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By Manoj Dharra
While 2021 will be remembered as the year when the cryptocurrency market reached $3 trillion along with the rise of Non Fungible Tokens and the Metaverse, 2022 will be remembered as the year when central bankers’ reactions to the ensuing inflation caused significant headwinds.
What went wrong
The Terra collapse brought down multiple funds, most notably 3AC, which had downstream impacts on creditors, notably BlockFi, Celsius, Voyager, and Genesis.
The bankruptcy of FTX and Alameda put extra pressure on creditors, disrupted the bankruptcy of Voyager, causing to the bankruptcy of BlockFi, forced Genesis and Gemini to cease withdrawals, eliminated equity investors in the company, and caused a sharp decline in the value of linked tokens.
The FED Rate Hike
Like broader financial markets, the crypto market has responded acutely to US Federal Reserve actions, particularly the Fed’s six rate hikes, along with monthly Consumer Price Index (CPI) releases, which generate expectations for how the central bank may leverage interest rates as a tool to curb inflation.
Simultaneously, this year kept both market participants and the broader public captivated as many of the large, centralized institutions that service the digital asset industry or speculate on it have blown up spectacularly.
Top Trends of 2022
- Bitcoin’s price fell below its 2017-cycle high in June for the first time since January 2021. Although bitcoin’s price dropped 64.1% year-to-date, its dominance remains stable at 40% of total digital asset market capitalization.
- All of the top ten cryptocurrencies by market capitalization experienced negative price returns as low as 81%. Nevertheless, exchange-associated tokens such as BNB and OKB and memecoins like DOGE performed better than BTC and other layer-1 protocols.
- As the market experienced a steep downturn, stablecoins became the exit gateway. The annual stablecoin adjusted transaction volume crossed 57.2 trillion in 2022, a 19 percent y-o-y growth.
- Since Jan 2022, Bitcoin futures volume decreased by 52 percent, more than Ethereum futures’ 28% decline.
- The number of layoffs in 2022 was the highest at 9,564.
Conclusion
As 2023 approaches, investors must be aware of the macro and systemic concerns affecting the crypto industry. The Federal Reserve of the United States’ monetary policy reaction to inflation has continued to destabilize markets.Market participants feel that the crypto contagion from previous bankruptcies is still causing market volatility, with growing regulatory pressure and miner capitulation expected to continue into the new year.
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