Crypto Market 2022 Year-End Review
Books will be written about the significance of 2022 for the cryptocurrency market, for good and for bad. What should investors take away from the events of the year?
Cryptocurrency investors and market watchers have had a bumpy rollercoaster ride in 2022, facing intense momentum, massive valuation drops and stunning criminal activity.
To call this year significant for cryptocurrencies would be an understatement. While blockchain-related ventures at first seemed poised for greater mainstream adoption, ultimately 2022 was a challenging period that diminished the industry's reputation.
Here the Investing News Network (INN) presents a recap of the important events that affected the investment storyline for cryptocurrencies throughout 2022. Read on for expert takes on the year that was.
What defined the crypto sector in 2022?
When asked for one word to classify the cryptocurrency storyline in 2022, Alex Tapscott, managing director of Ninepoint Partners' digital asset group, told INN it would be “volatility.” “I would say 2022 was a year that began with high hopes for Web3 and crypto as an asset class, and has ended with some soul searching by the industry,” he said.
Those high hopes have not been entirely dashed, depending on who you ask in the industry, but they were certainly impacted by a variety of events over the course of the last 12 months.
Nick Kuriya, vice president and head of crypto at Purpose Unlimited, told INN that this year seemed poised to successfully establish the DeFi (decentralized finance) ecosystem. “There was lots of optimism … unfortunately by the summer a lot of that dissipated, but there were shifts in the macro environment that contributed to that,” he said.
Similarly, Elliot Johnson, chief investment officer and chief operating officer with Evolve ETFs, told INN that while cryptocurrencies are in a bear market, many other sector are also facing downturns, including equities and bonds.
Interestingly, he has noticed an adoption of broader investment trends in the crypto market. For example, trading strategies in the space are beginning to follow suit with larger industries, Johnson said.
“These were all kind of viewed as risk-on assets … and so as equity markets sold off, crypto assets sold off as well, they just did it more,” he continued. “I think through the past summer, we've seen that correlation again.”
Peter Eberle, president and chief investment officer at Castle Funds, told INN that despite the current crypto bear market, he’s encouraged by the amount of interest from senior investors.
He said that when cryptocurrencies had a massive downturn in 2018, the institutional investors who were “sniffing around the edges" ended up walking away. But now he sees the situation playing out differently.
“We know a lot of institutions that are actively pursuing building out capabilities in this space,” Eberle said.
In contrast to the recent scandals seen in the crypto market, there have also been welcoming advancements, such as Fidelity Investments launching a crypto trading platform that is commission-free.
Tapscott told INN he has been impressed with the performance of the leading crypto, Bitcoin, in the face of all 2022's difficulties.
“As an investor, I think that now is an incredibly compelling time to be allocating to the (digital) asset class. I'm frankly amazed at how resilient Bitcoin has been given the onslaught of negative news,” he said.
Chaos rises as crypto market scandals continue
This year will be remembered for offering two of the biggest scandals in the crypto space, both of which further fueled negative sentiment. All in all, it was an onslaught of bad news cycles for cryptocurrencies.
The biggest headlines of the year belonged to FTX, a cryptocurrency exchange company that gained prominence through its business platform, as well as splashy ads and sporting deals.
“For a lot of new users of digital, new holders of digital assets and users in Web3, the collapse of FTX is a rude awakening,” Tapscott said about the firm's well-publicized disintegration.
FTX played a critical role in making crypto trading easier to access for new users, a fact that makes the impact of its collapse profound. The firm offered a platform to trade crypto assets in a more streamlined way, in line with other investment platforms.
“I think a lot of people learned some lessons about centralized exchanges and centralized places of business — any place that has an actual middleman,” Eberle said.
In November, FTX faced questions about its liquidity following a report from CoinDesk. Although the company attempted to buy time through a merger deal with competitor Binance, the end result was a collapse for FTX and its leader Sam Bankman-Fried.
The face of FTX was found to have moved assets from FTX to Alameda Research, his trading firm, to the tune of US$4.1 billion to cover for losses. The damage to the reputation of the company was irreparable.
Eberle said FTX became a brokerage and an exchange, “a place that facilitated trade,” but due to the lack of rules in place to accommodate the use of assets, it led to one of the biggest fraud scenarios in crypto. “They told people ‘Oh, yes, we traded on your behalf,’” Eberle said. “But now we find out there wasn't enough money there in the first place.”
Tapscott told INN the crypto space has been marked by big personalities rising through the ranks and ultimately falling from grace, bringing the reputation of the entire sector down with them. “I think it's taught us that for an industry that relies on decentralization … we shouldn't have to rely on any individual to be a leader,” Tapscott he said.
Eberle told INN he views the FTX case as a lesson and hopes users will become familiar with essential self-guarding methods.
“A lot of people didn't want to take the time to really learn how to custody their own assets,” he said. “Instead, they trusted these intermediaries, which are just people, and then they're susceptible to people's failures, including fraud.”
This year also brought the collapse of a crypto network that wiped out over US$60 billion in digital assets.
The downfall of the Terra Network and its accompanying LUNA token caused a significant rift in the stability of the crypto market.
“That created sort of the first wave of contagion in the space,” Kuriya told INN.
While the Terra Network collapse was the first of the year, the FTX event brought a new type of crisis for the crypto market. Unsurprisingly, having two major catastrophes in one year wasn't good for the health of the space.
Ethereum merge marks growth point for blockchain network
Amid all the chaos of 2022, one of the biggest victories for the cryptocurrency market was the Ethereum merge.
The merge transitioned the Ethereum network's validation system from proof-of-work to proof-of-stake, which was a much-needed move, according to experts of the space.
The decision added a new level of stability to Ethereum and its digital coin Ether, and proof-of-stake also reportedly has a much lower environmental impact than proof-of-work.
“I know that a lot of fund managers and investment portfolio managers, one of the things that they are always pressured on is being environmentally conscious,” said Gareth Soloway, chief market strategist at InTheMoneyStocks.com.
“That’s going to alleviate that issue.”
This year has brought cryptocurrency market participants on a difficult ride characterized by shocking revelations in the midst of bear market conditions. Now is the time for investors to reflect on their positions and their long-term outlook.
As Tapscott said, “The collapse of FTX, I think, forces us to confront some big questions about the nature of Web3 and where we go from here."
Don't forget to follow us @INN_Technology for real-time updates!
Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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