How has Crypto recovered from the crash? The state of cryptocurrencies in 2023

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Cryptocurrency is still a relatively new technology, and many people are excited about its potential. However, cryptocurrencies have experienced turbulent times in the last year after a meteoric rise. Major currencies including Bitcoin have lost a significant part of their value.

Was the dramatic drop in 2022 just another bump in the road, or will cryptocurrencies continue to fall as people become more skeptical of the technology? We’ll break down what you should know and how recent trends suggest the crypto space may continue to grow.

key takeaways

• The Bitcoin price fell in 2022, losing approximately $30,000.
• The FTX collapse significantly damaged the cryptocurrency industry, but the even more recent collapse of Silicon Valley Bank has arguably increased confidence in decentralized banking.
• Investors remain unsure if digital assets will become a more popular form of currency, or could 2022 have been the beginning of the end for the technology?

What is crypto?

Cryptocurrency, or crypto, is a digital currency that does not depend on central authorities like governments or banks. It serves as a decentralized system for completing transactions.

There are hundreds of different cryptos out there. One of the best known is Bitcoin, which was launched in 2009.

Different cryptos have variations in how they work, but they tend to share some characteristics. Transactions are validated as part of a blockchain, and devices can connect to the cryptographic network to “mine” coins, which involves verifying transactions in exchange for coins. This makes cryptography closer to something like the gold standard.

Fiat currency, used throughout the world today, derives its value from the fact that the government decrees that it has value. The government trusts businesses to accept the currency as a form of payment, but the value of the currency is not tied to a specific commodity, such as gold or silver. Bitcoins must be mined, but not all cryptocurrencies must be mined. The mining process is expensive, requires complex hardware, and uses a significant amount of energy.

Ever since cryptocurrencies began to gain popularity, exchanges have been launched to help people buy and sell different cryptocurrencies or exchange real-world currencies for cryptocurrencies.

Early adopters of the most popular coins have mostly seen their wallets grow. In 2010, Bitcoin was worth less than a penny. In 2021, Bitcoin peaked at over $64,000.

However, less popular coins have seen investors lose significant amounts of money.

What happened in 2022?

2022 saw significant changes in the crypto market.

Accidents at the beginning of the year

2022 was the year of the crypto winter. This cryptocurrency bear market saw precipitous declines earlier in the year when the Luna and TerraUSD stablecoins crashed in May. Trading platform Voyager filed for bankruptcy in July along with cryptocurrency hedge fund Three Arrows Capital. According to its bankruptcy filings last year, Three Arrows Capital faced $3.5 billion in creditor claims.

Prominent celebrities like Kim Kardashian also faced scrutiny for endorsing cryptocurrency in 2022. Kardashian’s meeting with the SEC in October resulted in a settlement with the commission for more than $1 million.

The highest profile crypto upheaval of 2022, however, was the FTX crash.

FTX Fund

Historically, the cryptocurrency market has been volatile with significant price rises and falls. For example, in the period from 2012 to 2014, Bitcoin started trading at $13.28, rose as high as $1,237.55, and fell to around $687.

During the COVID-19 pandemic, the crypto market experienced a meteoric rise, rising from $6,635.84 to over $64,000. Many top companies began to get involved in the cryptocurrency market, with investment firms offering cryptocurrency ETFs or investments. direct in cryptocurrencies.

Crypto-focused companies such as FTX also began to generate large amounts of money and became known to the public rather than just cryptocurrency or technology enthusiasts.

FTX, a cryptocurrency exchange, was one of the biggest entities behind last year’s cryptocurrency crash.

The company was founded in May 2019 and quickly grew into one of the largest exchanges. It even made high-profile investments in its marketing, sponsoring the Miami Heat’s basketball arena, Major League Baseball, and the Mercedes-AMG Petronas F1 team.

FTX collapse

On November 2, Coinbase, another cryptocurrency company, published an article revealing that a trading company owned by FTX CEO Sam Bankman-Fried owned a large chunk of FTX’s own cryptocurrency, FTT. This could artificially increase the value of the coin.

Binance, a competitor exchange and investor of FTX, sold its FTT holdings in response. This led to a price drop. Many FTX users rushed to withdraw their money from the exchange, creating a liquidity crisis and leaving investors unable to withdraw funds.

A Bloomberg report on November 9 revealed that the SEC and the Commodity Futures Trading Commission were investigating FTX and Bankman-Fried. FTX and 100 of its affiliates filed for bankruptcy on November 11. The sources claimed that the exchange had debts that exceeded $8 billion.

