After more than 13 years of volatility, this year’s bear market in cryptocurrency is the most dramatic in the industry’s history. This year, there were a lot of firsts in the cryptocurrency industry, thanks to things like global government approvals and more confidence among projects that made it through the bad market.
Nonetheless, there are a few things that will happen in 2022 that will give even the hardest diamond hands the chills. It was also inspiring to watch the crypto community pull together to help each other’s projects recover from the period of uncertainty.
Most of the following list is due to the price drop across all industries, which was caused by the highly unstable time period and worries about geopolitics.
In November 2021, the market for cryptocurrencies started to go down in a slow and steady way, and this went on into 2022. Since the beginning of 2018, there has been a lot of panic and doubt in the crypto ecosystem.
During the course of a few months, the bear market wiped off almost $1 trillion of cryptocurrency market capitalization, reducing the total market size from over $2.5 trillion to under $1 trillion.
During the crypto crisis of 2022, profits were taken out of all Bitcoin, cryptocurrency, NFT, and decentralized finance (DeFi) sub-ecosystems, which scared investors.
Both parties were affected by the loss. Businesses were having trouble staying in business because a lot of people were selling and there wasn’t enough money coming in because prices had dropped, wiping out many investors’ life savings.
Most people agree that the Terra ecosystem’s failure was the worst financial disaster that a single cryptocurrency project has ever faced. Terra Labs’ two exclusive products became unstable and lost value rapidly.
Co-founder of Terra Do Kwon was out there in the early days of the crash, trying to help investors recoup their losses by any means necessary. Changpeng Zhao, CEO of Binance, proposed burning LUNC tokens to reduce the total supply and boost the token’s price performance.
Soon after, when regulators started to pay more attention to Terra’s operations, Kwon decided to leave, and no one knows where he is now.
Despite his protests, Kwon is still being pursued by a number of parties, including angry investors, the South Korean government, and a Singaporean lawsuit.
Kwon, though, insists that he is not “on the run” and will soon reveal the truth. As a whole, the episode showed how the peg mechanisms of algorithmic stablecoins could be dangerous.
A similar event occurred in August 2022 when a protocol attack led to the accidental minting of 3.022 billion aUSD, causing the stablecoin Acala USD (aUSD) to lose its peg. Later, it was decided to burn the compromised tokens in order to recover their original dollar worth. Because stablecoins often fail, the US House of Representatives wrote a bill that would make it illegal to create or distribute “endogenously collateralized stablecoins.”
NFTs, Web3, and the Metaverse
The crypto community has been swept up in the excitement around nonfungible tokens (NFTs), Web3, and the metaverse, all of which have the promise of practical applications in the real world. Actors, musicians, and artists all helped spread these technologies faster by using them to connect with their fans and build their careers and wealth.
When daily sales for NFTs hit a new all-time low in July 2022, it was widely assumed that the craze surrounding the asset had finally run its course and been put to rest.
Snoop Dogg, Eminem, Maria Sharapova, Connor McGregor, and Floyd Mayweather are just a few of the A-listers that have shown their support for the NFT environment despite its plummeting numbers.
Lack of funding for subsequent projects developing Web3 and metaverse use cases reflected the waning enthusiasm for NFTs. Meta, the undisputed leader in the metaverse, wants to invest $10 billion annually. So far, the ecosystem hasn’t been very successful, which may be because it doesn’t have a clear plan and hasn’t shown it can make money yet.
Putting anxiety aside, the most frightening incidents in the crypto display have taught us that we need to do our own homework before making any investments. Your past mistakes, like when you put money into a risky project, trusted strangers, or gave out personal information online, will come back to haunt you.