A Year of "What Could Have Been" for Bitcoin
As we were moving into 2022, the mood in the market was bullish. We had just set a new Bitcoin all-time high price of $69k, and after a summer of price dips, we all thought that the bull market was back on. It was a hopeful time and anything seemed possible. People began predicting that Bitcoin would soon reach $100k, and Ethereum would soon go up to $10k as well. But as you are well aware, none of those things would happen. 2022 was a year of what could have been for crypto. A year that was wasted due to self-inflicted mistakes along with many macro factors that would cause Bitcoin to go much lower than we ever expected.
For the first time in the history of Bitcoin, we would see the price go lower than the previous cycle’s all-time high. Because of that history, it was all but a foregone conclusion that we would never see Bitcoin below $20k again. But, one thing that Bitcoin will definitely teach you the longer that you are in the market, is how little you actually know. And so the impossible happened, and Bitcoin is currently around $15k.
These are the dominoes that fell that caused 2022 to be a lost year in crypto.
FED Tightening
We live by the sword and also die by the sword. One of the biggest contributors to Bitcoin eventually reaching $69k was potentially due to governments turning on the money printer and changing interest rates to nearly zero. Inflation would then become a huge problem and governments needed to take action to begin correcting the situation. The US led the way by aggressively raising interest rates which made the dollar significantly strengthen. Which caused nearly all financial assets to drop in value. Bitcoin included. As interest rates go up, people have less expendable money to spend and the markets go risk off.
After a full year of FED tightening it appears that we might finally be approaching the end of the hawkish rate hikes. What this means is that this aggressive FED tightening was one of the main factors why prices fell this year. But, once they become less aggressive, that will cause the market to finally increase.
Russia-Ukraine War
Earlier this year Bitcoin had dropped to around $40k but was beginning to march back up again when the Russia-Ukraine war broke out. If the war wasn’t bad enough, it would also cause ripples all around the world. Causing shortages of gas and oil, food, and the list goes on. Along with Covid wreaking havoc on world supply chains, this war was another contributor to the large inflation that the world would see. Naturally, due to the panic that this event caused, financial markets dropped and braced for the worst.
And now to the self-inflicted mistakes caused by greed, recklessness, and fraud.
Luna/UST
If there was one moment that we will look back on this year as the moment that caused all of the pain, it was the Luna/UST collapse. While we have seen several coins go to zero in the past, none of them have been as prominent as these two. But what made this situation so bad is that hedge funds, VCs, and companies were extremely levered up on them. Either they had an extremely large back of Luna that they had bought early. Or they were staking UST on Anchor for an easy 20% APY. This was the moment that caused all of the market chaos.
3AC / Celsius
While the Luna situation caused the chaos, 3AC becoming insolvent is what finally broke the camel's back. 3AC was one of the most respected hedge funds out there, and they were viewed as the “golden boys” in crypto. They could do no wrong. They had borrowed billions of dollars uncollateralized from many of the biggest companies in the market. 3AC also was very deep into Luna. When Luna collapsed and the rest of the market went down with it, they became insolvent and couldn’t pay back their loans. Since so much money had been borrowed across the market, this would cause a contagion effect of other companies becoming insolvent too. Most notably Voyager.
A wildfire of companies becoming insolvent during the summer would ensue, but eventually, things began to settle down. Bitcoin’s price moved sideways all summer, and then finally showed signs of recovering. In fact, as we entered November things were beginning to look positive again in the market.
But that is when the final domino dropped.
FTX / Alameda
In news that shocked many of us, FTX would become insolvent and declare bankruptcy. A move that would also cause BlockFi to freeze all withdrawals as well and likely file for bankruptcy as well. For those of us who have been in the market for a while, we have seen crypto exchanges come and go. But, nothing like FTX. FTX was the second-largest exchange in the world and had a pristine image. After all of the money they were using to “buy” companies that had become insolvent over the summer, they were quickly becoming the company that was saving the industry. While some would Mt.Gox going under was on an equal scale. The truth is that Gox was never reputable, and not trusted either.
The key thing is that FTX and SBF were one of the key spokesmen in Washington that were able to hopefully lobby with the government and finally get regulations in the US. They were also seen as the next big thing that had large amounts of VC money invested into it. Both of those bridges were burned by the fraud that SBF participated in. Not even to mention the millions of dollars of customer funds that were lost. This whole event caused Bitcoin to drop to $15k, and it could potentially go even lower.
We are still in November and it appears that not all of the fallen dominoes have been revealed yet. This week Genesis has been one of the main topics about how they might also be insolvent as well.
The FED tightening and war breaking out are things that were out of crypto’s control. However, everything else that has happened this year has been self-inflicted wounds. Due to greed, too much leverage, fraud, dishonestly and the list goes on. If these self-inflicted mistakes hadn’t taken place, Bitcoin’s price would probably still be in the $30–40k range. At the end of the day, I hope that we have all learned valuable lessons from everything that took place this year. Taking self-custody of your own crypto and not trusting anyone. Knowing that lending out your crypto likely wasn’t worth the risk. It was like picking up pennies in front of a freight train. And also that leverage should be avoided at all costs.
It was a wasted year, that we can all hopefully learn from. One thing is for certain. Bitcoin and crypto will stand back up and recover. Eventually becoming stronger than it ever has before. While we all wanted to see those amazing price levels, the truth is that the prices today are gifts that we all need to be taking advantage of. Let’s just hope that the crypto market doesn’t forget what happened this year, and instead uses it to become even stronger.
How about you? What are your thoughts about this year in crypto?
As always, thank you for reading!
