Crypto in 2022: The Gloomy Path in its Decade-Long Journey!
As analysts in the crypto space were busy counting their price predictions for their favorite digital assets this year, 2022 has undoubtedly been a gloomy year for cryptocurrency. From lower lows to major crypto firms collapsing, 2022 has had the year to forget in its decades of a long journey toward supremacy. When 2022 was supposed to be the year of the rebound as the economy recovered, cryptocurrency seems to have to postpone its recovery to 2023 as the markets go from bad to worse. Let’s rewind the major happenings in the crypto space from this year 2022 and what are the lessons we could pick up for 2023?
Crypto in 2022
2022 highlights have been mostly great for the world which possibly saw the end of the Covid pandemic and also football which finally witnessed Lionel Messi winning the World Cup but Crypto seems to continue on its poor form from the end of 2021. The year that was seen as the perfect moment for crypto to prove its claims of being a sustainable asset for the long term for the future has ended up exposing a lot of the weaknesses that derail its progress.
The year also witnessed the impact of the Tapering as the FED and many Central Banks worldwide ended up hiking interest rates to combat record-breaking inflation rates and creating a cautious economy. The economy that was still feeling the aftereffects of the Covid Pandemic and the Russia — Ukraine war presents an incredible challenge for assets and investments to grow this year as people shift to safer assets. Banks profitably rise to a 14-year high in 2022 with a rate of 12% globally.
This has an adverse effect on stocks such as the Dow Jones Index which has lost 33% of its value from its previous high in 2021 and even worse on cryptocurrency which has lost more than 80% of its market cap. The two flag bearers of the crypto space in Bitcoin and Ethereum brought significant upgrades this year with the form of Bitcoin’s Lightning Network and Ethereum 2.0 merge but failed to stop the downward spiral as both lose more than 2/3 of their value throughout 2022.
NFT is another one on a downward trend this year as investors and creators start to feel the effect of the hype fading away. From January 2022 to September 2022, NFT trading volume collapsed by 97%, from $17 billion in value to just $466 million with CryptoPunk still amongst the top dollar sales volume. Sandbox (SAND) and Axie Infinity (AXS) are also amongst the worst performing cryptocurrency in 2022 as both lose approximately 93% of their value.
As prices falter and the interest in cryptocurrency slowly diminishes, 2022 has also been a tough year for institutions that hedge their bet on the crypto space. One of the companies that stole the highlight this year was Meta which is currently worth a quarter of what it was last year. Meta was the first to jump on the Metaverse craze with an investment of $2 Billion that hasn’t worked out so far as the Metaverse craze seems to lose its momentum. This year also marked the anniversary of the El Salvador Bitcoin experiment as the country is currently facing losses of $60 Million and while the idea seems great at first, it has not worked out as expected so far.
2022 has also been a year to remember for the Crypto space as billion-dollar crypto firms and their billionaire CEOs came crashing down to Earth. Starting Terra Luna’s astonishing collapse to the fall of one of the World’s largest crypto exchanges FTX in a couple of days has only deteriorated the little faith that people still have in this space that was deemed to be the future of our financial system. The result of all this is a prolonged Crypto Winter that might be going on for years with FTX collapse alone causing damages of more than $150 Billion throughout the global crypto market.
All in all, it has been a gloomy year in the crypto space with unrealistic promises and expectations from 2021 coming crashing down in 2022. A year that was supposed to prove the capability of the mighty DeFI ends up leaving us with valuable lessons that can be applied for 2023 and beyond.
Crypto Lessons for 2023
- If it sounds “Too Good To Be True”, It probably is
Promises are easy to be made when Crypto is thriving in 2021 but it’s hard to stand by when everything falls apart. Crypto Space last year was in a good position where anybody could make money and this is why there are so many firms that capitalize on this by offering you a deal of a lifetime. Some created new financial products offering crazy returns that are beyond the traditional interest rates of banks which seems too good to be true but sooner one by one starts to fall in 2022.
