In 2022, the value of cryptocurrencies plummeted by over 70%, marking a significant downturn for the market. This slide occurred amidst a wave of negative global attention towards the industry. Notable events included the bankruptcy of FTX and the imprisonment of Sam Bankman-Fried, as well as the $50 billion crash of Terra Luna’s ecosystem.
Inflation reached a 40-year peak in the United States, with the growing national debt being a significant contributing factor.
Despite the challenges, Ethereum and Bitcoin showed signs of improvement. Ethereum underwent a significant shift towards proof-of-stake consensus, whereas Bitcoin’s mining power grew by a factor of three. The crypto market bounced back impressively in the year 2023.
Here are some of the major industry events between 2022-2023.
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US inflation rates have topped out, for now
Inflation causing significant price increases was among the various economic factors that led to Bitcoin plummeting by 77.2% from its peak of $68,990 to a low of $15,740 in November 2022.
The U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) inflation rate in the United States reached a peak of 9.1% in June 2022, which is the highest it has been since 1982.
Luckily, the Consumer Price Index (CPI) inflation rate began decreasing from June 2022, reaching approximately 3% in June 2023. It has remained relatively stable around this level ever since.
Starting in June 2023, Bitcoin experienced a significant surge, rising more than 135% from its previous price of $30,480 to an all-time high of $73,737 as reported here.
Despite a 11.65% increase in the Consumer Price Index (CPI) inflation rate since November 2021, Bitcoin has yet to reach its real peak price. This milestone will be reached when Bitcoin reaches a value of $77,026 after adjusting for inflation.
US national debt continues to soar
In 2022 and 2023, the US national debt grew significantly, rising by 4.35% or approximately $1.3 trillion each year, reaching a total of $33.2 trillion as reported in data from the U.S. Treasury.
The debt, now totaling $34.5 trillion, is causing significant concern as it sets the U.S. on a financially unstable course, as expressed by U.S. Federal Reserve Chair Jerome Powell.
Luckily, the U.S. national debt, which was previously around 3.2% of its Gross Domestic Product (GDP), has now dropped down to roughly 123%.
According to researchers at the University of Pennsylvania, the financial markets will be unable to sustain the accumulating deficits forecasted under the current US fiscal policy for another 20 years. Beyond this period, the debt structure may start to deteriorate or come apart.
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Brian Armsburg, CEO of Coinbase, expressed his viewpoint that wider Bitcoin usage in the United States may act as a restraint against excessive budget deficits, a necessary measure for preserving the strength of the US dollar.
Bitcoin’s inclusion would mark a “return to financial discipline,” he added.
According to venture capitalist Tim Draper, El Salvador provides an illustrative case in point. He posits that the country’s Bitcoin investment may assist in settling its $215 million debt obligation towards the International Monetary Fund.
“[If] Bitcoin hits $100,000, they’ll be able to pay off the IMF [and] never have to talk to them again.”
FTX’s collapse shocks the world as SEC plays cop on crypto industry
Between 2023 and 2023, macroeconomic instability may have significantly affected all cryptocurrency businesses, resulting in numerous bankruptcies, liquidations, and even imprisonment for some prominent industry figures.
The occurrence of these events instigated a surge in regulatory measures from the SEC, headed by Gary Gensler, who assumed the role of enforcer in the cryptocurrency sector, declaring their presence as the industry’s “law enforcement officer.”
The demise of FTX, which involved over $8 billion in customer funds being misappropriated during a market crash, surpassed all previous collapses. In the wake of this event, BlockFi declared bankruptcy due to losses from FTX loans, while Three Arrows Capital sought Chapter 15 protection after suffering heavy losses on long positions that were amplified by excessive leverage.
Celsius and Voyager were other notable firms that filed for bankruptcy.
Last November, Sam Bankman-Fried, the previous CEO of FTX, was found guilty of committing fraud. This fraud, which reportedly ranks among the biggest in US history, was orchestrated under his leadership.
In May 2022, the dramatic fall of Terra Luna Classic (LUNC) and its algorithmic stablecoin TerraClassicUSD (USTC), worth $50 billion, resulted in significant damage.
Do Kwon, the ex-CEO of Terraform Labs, played a significant role in the collapse. He eluded authorities for over five months by traveling to various countries with a falsified Costa Rican passport. However, his evasion came to an end when he was apprehended at Montenegro’s immigration control.
In his native South Korea and in the United States, he is accused of involvement in the failure of the Terra Luna system, leading to fraud allegations against him.
The SEC grew more resolved than ever to apprehend the last deceitful actors in the cryptocurrency market following the case of Bankman-Fried. Most notably, they filed lawsuits against the largest cryptocurrency exchange, Binance, and its previous CEO, Changpeng Zhao, who confessed to money laundering offenses in November 2023.
In June 2023, Coinbase was accused by the securities regulatory body of illegally listing certain cryptocurrencies on its platform, which were deemed to be securities according to their regulations.
In March 2023, there were three cryptocurrency-focused banks – Signature Bank, Silvergate Bank, and Silicon Valley Bank (SVB) – that experienced failure. This incident raised concerns about the strength of the US banking system following the collapse of these institutions.
Jerome Powell, the Chair of the US Federal Reserve, expressed confusion over the failure of SVB as well.
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Despite several industry setbacks, builders kept building.
Notably, Ethereum switched to a proof-of-stake consensus method back in September 2022. As a result, it reduced its energy usage by an impressive 99% or more.
Between 2022 and 2023, the security of the Bitcoin network significantly improved. The hash rate, which measures the computational power securing the network, grew by an impressive 100% each year, reaching a remarkable 515 terahashes per second as reported in Blockchain.com data.
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2024-04-16 17:12