The year 2022 was a difficult one for the cryptocurrency market, as it experienced a significant decline of more than 70%. This decline coincided with a series of negative events that garnered worldwide attention, including FTX’s bankruptcy, the arrest of Sam Bankman-Fried, and the $50 billion collapse of the Terra ecosystem.
In addition to these challenges, the United States also faced a high level of inflation, reaching its highest rate in 40 years. The country’s national debt continued to rise, further exacerbating economic concerns.
However, amidst the gloom, there were some positive developments. In September 2022, Ethereum successfully transitioned to a proof-of-stake network, a long-awaited milestone for the cryptocurrency. Bitcoin’s hash rate also increased threefold throughout the year. These factors contributed to a strong market rebound in 2023.
Let’s take a closer look at some of the key events that took place in the cryptocurrency industry between 2022 and 2023.
U.S. inflation rates reached a peak but have since stabilized. The crippling inflation played a role in the significant price decline of Bitcoin, which dropped by 77.2% from its previous all-time high of $68,990 to a low of $15,740 in November 2022. The U.S. Consumer Price Index (CPI) inflation rate reached 9.1% in June 2022, the highest level since 1982. However, it started to trend downward after June 2022, reaching around 3% by June 2023.
Bitcoin’s price has since soared by over 135% since June 2023, surpassing $73,000 and setting a new all-time high. However, due to the rise in the CPI inflation rate by 11.65% since November 2021, Bitcoin has yet to reach its inflation-adjusted all-time high of $77,026.
Meanwhile, the U.S. national debt continued to increase, reaching $33.2 trillion over the fiscal years of 2022 and 2023. This figure has since risen to $34.5 trillion, raising concerns about the country’s fiscal sustainability. The U.S. debt to gross domestic product ratio, however, decreased from about 3.2% to approximately 123%.
Researchers from the University of Pennsylvania warned that under current U.S. fiscal policy, financial markets could only withstand another 20 years of accumulated deficits. After that point, the debt dynamics would begin to unravel.
Coinbase CEO Brian Armstrong emphasized the importance of increased Bitcoin adoption in the U.S., as it could help address excessive deficit spending and contribute to the strength of the U.S. dollar. He believes that Bitcoin’s inclusion in the financial system would bring back financial discipline.
El Salvador served as a case study for the potential benefits of Bitcoin adoption. Venture capitalist Tim Draper suggested that the country’s Bitcoin investment could help pay off its debt to the International Monetary Fund.
The collapse of FTX was one of the most significant events in the cryptocurrency industry between 2022 and 2023. More than $8 billion in misappropriated customer funds were lost as the market crashed. This event, along with other bankruptcies and legal issues, triggered increased regulatory scrutiny from the U.S. Securities and Exchange Commission (SEC), led by Gary Gensler.
The collapse of the Terra ecosystem and its stablecoin TerraUSD (UST) also caused significant damage in May 2022. Do Kwon, the former CEO of Terraform Labs, was largely responsible for this collapse and faced fraud charges in South Korea and the U.S.
The SEC’s determination to catch fraudulent actors in the cryptocurrency industry intensified after the events involving FTX. Binance, the world’s largest cryptocurrency exchange, and its former CEO Changpeng Zhao faced a lawsuit from the SEC, with Zhao pleading guilty to money laundering violations. Coinbase was also sued by the SEC for unlawfully listing cryptocurrencies considered securities.
In March 2023, a local banking crisis occurred, leading to the collapse of three cryptocurrency-friendly banks: Signature Bank, Silvergate Bank, and Silicon Valley Bank (SVB). This raised concerns about the resilience of the U.S. banking system.
Despite these setbacks, progress continued to be made in the cryptocurrency industry. Ethereum successfully transitioned to a proof-of-stake consensus mechanism in September 2022, significantly reducing its energy consumption. The Bitcoin network also became more secure, with its hash rate increasing by 200% to 515 terrahashes per second between 2022 and 2023.
In conclusion, the period between 2022 and 2023 was marked by significant challenges and setbacks in the cryptocurrency market. However, there were also positive developments, such as the transition of Ethereum to proof-of-stake and the increased security of the Bitcoin network. The industry faced regulatory scrutiny and economic concerns but continued to build and innovate.