- The Federal Reserve's interest rate hikes scared investors away from speculative bets like cryptocurrencies in 2022.
- The industry endured a series of crashes, including FTX, algorithmic stablecoin UST, and centralized lender Celsius.
- Despite the stagnation of the market, Wall Street giants like BlackRock signed major cryptocurrency-related deals.
Cryptocurrencies took big hits this year, as the industry's market capitalization sits more than two-thirds below its all-time high. The nascent space was hit by a harsh macroeconomic environment, a large number of bankruptcy filings, and criminal charges against top crypto executives.
However, despite declines of more than 60% for bitcoin and ether in 2022, venture funding continued to be funneled into the space as major traditional financial institutions signed partnerships and expanded crypto-related offerings.
Insider spoke to various crypto experts and mapped out the most influential events for the industry in 2022.
January and February
Non-fungible tokens, or NFTs, seemed to be all the rage in early 2022, especially after dictionary publisher Collins anointed the phrase its 2021 โWord of the Year.โ NFT Monthly Trade Volumes pointed to $17 billion in January, according to Dune Analytics.
Popular collections, often called "blue-chip" projects, sold in the millions. The singer Justin Bieber even bought a Bored Ape Yacht Club NFT for $1.3 million.
NFT trading volumes then began to decline in February, a month that also saw Sotheby's cancel a live auction of 104 NFT CryptoPunks valued between $20 million and $30 million due to lack of interest. Some say this marked the end of the NFT hype.
March
The macroeconomic backdrop began to worsen in March, when the Fed announced its first rate hike in years to combat decades-high inflation.
Investors turned away from speculative bets like cryptocurrencies, causing a further drop in token prices. Bitcoin's reputation as an inflation hedge was thrown into question when the cryptocurrency began trading alongside technology stocks.
However, venture financing was still strong in the space. Yuga Labs, creator of the Bored Ape Yacht Club NFT Collection, high $450 million in a seed round to give it a valuation of $4 billion.
Can
Amid the fifth consecutive month of losses in crypto markets, algorithmic stablecoin TerraUSD, or UST, lost its 1-to-1 peg to the dollar, triggering massive selloffs and the eventual collapse of its $18 billion ecosystem.
Many retail participants lost their life savings because they were treating UST, which was advertised as a way to park your assets and earn a 20% return, like a savings account.
โThis started the great crypto crash of 2022 and showed that for many projects, the emperor was naked.โ Jeremy Epstein, CMO of blockchain startup Radix, told Insider.
June and July
Three Arrows Capital, the huge crypto investment firm that once reported $10 billion in assets, had exposure to UST and some reports it put its exposure to the Luna brother token at around $560 million. The company filed for bankruptcy in June, causing widespread contagion.
Three Arrows, commonly known as 3AC, invested in crypto startups and later allowed some of its portfolio companies to also store funds with them as custodians. Co-founders Kyle Davies and Su Zhu, both former Credit Suisse derivatives traders, were hailed by many, with 3AC even being dubbed "adult in the room."
Also in June, crypto lender Celsius halted all withdrawals and user activity on its platform. A month later, the firm filed for bankruptcy, listing $4.31 billion in assets and $5.5 billion in liabilities. The firm was unable to deliver on its promise to offer up to 17% annual returns to clients.
In July, digital asset brokerage Voyager, which allowed users to store their digital assets on its platform, filed for bankruptcy.
"Certain exchange failures have highlighted the risks of centralized projects and have served as a reminder of the dangers of giving a single entity or organization complete financial control," Daniel Kisluk, CMO of blockchain infrastructure developer Pendulum, told Insider. .
September
The market then turned its attention to the Ethereum Merge, an upgrade that reduced power usage on the smart contract network by more than 99%. Crypto markets had a brief rally in September.
The Merge was the third biggest event in cryptocurrency history, after the invention of bitcoin and ethereum, blockchain developer Ben Edgington previously told Insider.
The upgrade was "essentially the re-engineering of a chain that is worth hundreds of billions of dollars, so we are changing the engine mid-flight," he said.
Also in September, BlackRock announced a partnership with Coinbase's institutional arm, Coinbase Prime. The world's largest asset manager has agreed to offer clients access to Coinbase's cryptocurrency trading and custody services.
November and dicember
Sam Bankman-Fried's once $32 billion cryptocurrency empire collapsed in November, in what US prosecutors called the "worst financial frauds in US history."
The cryptocurrency exchange, along with more than 130 of its associated entities, filed for bankruptcy on November 11. FTX assets have reportedly been transferred to Bankman-Fried's cryptocurrency hedge fund Alameda Research, leaving an $8 billion hole in the trading titan's balance sheet.
In December, Bankman-Fried was indicted on multiple counts of fraud and released on $250 million bail. FTX co-founder Gary Wang and Alameda Research CEO Caroline Ellison have been charged with defrauding investors and are reportedly working with authorities.
Pendulum's Kisluk said that while the numerous failures of 2022 damaged confidence in cryptocurrencies, the resulting bear market also represented an opportunity for the industry to "focus on creating and maximizing value for users, rather than valuations." and shift towards infrastructure projects and decentralized finance.
Radix's Epstein warned that the industry should prepare for further FTX contagion, but predicted that crypto markets would eventually recover.
"Ultimately, this year will be remembered as the year that, with great pain and discomfort, we purged the toxic elements, preparing ourselves for healthier days ahead," the executive said.
