It’s time for the end of the year, and the currency created by Satoshi Nakamoto is no exception. If there’s one thing to remember for bitcoin (BTC) this year, it’s that it’s been anything but a calm river. The queen of cryptocurrencies has not been easy. Through the slide, she steered her boat through the bear market. It was thus in a gloomy context, where some skeptics had already programmed her murder, that she showed resilience. Fortunately, the queen of cryptos has not said her last word. Let’s dive into the retrospect of an unforgettable year.
The current analysis is prepared in collaboration with Bitget’s crypto exchange platform. Present in more than 100 countries, Bitget is a cryptocurrency exchange established in 2018. With a user base of more than 8 million, the digital asset platform offers a variety of services to its clients. These include derivatives trading, spot trading, social trading and copy trading. Thanks to its innovative products, Bitget appeals to both amateurs and professionals.
To the origin of the bitcoin (BTC) meltdown
It must be said that 2022 was a chaotic year for the global market, both for the traditional financial system and for digital assets. With the covid-19 pandemic, businesses have found themselves bolstered by supportive government policies. To this end, they have enjoyed several benefits in terms of taxation and rates which have boosted their performance.
But all good things come to an end, as the popular saying goes. This honeymoon could not last forever. Thus, the regulatory authorities began to save on the oxygen that was given to companies. Consequently, their business results also began to falter.
To be precise, when interest rates are higher, borrowing costs increase to the detriment of investments. As a result, there is a decrease in demand and liquidity in the economy. It didn’t take long for the Nasdaq to disappear. Bitcoin (BTC), which is highly correlated to it, is also paying the price, as we can see:
A promising start to the year
Nothing foreshadowed the coming storms. The year 2021, with the pandemic, had inflated the price of BTC to block, reaching 68,000 at the end of November. Its market cap was also breathtaking at $876 million.
Since then, the price has lost 65% of its value in just under a year, and the market value has plummeted to DKK 324 million. The graph shows the development of the bitcoin price since 1eh January 2022.
The flops are linked to bitcoin (BTC)
To be sure, investors were increasingly worried about the uncertainty surrounding the global economy with the war between Ukraine and Russia that erupted in February. The specter of recession loomed over the world, making investors increasingly risk-averse.
Central bank announcements of interest rate hikes to curb inflation are also driving bitcoin (BTC) volatility. Nevertheless, the currency created by Satoshi Nakamoto had managed to hold above 35,000 despite the inherent hypervolatility of cryptos.
However, these conditions did not resemble what the market experienced from May onwards. In this case, circumstances such as earthquakes have thrown the market into real disaster. These impromptu events are actually bombs that are exposed one after the other, making 2022 a true noir series.
Terra Luna opens the ball
The collapse of Terra (Luna), a specialist in algorithmic stablecoins, was the first trigger. The massive selloff of UST, which along with Luna was the cornerstone of the blockchain, caused the loss of Terra. The mechanism involves anchoring the UST using an algorithm to the dollar and Luna, whose role is to maintain the anchoring of the UST.
According to Chainalysis, the liquidation of these USTs occurred with two traders who took advantage of a move by TerraForm Labs in the liquidity pool to successively exchange amounts of UST for USDC.
3AC brings Celsius and Voyager Capital to the dance in July
Three Arrow Capital (3AC), a crypto hedge fund, was a big hit with its 10 billion in assets under management. This was before defaulting on several loans from institutions including Celsius Network and Voyager Digital.
The hedge fund happens to be one of Terra’s collaterals. Before Luna’s fall, he had actually traded with BTC for LUNC for about $500 million of LUNC with Luuna Foundation Guard (LFG).
Since then, 3AC in liquidation has also pulled down Celsius Network, which went bankrupt, and Voyager Digital, whose assets Binance bought.
FTX throws an uppercut in November
The second largest stock exchange in the world has finally turned out to be a giant with feet of clay. It was Coindesk’s revelations of FTX’s insolvency risk that set fire to the powder keg. Specifically, Alameda Research, sister company to FTX, mainly owned FTT tokens, resident in the FTX exchange.
The sequel is worthy of a soap opera. Binance, which had agreed to rescue FTX, withdraws its support. At the same time, amounts evaporated from the stock exchange. Finally, Sam Bankman-Fried alias SBF is charged with eight counts, including fraud, conspiracy and money laundering.
The extent of FTX infection is not yet known. For example, crypto lender BlockFi filed for bankruptcy at the end of November, leaving its customers in dire straits. One wonders how many others will follow suit.
Binance adds fuel to the fire in December
These chain flops have been accompanied by massive withdrawals from exchanges in recent months. The most notable ones are those that took place on Binance. About $3 billion has found its way to the platform.
All this is a sign of a gradually eroded confidence among investors, who are being pressured by the economic situation to find places that they consider to be safer for their assets.
Beyond the failure
Market setbacks have tended to overshadow the good progress in bitcoin (BTC) adoption in 2022. For example, the Central African Republic has adopted bitcoin. In this context, it joins El Salvador, which had already taken the leap in September 2021.
In addition, the world’s leading payment method Paypal now allows transfers of BTC, ETH and LTC to external wallets. Likewise, the Swiss locality of Lugano experimented with accepting BTC and USDT at the king of fast food McDonalds.
2022 is a true odyssey that will go down in the annals of cryptocurrency history. Cascading bankruptcies, macroeconomic pressures… The Bitcoin card game is not the most advantageous. In fact, it is developing in 2022 in an environment in recession against the background of a war between Russia and Ukraine, the economic consequences of which are real shocks. This year ends on a sour note. Despite this, bitcoin (BTC) is still the largest cryptocurrency in the world. Besides, just observe its growing adoption around the world.
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As a financial professional, I consider blockchain a real revolution thanks to all its innovations, which have a global impact. It is with passion that I take part in this new digital era through my articles.