As in previous crypto bull markets, new projects received a lot of interest, leading to strong speculative investments; The Terra ecosystem is a prime example. Moreover, individual and venture capitalists have been investing heavily in what is fast becoming a busy place. All of this activity was happening against the backdrop of a broader macroeconomic environment that felt unendingly strong, and with easy access to low-rate borrowing, the frenzy from high-yield offerings seemed plausible as a source of wealth generation.
The Four Masters of Crypto in 2022
1) Ethereum merger
In September, we witnessed the primary technology event of the year: the Ethereum merger. The Ethereum blockchain has successfully transitioned from the PoW consensus layer to the Proof of Stake mechanism. Since miners are now not necessary to validate the chain, power usage has been lowered, and it now operates as a greener chain.
After consolidation, it appears that interest in layer-1 chains (Cardano, Solana, Avalanche) is also shifting to layer-2 scaling solutions (Arbiturm, Optimism). At the same time, there has been a general race to the bottom for on-chain transaction fees, CEX trading fees, and more recently royalties for NFT trading platforms as well.
2) Conflict and encryption
Lots of global conflict throughout the year gave ample opportunity to show the power of low-friction cross-border cryptocurrency transfers. As the war in Ukraine begins, the cryptocurrency community rallies to fund their support, with millions of dollars raised and sent to support the troops and their families.
In Canada, we’ve seen political conflict arise. Hundreds of truck drivers protest covid vaccine mandates. Eventually, protests took over the streets of D.C., fueled by a $10 million GoFundMe campaign — which eventually shut down the site because it violated its terms of service. In response, supporters have turned to cryptocurrency, raising nearly $900,000 in BTC to fund their efforts. This likely contributed to the Canadian government’s regulatory actions put in place throughout the year.
3) Adopting giant technology
Meta has committed billions to the metaverse while Facebook and Instagram are looking to compete with TikTok. Despite its depreciation, the tech giants sounded incredibly optimistic. They are rolling out NFTs to users, much like we’ve seen the social platform Reddit implement with success. Reddit introduced the idea of digital collectibles to millions of internet users. Allowing users to buy, sell and set their Reddit avatars on CryptoSnoo NFTs.
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Opensea user Jespow, co-founder and CEO of Kraken, paid 115 ETH for Snooprematic. Still the most expensive Reddit NFT ever sold
4) Fashion adoption
It’s not just tech companies that have entered the space this year. Big brands use Web3 as a way to expand, especially fashion giants. Tiffany & Co. has officially entered the space by creating a series of 250 limited-edition gold necklaces. These custom lots were only for owners of the required Cryptopunk NFTs.
François-Henri Pinault, President of Gucci’s parent company Kering, also revealed that Kering has a team entirely dedicated to building Gucci’s and BALENCIAGA’s presence in Web3 and the metaverse.
The four flaws in encryption in 2022
1) Bankruptcy of funds
By the end of the second quarter of 2022, a 40% shrinkage in the cryptocurrency market cap had wiped out nearly $1 trillion in total value. During this period, it also became apparent that a select group of CeFi institutions were heavily indebted. Large loans were made – many of them unsecured – that included Three Arrows Capital and other funds. As the proceeds from inflated offerings of up to 20% on the Terra stablecoin (UST, not to be confused with USDT) collapse into lower than inflation rates, we are starting to see decoining. Cryptosphere trust in algorithmic stablecoins waned significantly and has not recovered since. Three Arrows Capital lost an enormous amount of capital in the sell-off following the Terra fiasco. Revenue collapsed further, as did some other CeFi platforms, such as Voyager Digital and Celsius Network, that were unable to return customer funds.
2) Collapse of exchanges
By the end of the summer, a degree of confidence returned to the markets driven in part by FTX – a large exchange and custodian – which stepped in to save large CeFi lender BlockFi from what appeared to be bankruptcy. The perceived strength of FTX, led by founder Sam Bankman-Fried, has continued to see more investment in crypto companies. However, after rumors and public discussions involving Binance CEO Changpeng Zhao, people began to question the solvency of FTX and its ability to hold its own token, FTT. Traders have started withdrawing money from FTX. As a result of the uncertainty and “running in the bank”, the price of FTT fell from around $26 to $1 in