Three specific events have caused a general collapse in the price of cryptocurrencies in 2022. By November 2021, bitcoin was worth $67,000.
Now, November 2022, it is worth 16 thousand.
” Bitcoin will reach 100,000 dollars in 2022,” said Nayib Bukele, president of El Salvador, within his predictions for the year at the end of 2021 . Having such hope was not “outlandish” at that time, since weeks ago, the largest cryptocurrency in the market reached the highest record in its history: $ 67,549 per unit on November 8.
Ironically, an exact year later, bitcoin was close to $15,883 in one of the worst times in the industry , with a new bankruptcy involved. It remains to be asked, what has happened in just 12 months for its value to drop like this?
We are no longer in 2020-2021
The pandemic was a boom time for the technology industry, in almost all its aspects, due to home quarantines and regular (and even forced) use of digital channels. The virtual economy, therefore, would also welcome a large new public, eager to be able to generate more income from home and through the Internet.
Cryptocurrencies experienced a boom in the number of users, mining practice, transaction volume and historical records in their values. But the global context, with a wave of infections already under control, is returning to a drastic reality: inflation is getting higher and recession is a latent danger that threatens the largest.
Amazon, Facebook and Twitter are some of the visible names that can serve as an example: especially the last two, are causing massive layoffs in their ranks due to the ‘latent threat’ of the economic crisis.
‘At the start of COVID-19, the world moved rapidly online and the rise of e-commerce led to outsized revenue growth. Many people predicted that this would be a permanent acceleration that would continue even after the pandemic ended. I did it too, ”Mark Zuckerberg noted in a letter to the more than 11,000 employees fired from him. “Not only has online commerce returned to previous trends, but the macroeconomic downturn, increased competition and loss of ad signals have caused our revenue to be much lower than I expected.”
This behavior caused the world’s top investors and those with the greatest flow of money to try not to risk in volatile investments such as cryptocurrencies . And the greater the withdrawals, the less liquidity for the large companies in the market, which are sustained by their own holdings and those of their thousands of users. The pandemic domino effect was about to hit the crypto market and cause its maximum negative consequences.
The hidden face of the Moon
The first coup of 2022 was, however, mishandling by one of the largest cryptocurrency foundations .
Terra ( Moon ) was one of the protocols with the greatest growth potential in the first months of the year. Thanks to its use in stablecoins (cryptocurrencies with stable values according to fiduciary currencies), it was able to reach a maximum of 116 dollars in April.
However, the failed launch of the UST coin, with a pegged value to the dollar, condemned it to the abyss . As we mentioned in a previous article, unlike other stablecoins like BUSD or USDT, instead of backing cryptocurrencies in real dollars, Terra backed them with bitcoin investments . Also, USTs were generated algorithmically in relation to investments in Luna .
This last point was key to its fall: it is believed that someone, in this case, the founder of the Terra Foundation -Do Kwon- and his group, manipulated the Luna system to steal funds and cause the fall of both currencies, obtaining the necessary liquidity of their investors’ money.
Luna and UST fell to values less than a cent, causing investors to lose all their money; The case was very serious: suicide notes were reported from people who had invested all their savings in the system. To date, Kwon has not managed to be caught and has only indicated that he “is cooperating with justice” to clarify the issue. His whereabouts are uncertain.
“In the crypto industry, when you lose confidence, there is no lifeline. There is no way to return. That has happened with Luna and with FTX . If you don’t do things right, you won’t do well,” emphasizes Carlos Bernos, Country Manager of Buda.com.
100 degrees Celsius
Within weeks, the wear and tear of the world economy would once again claim thousands of victims in the crypto market.
In June, Celsius Network would be the first major platform to go bankrupt due to the general downturn. Its operation was like that of a traditional bank: it protected cryptocurrencies from investors and promised passive income (very favorable) for those interested.
But its financial movements were clouded by the decline in market values, causing the company’s liquidity, the cash available for daily transactions, to disappear.
Celsius, before the panorama, suspended the withdrawals of money “due to the extreme conditions of the market.” ‘What is happening?’, users asked themselves and the feeling of fear was growing: everyone wanted to get their money, but it was gone.
The case was evidenced in the coffers of $CEL, the Celsius governance token, going from being worth 8 dollars to only meaning cents. By July, there was talk of debts of 4.7 billion dollars.
The young wonder is no more
As we mentioned, a year after the historical maximum of bitcoin , the market has to face a new crisis.
One of the largest exchanges in the world, FTX , has been declared bankrupt . Its leader, Sam Bankman-Fried, went from having $16 billion to just $1 billion in a single day.
FTX was reporting liquidity problems amid strong investor distrust of the company’s own FTT coin. Binance, despite being his rival, had promised to save it for the industry, but intelligently, he put a clause: if irregularities were known, he would have the option to withdraw.
“As a result of corporate due diligence, as well as recent news reports of mishandling of customer funds and alleged investigations by the US agency, we have decided that we will not pursue the potential acquisition of FTX . ”, was the message issued by the largest exchange in the world after reviewing the coffers and internal books of the company in crisis.
According to the Reuters agency report , Bankman-Fried installed a backdoor in FTX ‘s accounting software , which allowed him to bypass the security filter to move user funds from his platform at will, without them external auditors would notice. The hypothesis is maintained that the so-called ‘cryptocurrency wonder boy ‘ transferred 10 billion dollars to his other company, Alameda Research; In addition, 1.7 billion dollars are not in the coffers.
“I screwed up, and I should have done better,” Bankman-Fried said in a thread on Twitter. ‘I should have been communicating more recently as well.’
The need for safeguards
FTX has filed for bankruptcy and the corresponding entities in the United States have begun investigations into Sam. He, it is reported, is on his way to Argentina.
“This FTX debacle is of course a new setback in the world of cryptocurrencies. Binance, who wanted to inject liquidity or help in some way, announced that FTX ‘s problems were beyond their control or beyond their ability to help”, recalls Omar Azañedo Sayán, economist and CEO of Noncash. “We must not forget and we have said it since last year that the “crypto world” is a young sector and will continue to be shaken and/or hit by the international economic context. An international context today: global economic crisis, uncertainty and high volatility. And although the sector grew a lot in the midst of the crisis and digitization that we have experienced, cryptocurrencies do not stop being a bet with variable results from day to day”.
Unlike traditional banking, exchanges have no safeguards: there will be no government capable of saving mishandling.
“There have been many financial crises throughout these decades and in each one different financial instruments or sectors or more than one financial entity have always been questioned, in fact in the last crises of the 90s or 2000s they have been found ‘culprits’ this has caused it to continue to regulate and/or generate more controls that protect or give greater security to the different economic agents and users, who participate in these markets or financial sectors. This will happen and will continue to happen with cryptos, “adds Azañedo.
“There are gray points regarding decentralized exchanges , so an armed regulation carried out in a responsible and correct manner would go down well with the market,” adds Carlos.
Besides being a game of finance, the cryptocurrency market is a game of emotions. The trend, in the midst of the crisis, is the accumulation of currencies and there are still thousands who hope to smile at the end of this bearish cycle.
However, we are currently talking about the almost 70% drop in value of bitcoin in a single year, one of the worst percentage declines in its decade of life. At the gates of the end of 2022, is it possible that it will recover again? History (cases from 2013 and 2017) has shown that it can still go down.
” It is not one of the worst years of the crypto market. But prices have fallen and projects that have not been transparent. In itself there are companies that continue to bet. The ecosystem continues to grow. There were only specific cases,” Bernos concludes.