That same day, FTX withdrew $473 million in funds in authorized transactions. Currently, analysts estimate that billions of client funds have yet to be accounted for.

On December 12, police arrested Bankman-Fried in the Bahamas on wire fraud and conspiracy charges.

Crypto Prices in 2022

Unsurprisingly, the events that destroyed one of the world’s largest exchanges had a significant impact on the value of cryptocurrencies.

Bitcoin started the year at $47,733.40. It bounced up and down until early April, when it began a steady decline. It reached a low of $15,760.10 on November 21, but then rallied. Currently, it sits at just over $30,000.

FTX and various crypto crashes were not the only factors behind the 2022 price crash. Economic uncertainty, the war in Ukraine, and persistent inflation combined with interest rate hikes also contributed to pessimism about investing in cryptocurrencies.

Some examples of other events that hurt crypto values ​​in the past year include:

• An announcement in early 2022 that Russia could ban cryptocurrencies
• A June 2022 issue with Binance pausing Bitcoin withdrawals
• A June 2022 announcement from the Celsius Network freezing withdrawals and transfers

How has Crypto recovered?

The question for investors at the end of 2022 was whether this was the beginning of the end of cryptocurrencies. Or was it just another bump in the road? After all, cryptocurrencies saw big price drops before, but they continued to move to greater heights.

It’s worth remembering that even at its lowest point in the fall of 2022, Bitcoin’s value was still higher than ever before 2020. Since the trough late last year, Bitcoin has recovered a significant amount of its value. , now sitting at over $30,000.

Many experts say that declining inflation, anticipated rate cuts later in 2023, and diminishing recession fears were factors in this rise in price. Also, the collapse of Silicon Valley Bank earlier this year could have prompted investors to look into digital assets like cryptocurrencies. With the banking crisis in the United States, many investors are skeptical about the ability of central banks to manage money.

Consumers have yet to use cryptocurrencies like Bitcoin widely enough to consider them a legitimate replacement for fiat currency. However, investors may turn to blockchain technology if central banks continue to face difficulties.

Could Crypto be on the way out?

Some arguments against a full cryptocurrency recovery include Chinese government skepticism and crackdowns on the technology, major concerns about the environmental impact of cryptocurrencies, and cryptocurrency exchanges’ history of security issues and hacking.

Given the nature of cryptocurrencies, it can be difficult, if not impossible, to recover funds after a hack.

Crypto regulation has also increased recently, removing one of its main attractions of being an unregulated, decentralized currency.

On the other hand, blockchain technology has valuable applications for contract-dependent industries. Crypto can make online and international trading more accessible by eliminating the need for currency conversion and intermediaries.

Due to many coins’ limits on the number of tokens that can exist, some argue that cryptocurrencies can be a good store of value in the long run.

Investors should tread carefully due to the volatility of cryptocurrencies and the uncertainty surrounding them. Those who choose to invest should use basic risk management strategies, such as having a diverse portfolio.

Also, investors may only want to keep a small part of their portfolio in cryptocurrencies for limit the risk of catastrophic losses should crypto plummet again.

Debates about the value of cryptocurrencies

Skeptics of cryptocurrencies often debate whether the asset has any underlying value. This debate involves theories related to currency. Although the world we know today uses fiat currency, traded in global markets and not tied to a specific commodity, we have a historical precedent for currencies tied to something “made”.

Countries used the gold standard around the world for many years, and it had clear advantages, such as controlling inflation and limiting the government’s power to print money. But it also came with clear drawbacks, such as inflexibility and difficulty adapting to crises like war. If you’re confused about the value of cryptocurrency, especially since it’s an asset that most businesses don’t widely accept as payment, you may be interested in broader discussions of the currency.

The bottom line

Crypto is an exciting technology, and many people have jumped on the bandwagon in recent years. Unfortunately, last year many investors got burned when crypto values ​​plunged.

With the collapse of cryptocurrency exchange FTX, stablecoins like Luna and TerraUSD, and legal action by the SEC against celebrity endorsements of cryptocurrencies, investors understandably did not trust the digital asset.

In 2023, we have seen cryptocurrencies like Bitcoin recover some of their value, which gives much hope that cryptocurrencies will recover and recover most of their value in the coming years. We will have to wait and see if this happens, but it remains true that cryptocurrency is a volatile space, and investors should prepare to lose anything they invest in it.

The charge How has Crypto recovered from the crash? The state of cryptocurrencies in 2023 first appeared in Earring.