A Rough Year for Crypto: The Disasters of 2022

Cryptocurrency has come a long way since the emergence of bitcoin in 2009. While it has gained widespread adoption and recognition, the crypto market has also seen several major disasters since then.

However, this year has been the worst, repeatedly bringing the crypto market to its knees.

This article will look at all the major disasters that occurred till 2021 and compare them with 2022. We’ll also provide a forecast on what to expect in 2023, highlighting important moves by regulators and the role of proof-of-reserve (PoR). In ensuring the security and stability of the crypto market.

Let’s join in!

Major disasters that shook the crypto market in 2021

Mt Gox Hack (2014)

One of the biggest disasters in the history of cryptocurrency happened in 2014 on the Mt Gox exchange. at that time, it handled About 70% of all bitcoin transactions. Hackers gained access to the exchange, and 850,000 bitcoins (about $450 million at the time) were stolen.

The hack infuriated the crypto community and resulted in a massive drop in the price of bitcoin. The exchange eventually filed for bankruptcy, causing widespread panic and skepticism among investors.

The Dao Hack (2016)

The Decentralized Autonomous Organization (DAO) was an innovative contract platform built on the Ethereum blockchain that raised over $150 million in crowdfunding in 2016. However, in June of the same year, an unknown hacker exploited vulnerability in the DAO’s code and stole approximately 3.6 million ether (worth approximately $50 million at the time).

The hack led to a hard fork in the Ethereum blockchain, creating Ethereum (ETH) and Ethereum Classic (ETC).

Bitfinex Hack (2016)

In August 2016, the Bitfinex exchange, one of the world’s largest cryptocurrency exchanges, suffered a major hack that resulted in the theft of approximately 120,000 bitcoins (worth approximately $72 million at the time). The hack led to a massive drop in the price of bitcoin and widespread panic among investors.

Coincheck Hack (2018)

In January 2018, Japanese cryptocurrency exchange Coincheck suffered a major hack that resulted in the theft of approximately 523 million NEM tokens (worth approximately $534 million at the time). The hack caused a massive drop in the price of NEM and caused widespread panic among investors.

Notably, bitcoin crashed this year after a massive rally in 2017. Other cryptocurrencies also followed suit. In September 2018, they all fell 80% from their highs, making it even worse dot-com bubble The collapse of 1995–2000. By November 26, bitcoin had lost 80% of its value below the $4,000 mark.

In January 2018, CBS warning Regarding possible fraud, especially after the Texas Securities Board ordered Bitconnect, a British company, to cease operations. It promised high monthly returns but required a registered office or provided necessary documents.

QuadrigaCX (2019)

In 2019, Canadian cryptocurrency exchange QuadrigaCX faced a controversy that would lead to its downfall. reports revealed That the company’s CEO, Gerald Cotton, had died, taking with him the password to the exchange’s cold wallet (used to store cryptocurrencies offline). As a result, the exchange was unable to access approximately $190 million worth of cryptocurrencies, causing widespread panic among investors.

Now, let’s compare these major disasters with what happened in 2022

The collapse of TerraUSD and LUNA

Investors lost around $40 billion as a result of the collapse of the two main stablecoins in the crypto industry, TerraUSD and Terra. The other coin that supported it was also the Luna. Influenced by collapse and has since been renamed Terra Classic.

A stablecoin provides a safe and stable environment for investors, who are usually exposed to high volatility, and LUNA and TerraUSD were no different. In theory, the price of TeraUSD will remain the same as when it was first created. This would make it an ideal asset for crypto investors.

In April, LUNA was around $116, falling steadily by fractions of a penny. Lael Brainard, Vice President of the Federal Reserve, Specified As in a classic bank run during a speech at an event in July. The sudden closure of the project has affected individual investors and companies that depended on it for their business models.

Frozen customer accounts, hacks and sudden bankruptcy

Despite the technological advancements made in the crypto industry, the financial problems faced by some companies are still timeless. especially, statistics Fortune Crypto showed that fraudsters deployed over 117,000 scam tokens this year, a 41% increase from last year.

Over the past few years, many companies have suffered setbacks and have either gone bankrupt or are struggling to survive. By comparison, 2022 is the worst if you add up all the bankruptcies and hacks of the past. Let’s join in;

Celsius Network

Celsius Network was a startup that started in 2017 and offered various financial services like loans and deposits. according to this WebsiteUsers can earn interest by depositing crypto. However, in June 2022, its 1.7 million users could not withdraw or transfer funds.

Celsius Network filed for bankruptcy in July. According to its court filing, its wealth had declined by 80% from March 30, 2022 to July 14, 2022.

3AC and Voyager followed suit

Before crypto prices started falling, Three Arrows Capital, a crypto hedge fund, managed about $10 billion. Unfortunately, its founders went into hiding after the company failed to repay its loans.

