The cryptocurrency market experienced a significant decline in 2022, plummeting by more than 70%. This decline coincided with various negative events in the industry, including FTX’s bankruptcy, the arrest of Sam Bankman-Fried, and the $50 billion collapse of the Terra ecosystem.
Additionally, the United States faced a 40-year high in inflation, with the country’s national debt steadily increasing. However, there were some positive developments amidst the challenges. In September 2022, Ethereum successfully transitioned to a proof-of-stake network, and Bitcoin’s hash rate tripled throughout the year. Furthermore, the market experienced a strong recovery in 2023.
Let’s explore some of the key events that took place between 2022 and 2023 in the cryptocurrency industry.
U.S. inflation rates reached their peak in June 2022, with the Consumer Price Index (CPI) inflation rate hitting 9.1%. This was the highest level since 1982, according to the U.S. Bureau of Labor Statistics. Fortunately, CPI inflation started to decline after June 2022 and reached around 3% by June 2023, stabilizing in that range.
Bitcoin’s price, which had experienced a significant drawdown of 77.2% from its all-time high of $68,990 to a cycle low of $15,740 in November 2022, began to soar again. Since June 2023, Bitcoin has surged by over 135%, setting a new all-time high above $73,000. However, due to the rise in CPI inflation, Bitcoin has not yet reached its inflation-adjusted all-time high. It will only achieve this milestone when it reaches $77,026.
The U.S. national debt continued to rise, reaching $33.2 trillion by the end of the 2022-2023 fiscal years. The debt has since increased to $34.5 trillion, causing concerns about the country’s fiscal sustainability. The U.S. debt to gross domestic product ratio has decreased from about 3.2% to approximately 123%. Researchers from the University of Pennsylvania predict that financial markets can only withstand another 20 years of accumulated deficits under the current fiscal policy before the debt dynamics start to unravel.
Coinbase CEO Brian Armstrong emphasized the importance of increased Bitcoin adoption in the U.S. as a means to control excessive deficit spending and maintain the strength of the U.S. dollar. Armstrong believes that Bitcoin’s inclusion would bring back financial discipline.
El Salvador serves as an example of this concept, as venture capitalist Tim Draper suggests that the country’s Bitcoin investment could help pay off its debt to the International Monetary Fund.
The collapse of FTX shocked the world, with more than $8 billion in misappropriated customer funds lost during the market crash. BlockFi, citing loans lost from FTX, also went bankrupt, and Three Arrows Capital filed for Chapter 15 bankruptcy due to excessive leverage on long positions. Celsius and Voyager were other notable firms that filed for bankruptcy.
Former FTX CEO Sam Bankman-Fried was convicted of fraud in November 2023 for his involvement in what some consider the largest fraud in U.S. history. 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 detained in Montenegro after spending five months on the run, facing fraud charges in South Korea and the U.S. for his role in the collapse.
The U.S. Securities and Exchange Commission (SEC), led by Gary Gensler, took regulatory action in response to the industry’s challenges. The SEC declared itself the “cop on the beat” for the cryptocurrency industry and aimed to catch fraudulent actors. 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 also faced legal action from the SEC for unlawfully listing cryptocurrencies considered to be securities.
In March 2023, a local banking crisis occurred, resulting in 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, the industry continued to make progress. Ethereum successfully transitioned to a proof-of-stake consensus mechanism in September 2022, drastically 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.
Overall, the cryptocurrency market experienced significant challenges during this period, but it also showcased resilience and progress in various areas.