The year 2022 was difficult for the cryptocurrency market, with one of the worst bear markets ever recorded and the demise of several significant platforms. The pandemic's effects are starting to be felt by the world economy, and it is obvious that this has affected the cryptocurrency sector.
“ Crypto winter” is the industry term for the chill that descended on the market in 2022, and contagion was the order of the day. Several major crypto players fell like dominoes after the TerraUSD algorithmic stablecoin collapsed: Three Arrows Capital. FTX, BlockFi, Celsius Network, Voyager Digital.
Even though the blows kept coming, not everything was negative at first. One of the biggest athletic events in the US, the Super Bowl, featured flashy, celebrity-filled advertisements for cryptocurrency businesses like Coinbase, Crypto.com, and the aforementioned FTX, which was still on a roll.
In the Bahamas and Miami, there were crypto conferences with daytime discussions on the future of Bitcoin and evening parties with a glamorous atmosphere. The industry's significance increased in Washington as well, where opulent political contributions and a large lobbying force indicated growing influence.
Terra’s ecosystem Collapse
The unstaking (removal from the Anchor Protocol) of more than $2 billion in TerraUSD (UST) in May resulted in the fast liquidation of hundreds of millions of US dollars. Uncertainty exists around whether this was an intentional attack on the Terra blockchain or a reaction to higher interest rates. The price of UST dropped from $1 to $0.91 as a result of the massive capital outflow. Market participants then began exchanging $0.90 in UST for $1 in LUNA.
Following this decline, cryptocurrency exchanges began to halt trade in pairs including LUNA and UST. Do Kwon revealed a LUNA recovery plan after the original accident in May, and things started to look up. The value of the currency soon decreased, though. It was given up almost immediately after starting.
Due to panic selling that accompanied TerraUSD Classic's (USTC) and Luna Classic's (LUNC) declines, investors lost a combined $60 billion.
One of the companies that suffered the most from Terra's demise was Galaxy Digital. Michael Novogratz, the company's millionaire CEO, created it, and it reported a $555 million quarterly deficit in August.Later on in the year, Galaxy suffered another setback and disclosed exposure to FTX of about $77 million.
Hedge funds and crypto lenders default
Cryptocurrency lender Hodlnaut suspended withdrawals and withdrew its application for a license in Singapore, claiming losses associated with Terra (which an October filing revealed to be close to $190 million). In addition, the company disclosed that it had fired 80% of its employees while police investigations in Singapore were ongoing.
Three Arrows Capital, a widely known cryptocurrency hedge fund, went into liquidation in June after failing to meet margin requirements from lenders as Terra's fall shook markets. The fund was eventually censured by the Monetary Authority of Singapore for providing incorrect information and exceeding asset allowances.
The bad debt of Three Arrows cost cryptocurrency lender BlockFi $80 million. In a deal that also allowed the exchange the option to buy the lender, FTX US granted the company a $400 million credit line.
Following FTX's demise in November, BlockFi filed for Chapter 11 bankruptcy with the intention of restructuring the business rather than liquidating its assets.
Voyager said in December that Binance.US will purchase the firm's assets out of bankruptcy in a deal valued at about $1 billion.
Digital Currency Group, the parent company of cryptocurrency broker and lender Genesis, became Three Arrows' largest creditor in July with a claim of $1.2 billion.
Genesis cut 20% of its workforce, including the majority of its top leadership. In the months that followed, Genesis let go of a significant portion of its top leadership and slashed 20% of its personnel.
In addition, the brokerage disclosed $175 million in FTX exposure in November, DCG invested $140 million in Genesis. Later, Genesis stopped a critical aspect of its loan operation, and it is now looking for at least $1 billion in new investment to stay afloat.
The unrest had an effect on the cryptocurrency exchange Gemini, which stopped redemptions for its yield product for retail investors because Genesis was a crucial partner.
Following Three Arrows' loan default and market volatility's impact on rates, cryptocurrency lender Celsius suspended withdrawals in June. A month later, it declared bankruptcy, revealing a $1.2 billion deficit.
Alameda from FTX was one of its debtors and had a claim for almost $13 million. A little-known company called Pharos Fund, a vehicle owned by Lantern Ventures, a business created in London by former Alameda employees, was Celsius's largest known creditor with $81 million.
FTX’s Bankruptcy
In November, Binance announced a proposal to sell FTX's FTT token for $529 million after a report revealed that the token made up a large portion of the balance sheet of FTX's sibling trading company Alameda Research. FTT's value decreased as a result of the action, but FTX withdrawals increased. That same week, Binance started negotiations to buy FTX's assets, but it quickly retracted its bid.
After many tumultuous days that started with Binance's FTT announcement, FTX Group, which includes Alameda and FTX US, filed for Chapter 11 bankruptcy on November 11. It is anticipated that it will owe creditors billions of dollars.
In the final month of the year, the company's founder Sam Bankman-Fried was detained in the Bahamas and accused by US authorities of wire fraud and other offenses.
Some of the biggest names in finance were caught up in the FTX scandal, including hedge funds and venture capitalists that owned stock shares in the group's firms. As FTX fell, businesses including SoftBank Group, Sequoia Capital, and Temasek wrote down the value of their shares of FTX to zero.
Tiger Global, which held a $38 million holding in FTX, was among those affected. The company has also invested in the struggling cryptocurrency company Babel Finance, which stopped accepting withdrawals in June, and the now-bankrupt lender BlockFi.
What do you think 2023 will be like for blockchain, crypto and NFTs? Stay Tuned to Gokhshtein Media to find out!
