Cryptocurrencies are unwanted in 2022
According to Coindesk, since the beginning of the year, speculative assets such as cryptocurrencies have not been particularly popular with investors. The world’s central banks began to tighten monetary policy, which sharply reduced the appetite for any risk. The good old methods began to return to the favorites.
The result of this was a widespread sale of cryptocurrencies and a return to the so-called. safe havens. At the end of the second quarter of 2022, a third of the value - about $1 trillion - disappeared from the cryptocurrency market. This earthquake had its further consequences.
Cryptocurrency explosion - UST/LUNA scandal, collapse of Celsius Network and Voyager Digital
With the outflow of investors, cryptocurrency projects began to fall apart.
As it turned out, the value of the “stable” UST token at $1 was based on… investor confidence. If you thought that the value retention algorithm INSTALLED cope - the system worked as it should. When they hesitated and started withdrawing their funds too quickly, they shook up the platform and the UST was no longer pegged to the dollar.
Not knowing what to do, the algorithm began to overcompensate and mint a large number of tokens, which led to a huge drop in the value of these assets. In one week, UST dropped from $1 to $1. down to about 10 cents.
Also re-released at this time SHINE became “practically useless”. Investors lost billions of dollars in the UST/LUNA debacle.
To make matters worse, the CeFi institutions have also come under crushing pressure. They have provided huge amounts of cryptocurrencies to hedge funds, including Capital Three Arrows. Funds lost huge amounts of money as a result of the collapse of Terra after the UST/LUNA scandal.
The funds were unable to repay their loans to CeFi exchanges, forcing the latter to file for bankruptcy and freeze assets.
Investor money on CeFi platforms such as Celsius network if Voyager Digital could not be paid. Investors got burned again on cryptocurrencies and lost most of their invested funds.
Cryptocurrency stabilization and all hope for FTX
With the end of the holidays, it seemed that the cryptocurrency market was finally stabilizing. On September 12, the CoinDesk CMI index returned to a high of $1092, investors emboldened after previous fiascos.
Cryptocurrency company has become one of the engines of stability FTX. Founded by Sam Bankman-Freed (SBF), the company has continued to invest in crypto companies and startups. FTX stepped in to help a CeFi exchange called BlockFi. He also wanted to buy out the bankrupt Voyager Digital on his own.
SBF seemed to be the custodian and good spirit of the cryptocurrency market. His company was considered one of the strongest in the entire digital currency market. Until the problems started.
The collapse of FTX - Sam Bankman-Fried in handcuffs
In early November, the crypto market experienced a shock. Bankman-Fried Trading Firm Papers Alameda Research made it clear that the majority of Alameda’s $14.6 billion net worth is made up of FTT tokens.
The FTT cryptocurrency was minted in any quantity by the FTX exchange, also owned by Bankman-Fried. This raised huge concerns about FTX’s solvency and ability to support the price of FTT tokens, which he quickly began to warn about, among other things. Binance CEO Changpeng Zhao.
Investors started a massive sell-off FTT. In just a few days, the value of the token dropped from about $26 to $1. FTX stopped paying, and the awl came out of the bag - the company was insolvent.
FTX filed for bankruptcy at the end of November, which also had a cascading effect - previously “rescued” BlockFi and Voyager Digital went bankrupt again. All these scandals and losses have led to another crash in the cryptocurrency market. CMI dropped to around $795.
Bankman-Fried himself was arrested and charged with defrauding investors for many years. It is still unknown how much of the lost money will be returned.
Cryptocurrency Summary in 2022 – All is not lost?
However, Coindesk emphasizes that none of this year’s crashes were dictated by errors in the foundation of the entire crypto market – blockchain technology. This is still evolving, and also in 2022 we can see a historic moment: the merger of Ethereum chains and the change of the proof-of-work blockchain to a promising and energy-efficient proof-of-stake model.
The scandals and bankruptcies of the past year are the result of fraud, theft or irresponsible lending practices. Many cryptocurrency experts note that this is a clear sign that the countries of the world should introduce stricter rules for regulating the cryptocurrency market in order to prevent similar scandals in the future.
Source: Wprost
