How Was 2022 For The Crypto Industry?
2022 was one of the most significant and difficult years in crypto history. The market experienced a dramatic reversal after an extremely bullish 2021 that saw Coinbase go public in the largest direct listing in history, the first bitcoin exchange-traded fund, and the inaugural cryptocurrency almost reached $70,000 on two separate occasions.
While high-profile collapses such as the stablecoin terraUSD and its sister token luna, as well as Sam Bankman-Fried and the rapid demise of FTX, will garner most of the attention and blame, crypto also faced massive macro headwinds as the US Federal Reserve and its central bank counterparts around the world began to unwind the massively accommodative monetary policies instituted at the start of the coronavirus pandemic.
Despite these difficulties, the outcome for 2022 will be unknown for several years. For example, optimists see the bankruptcy of FTX, lender BlockFi, and hedge fund Three Arrows Capital, among others, as a necessary purge of fraudulent or irresponsible firms. There could be a silver lining to this pain if regulators use these unfortunate cases as the final push needed to take meaningful action on crypto.
$1.46 Trillion was the total drop in crypto’s total market capitalization in 2022. This drop does not even begin to capture the magnitude of the decline, as the value peaked on November 8, 2021, when it surpassed $3 trillion. The last time crypto’s market capitalization was this low was on January 2, 2021, at the start of the pandemic-driven crypto bull run.
Defining Crypto Trends of 2022
Hackers and fraudsters stole $3 billion in 2022. While the debate over cryptocurrency’s actual utility to hackers continues — on the one hand, they are bearer assets, but everything on a blockchain is theoretically traceable even years later — there is no denying that bad actors see the asset class as a juicy target.
According to the crypto forensics firm Chainalysis, in October (the most recent month for which data was available) was the worst month on record for hacks ($718 million stolen).
Bridges, portals between blockchains that allow users to transfer assets from one platform to another, were a particular target for hackers this year. Bridge hacks have stolen at least $2 billion of the total, with the two largest being a $320 million February attack on Wormhole, which connects Ethereum and Solana, and a $600 million March exploit of Ronin, a bridge used by players of the blockchain-based game Axie Infinity.
More regulatory scrutiny has drawn the largest group of investors into crypto than ever before in the last year. According to Glassnode data, the market share of investors transacting more than $10 million per transfer increased from 33% in January to 80.4% in September.
Another significant trend for 2022 was integrating crypto services into traditional banking’s legacy stacks. We currently have two distinct silos. These two will continue to work together over the next year to facilitate institutional money flow and begin integrating in both directions. Furthermore, these services must be seamlessly integrated into existing platforms.
Not all doom and gloom
2022 was a difficult year for the crypto industry globally, as central banks ended a decade of monetary easing, resulting in “risk-on” conditions.” As an emerging asset class, cryptocurrency experienced significant corrections, exacerbated by black swan events such as the Terra/LUNA implosion, 3AC and FTX bankruptcy.
Due to mounting economic pressure to find alternatives to cash and draw yields, cryptocurrency is increasingly becoming the go-to option for investors. While crypto-focused institutional investors such as hedge funds, asset managers, and venture capitalists have already begun to diversify their portfolios with digital assets, traditional asset managers and family offices will enter the market in 2023. These latter adopters only recently began to understand cryptocurrency, owing to negative interest rates, inflation hedging, and a bullish market.
Liquid staking continued an established trend that began in 2021 throughout 2022. Decentralized Finance (DeFi) continues to set new records as the total value locked (TVL) peaked at $86 million in 2022. Its liquid staking subset showed even faster growth and adoption.
Liquid staking has piqued the interest of investors. The prospect of generating low-risk passive income appeals to investors. This is especially true for those looking to dabble in the volatile crypto markets.
One of the most important ways to allow for a broader range of participants to invest in the staking economy is to enable broader access to the staking economy.
With the development of several specialist staking-as-a-service providers over the last year or so, access has blossomed. Blockdaemon, Staked, and Bison Trails are a few examples (acquired by Coinbase). All of these offer secure platforms that make staking easier for investors.
When it comes to unlocking liquidity in the sector, allowing liquid staking is just the beginning. Other solutions are required to increase the efficiency of capital. Liquid staking enables the release of such liquidity. To put it simply, liquid staking enables participants to tokenize staked assets using a derivative contract, which can then be used in the DeFi ecosystem.
A Final Word
In the future, 2022 may be remembered as a watershed moment in the history of virtual currencies, when they lost their luster and were relegated to the realm of fringe products that most people approach with skepticism and caution. Or it could be remembered as a period of excruciating growing pains for a fledgling industry.