Terra Luna, Celcius, and FTX are just some of the examples that offer crazy returns to get your interest in the door while simultaneously all of them have gone bust this year. Do your own research before investing in any products and make sure that their business practices are sustainable enough to protect your money. If at first glance something is incomprehensible to you, it might probably be a better idea to avoid it and never invest in something you can’t understand.
2. Liquidity is important in the World of Uncertainty
Liquidity is the word thrown around quite often during 2022 as a lot of crypto firms fall prey to Bank Runs and Liquidity crunch. A lot of crypto firms seem to suffer from the same problem in that most of their liquidity is stored in their own native token or another form of cryptocurrency. We see this with the case of FTT in the FTX case or Luna in the case of the Terra Ecosystem. Liquidity forms a safety net to protect the institution and its users during the trying times of 2022.
Why is Liquidity in the form of Cryptocurrency a bad idea? The main reason is that cryptocurrency is not an official payment method yet so it holds no value outside of the DeFI ecosystem in terms of an uncertain economy, people will need real money. The second reason is that the cryptocurrency itself is a volatile asset so the value of your liquidity will be of no use once the price starts falling and the assets become illiquid therefore creating a Liquidity crunch.
There should be better regulations in the form of a proper liquidity level that has to be maintained by Crypto Firms throughout their operations in order to avoid collapses in 2022 from happening again.
3. Decentralization isn’t always better
For years now the battle between DeFI and the traditional economy has raged on with DeFI promising to be the solution to our financial system. Decentralization at first with the creation of Bitcoin promised us a world without any banks or central authority so everybody could cooperate in a cohesive unit but that hasn’t seemed to be the case in 2022. As the years went by DeFI has become more Centralized as there were no gatekeepers or regulators to stop new leaders from accumulating wealth and power.
Leaders like Do Kwon of Terra Luna and Sam Bankman Fried of FTX were able to amass a fortune for themselves while costing trillions of damages along the way. The Crypto Network is decentralized but it seems to lose its true identity in the way the crypto space is run. Decentralized and Centralized have their own benefits but if the crypto space keeps on pretending that this way of decentralization is good and oversight is bad, then a solution could not be achieved.
4. “Real Value” is an important thing to move forward
Cryptocurrency throughout the year has certainly soared in value as more people are jumping into the DeFI Space. Bitcoin has jumped from virtually nothing in 2009 to more than $16,000 in 2022 but what really gives Bitcoin its 5-figure value? Is it the technology or Is it the limited supply of Bitcoin which gives its value?
The answer is Bitcoin and most other cryptocurrencies are valued highly due to the relationship between their demand and supply. The demand and supply in the market are what give cryptocurrency its value and this is why these assets are extremely volatile as nobody knows what their real value is. This is a different case with Gold or Fiat currency that have a real use case in the world and people are aware of its real value.
Real Value is important because it is a constant figure that cannot be changed while most cryptocurrencies are assessed using their market value which is continuously changing. This will be an important step for the DeFI to develop more cryptocurrencies that have more Real Value in order to build a more stable ecosystem.
5. It’s time for more Regulations
Regulations and oversight are needed in order to prevent bad actors from taking advantage of users within the crypto space. There should be more regulation in how a company is operated so cases like FTX and Alameda Research could use customer funds for risky bets that end up in a loss for everyone.
With the transparency that is offered by the blockchain network and crypto firms like Chainalysis, it should be much easier for regulators to do a proper audit of Crypto firms that aren’t meeting the standards. There have been a lot of improvements in data tracking in 2021 but a more advanced precaution system should be in place in order to warn users of impending red flags.
Regulations may not solve all the problems that are there in the crypto space but they could help in avoiding the cases that happen in 2022 from occurring again in the years to come!
We in Nagaya Technologies Pte. Ltd would like to begin the year 2023 by saying thank you to all our readers, subscribers, and holders who have loved our content throughout this year. We hope that heading into a new chapter in 2023 will be a great year for all of us. For more information regarding the latest updates on Nagaya and our whitepaper, you can visit us at nagaya.io
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