In July, crypto brokerage service Voyager Digital filed for bankruptcy due to Three Arrows Capital’s failure to settle its debt. The company noted that the company’s failure to make payments has led to its financial problems.

Last Blow: FTX Saga Ripple Effect

On November 11, 2022, FTX and its US counterpart, FTX.US filed bankruptcy, The filing followed a number of withdrawals and sales of FTX’s native tokens. Notably, shortly after the two exchanges filed for bankruptcy, they were hit by a hack.

Following the FTX crash, BlockFi, a crypto trading platform, shut down its operations and halted customer withdrawals. applied after bankruptcy On 28 November. Prior to the incident, it had a line of credit with FTX.US.

On 21 December, SBF was extradited to the US. In addition, Alameda CEO Carolyn Ellison and FTX co-founder Gary Wang pleaded guilty to fraud charges and will settle with the government.

On December 22, Sam Bankman Fried was released on $250 million bail. His parents posted a $25 million bond for their Palo Alto home.

What should we expect in 2023?

contagion may resume where we left off

The collapse of Terra in May, which was worth about $60 billion, triggered an avalanche of volatility in the crypto market. It bankrupted several major financial institutions including Three Arrows Capital. Celsius was a retail magnet focused on lending and borrowing of crypto assets.

At the time, the market was unaware that the exchange, FTX, and its affiliated hedge fund, Alameda Research, were struggling with liquidity issues. About six months later, reports revealed that the two entities were to divert client funds to each other.

The crypto crisis began to spread in May after the collapse of Terra. Despite various cases emerging in the following weeks, the situation was still not over. For example, people learned that crypto trading firm, Orthogonal Trading, was essentially bankrupt a month after the collapse of FTX. This was because the firm had suffered huge losses due to the failure of FTX.

Genesis Trading, a leading institutional trading firm, is yet to reopen withdrawals made by its clients from its lending portfolio, which was hit by the liquidity crisis caused by the collapse of FTX and withdrawal of funds from the company. In addition, the bankruptcy cases of Celsius, BlockFi, Genesis, and Three Arrows Capital remain unresolved.

As the crypto market continues to experience volatility, investors and market participants should remain aware of the potential for further disruption.

more proof of stores

As the market continues to face concerns, we expect more players to step forward and provide the necessary transparency through proof of stock,

In 2023, we expect the crypto sector to focus a lot of energy on developing and bringing online services that will provide increased transparency and auditability while protecting the privileges of currency holders. One of these is zero-knowledge proofs, which has made significant progress recently.

The year will bring an exciting change to the crypto industry as the trend of transparency, and regulation continues to gain momentum. More firms will start providing related services in the space.

more regulation but less than ideal

Over the past decade, regulators have repeatedly refused to regulate the crypto market due to uncertainty. This has resulted in two major crypto price falls, one in 2022 and the other in 2018. After years of inaction, many regulators acknowledge that the industry is in need of regulation.

If regulations are not implemented quickly, they could lead to a harmful or less-than-ideal framework for the industry. Doing so can make it difficult to establish proper regulations, which will also negatively impact the industry for years to come.

Prior to the collapse of FTX, the European Union finalized its regulations concerning the crypto-asset industry. These regulations, known as MiCA, are expected to stop similar cases in the future. Following the collapse of FTX, Stephan Berger, a member of the European Parliament, Having said on Twitter that governments should avoid overregulating.

MiCA should serve as an inspiration to other regulators and the crypto community. If implemented properly, it can improve market transparency and prevent cases like FTX from happening. Setting up a regulatory framework can also restore investor confidence.

All eyes on risk sentiment in equity markets

In 2023, the impact of the equity market on crypto prices will be significant. In 2022, the market was heavily correlated with technology stocks and risk-on sectors. As a result, the environment is sensitive to the macro-environment and plays an important role in crypto. Market sentiment will continue to influence crypto’s risk appetite in the coming years.

involvement of large corporations

Despite various bankruptcies and collapses in the crypto market in 2022, large corporations continue to enter it. Visa recently released a research paper discussed Possibility of automatic payment using cryptocurrencies.

In October, Bank of New York Mellon launched its custody platform for digital currencies. A month later, Fidelity Digital Assets also launched its trading platform for retail investors.

The rapid rise and growth of large corporations has been instrumental in driving innovation and penetration in the industry. In 2023, many more companies are expected to foray into crypto.

final thoughts

Despite the volatility in the crypto market over the past year, it is still important to note that the industry continues to grow. This is evidenced by the many trading cryptocurrencies that have performed well in the past. Industry professionals believe that this trend will continue for the next few years, which augurs well for investors already involved in the market. Therefore, in 2023, the cryptocurrency market will continue to grow.

Although the market may not experience as much volatility as in 2022 as compared to 2023, investors need to monitor the factors affecting the development of the crypto market. Some of these include the increasing number of corporate participants, hostile regulation and risk sentiment within the equity market.

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