In 2022, the cryptocurrency industry experienced a series of horrific bankruptcies and price collapses. However, there were also positive moments – and even reasons for optimism.
Prices began to fall at the beginning of the second quarter and never rose; Terra collapsed in May, causing Celsius, Voyager Digital and Three Arrows Capital to go bankrupt; in August, the Fed imposed sanctions against Tornado Cash; in November, FTX crashed, leading to the bankruptcy of BlockFi and a deterioration in the performance of Genesis and the Digital Currency Group. The whole world is now watching the crypto and does not expect anything good from it.
And the past year hasn’t been all that bad. The industry has shown clear signs of progress, and it would be unforgivable to turn a blind eye to them because of everyone’s concerns about the Sam Bankman-Freed fraud.
In September – after many years of waiting and many delays – The Merge update was activated, and everything went without a hitch. Cryptocurrency No. 2 made the transition from the energy-intensive Proof of Work mining algorithm, which made Bitcoin a convenient punching bag for eco-activists, to the Proof of Stake algorithm, which consumes 99% less electricity.
It will be years before people can appreciate this transition, which puts Ethereum in an advantageous position relative to bitcoin in terms of public perception. The fact that the price of Ethereum did not change after this event, which remained invisible to the mainstream, does not mean anything. Coincidentally, the merger came at a time when the US economy was slowing down, when inflation was skyrocketing and all investment asset classes were falling.
“It was a titanic task that the Ethereum developer community managed with surprising ease,” declared in October ConsenSys CEO Joe Lubin, co-founder of Ethereum. — I believe that this was the last significant barrier separating Ethereum from maintaining systemic relevance in the future. I think our colleagues from other ecosystems are now much more respectful of Ethereum.” So, even the former bitcoin maximalists recognized the significance of the merger.
Positive in regulation
In crypto, it is customary to perceive regulation as a fiend: regulation is death. For many enthusiasts, the original appeal of cryptocurrencies was to eliminate intermediaries, achieve decentralization and be beyond the reach of state control. Over the years, it has become quite obvious that for most projects this is unrealistic. Take at least the shocking sanctions against Tornado Cash this year. The crypto industry in the future will be much more regulated than purists would like, but regulation does not necessarily mean opposition.
While U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler was making truly chilling statements, some key legislators were far less biased and decided to create laws that would regulate, but not stifle, innovation. Senators Lummis and Gillibrand have teamed up on a bill that would place the responsibility for crypto assets on the U.S. Commodity Futures Trading Commission (CFTC) rather than the SEC (sorry, Gary). Coinbase supports two other bills that also aim to expand the powers of the CFTC.
These hopeful regulatory moves were made on tiptoe while everyone in the crypto listened to Gensler and the SEC’s heavy tread. Even Biden’s infamous March executive order should be taken as a positive: the president softly urged state agencies to come to a consensus on crypto regulation – he did not give the order to “wet it out of the toilet.” Simultaneously, on the other side of the ocean, the European Parliament passed a package of crypto laws in March that requires “ensuring that the financial services regulatory framework in the EU is conducive to innovation and does not create barriers to new technologies.”
Venture capitalists are still in business
You may call them crazy or naive, but venture capital firms continue to invest in Web3. Andreessen Horowitz, a big player on the Web3 chessboard, has raised $4.5 billion for another crypto-focused fund (now fourth). Founded by Horowitz veteran Kathy Haun, Haun Ventures has raised $1.5 billion to invest in cryptocurrencies. Hedge fund Pantera has raised $1.3 billion for a blockchain fund. Numerous crypto companies and projects raised money right in the middle of the crypto winter, including Fireblocks ($550M), ConsenSys ($450M), Secret Network ($400M), NEAR ($350M), Chainalysis ($170M), Keyrock ($72M) and Ramp ($70 million) – and this is not an exhaustive list.
I almost forgot: there was also a derivatives exchange called FTX that managed to raise $800 million in 2022 ($400 million for FTX and $400 million for FTX’s “standalone” unit in the US) at a total company value of $32 billion.
Yeah. But the last example serves as a reminder of a well-known truth: venture capitalists can afford to be wrong often. Their job is to throw money into the hungry mouths of chicks in the hope that a couple of them will become hens that lay golden eggs. This is why, even after a series of crashes and bankruptcies in 2022, independent investors are still ready to give money to cryptocurrency startups.
Major brands are moving to NFTs
Alas, the speculative bubble of meaningless JPEGs has burst. No one doubts this anymore. Demand was provided mainly by a crowd of owners of Twitter accounts, laying out hundreds of thousands of dollars for cartoon monkeys. This madness has brought us roguish money-grabbing from investors, comically unsuccessful art shows and wash trading aimed at inflating the volume of sales in the market.
But after the dust finally settles, there will be real uses for NFTs. After all, they are just tokens (perhaps the abbreviation for them will soon be obsolete) that are applicable in all cases where instant proof of ownership is required, whether it is a party pass, a theater ticket, a club membership or a contract for the sale of real estate. All these are completely legal ways to use unique tokens, and no one now pays attention to the dismissive attitude towards them by those people who themselves compromised the term “NFT”.
Big brands such as Tiffany, Adidas, Starbucks, Bud Light, Instagram and Reddit have already become supporters of unique tokens. All of them have taken serious steps to use NFTs – even after trading volume has plummeted. (Incidentally, three of them chose the Polygon project, formerly known as MATIC, as their blockchain partner.) Are these brands following the “dementia and courage” motto, or perhaps they are following a sober calculation?
Yosuke Matsuda, president of Final Fantasy game developer Square Enix, was upbeat about NFTs in his final letter at the end of the year: “I expect digital goods deals to become more adequate eventually as they become more widely distributed to the general public, with the price of all available content adjusting to its true appraised value. I hope NFTs become as commonplace as physical commodity transactions.”
Cryptocurrency media is on the rise
Finally, one more note: the cinematically tragic fall of Sam Bankman-Freed was the time of the American crypto media boom. The collapse of FTX has attracted more attention than anything that has ever happened in the cryptocurrency industry – more than Mt.Gox, Silk Road, Quadriga, and even more than the sudden bull run of 2017.
American media editors say their phones and mailboxes have never been flooded with so many inquiries from curious friends and family members. All mainstream media recognize that they need to report on crypto events, understand the terminology and technology of the industry.
This may seem like an oxymoron, but the fact remains that crypto winter has been the busiest time for crypto publications in the US. Soon this boom will reach the rest of the world.
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