To paraphrase Queen Elizabeth of the United Kingdom, the bitcoin industry won't look back on 2022 with pure joy.
Investors began to pose major existential issues at the end of the year as a result of the rapid series of crashes, contagion, and breakdowns.
After all, the biggest cryptocurrency, bitcoin, has struggled to maintain its value for longer than a week at a time and has dropped by almost 75 percent from its peak of $69,000 in November of last year.
Many of the 22,000 or so tokens and coins are comatose, if not dead, and their market value is currently less than a third of their high $3 trillion worth in November 2021.
A harsh reality check for a sector that began 2022 with hopes for massive institutional acceptance, bitcoin's replacement of gold as the world's inflation hedge, endorsements from people like Tesla Inc. CEO Elon Musk, and the frenzied celebration of billion-dollar non-fungible tokens.
Along with the Fed's extreme hawkishness, the decline of cryptocurrencies also contributed to the fall of the TerraUSD stablecoin, which in turn caused a "Lehman moment" when funds and brokers like Celsius and Voyager went bankrupt.
The failure of Sam Bankman-FTX Fried's exchange last month was viewed by some as the last straw for cryptocurrencies.
WHY IT MATTERS
There are much fewer ardent crypto enthusiasts forecasting a bounce this time around than there were in 2017, when bitcoin dropped just as severely.
Instead, 2022 will serve as the "I told you so" moment for authorities, who have mostly kept a distance from the cryptocurrency industry or even outlawed trading in cryptocurrencies.
The tiny uptick in bitcoin prices this month, according to the European Central Bank, is "artificially created final gasp before the path to irrelevance."
The key mitigating element this year has been how mainstream finance has mostly avoided spreading the virus. The crypto ecosystem has seen a disproportionate amount of excess, unrestrained lending, and money laundering.
WHAT DOES 2023 HOLD?
James Malcolm, a strategist at UBS, cites the rising connection between cryptocurrencies and small-cap U.S. equities as evidence that bitcoin and other tokens may thrive as specialised, diversified assets in investing portfolios.
There are aspects of it that can be beneficial in other sectors, and there is definitely a little cryptocurrency market that will continue to survive on the periphery of financial markets, so it is incorrect to suggest that this thing is going to coil up and die entirely, according to him.
However, it may take months or even years to put in place the kind of regulation that investors want in order to feel secure working with cryptocurrency brokers and exchanges, whether it is transparency or capital adequacy.
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