Today marks the 14th anniversary of the world’s first cryptocurrency transaction. What events of the turbulent 2022 will affect the future of the first cryptocurrency?
On the evening of January 3, fourteen years have passed since the creation of the genesis block (“zero block”) in the Bitcoin blockchain. And on January 12, 2009, Satoshi Nakamoto sent the first ever transaction to cryptographer Hal Finney.
Back in 2009, it was hard to imagine that cryptocurrencies would gain worldwide fame so quickly and be discussed as a serious factor influencing the global economy.
The past year is often called the most difficult and even the most terrible in the history of the crypto industry. From the point of view of doing business, we can agree with this. Political tensions and sanctions, the ruin of many large projects and massive layoffs in the remaining companies, attacks by regulators, a fourfold collapse of the bitcoin exchange rate and the flight of traders from exchanges — all this makes it difficult for companies to work, especially in such a risky market as the cryptocurrency.
But if you look at history, the “crypto winter of 2022” has not become colder than the previous ones for bitcoin, although it is too early to talk about its end. For example, the first crypto winter after the peaks of autumn 2013 lasted for more than two years, and the fall in the price of bitcoin was more than eightfold. The second crypto winter was similar to the current one. After peaking at $20,000 in December 2017, bitcoin collapsed more than six times, to $3,000 in December 2018. And since February 2019, steady growth has begun. It was during this period that the term “crypto winter” became widespread in the information environment.
The third crypto winter began with a peak of $69,000, reached on December 10, 2021, and the annual minimum of about $15,500 on November 10, 2022. That is, the overall decline was less than fivefold, which is much better than past crises.
Impact of the Terra and FTX crash
The strongest blows for bitcoin, as well as the entire market, in 2022 were the two largest bankruptcies for the entire existence of cryptocurrencies: the Terra platform in early May and the FTX exchange exactly six months later, in November.
Each of these collapses brought direct losses of billions of dollars, but the reputational damage was more severe. By the end of the year, the trust of corporate and institutional investors in cryptocurrencies has suffered greatly, and its recovery will be long. It is not for nothing that one of the main crypto sceptics, the long-time head of JP Morgan Jamie Dimon, calls on governments to compensate for the losses of cryptocurrency investors.
The next step is clearly visible: in order to reduce the amount of compensation payments, governments will be forced to regulate cryptocurrencies even more. And according to a recent Bloomberg report, US regulators have launched an investigation into the activities of the previously untouchable Digital Currency Group, suspecting it of a secondary connection with FTX through Genesis Capital.
In a month and a half, from early May to mid-June, bitcoin collapsed from $40,000 to $18,000, by 55%. And for the “black week” of November — from $21,000 to $15,500, that is, by only 28%. The explanation is very simple: by November, the market was already weighed down by a mass of negative factors, and the addition of one more did not cause the same effect as in the relatively prosperous May. The collapse of Terra did not happen instantly, and the most cautious players came out of positions gradually. The collapse of FTX was completely unexpected for the entire market, so the reaction was quick, but also relatively weaker.
Flight from exchanges and danger for funds
During and after the FTX bankruptcy, traders began withdrawing bitcoins from centralized exchanges, while trading on DEX increased slightly. Most cryptocurrency holders have decided to wait out the storm in their personal wallets. And when the attacks of regulators and journalists on Binance began, the withdrawal of bitcoins from the largest exchange acquired the character of a stampede, fortunately short-lived. Nevertheless, cryptocurrencies of more than $3 billion have left Binance’s balance sheets, and most of them were bitcoins.
According to Glassnode, in general, about 550,000 BTC were withdrawn from centralized exchanges at the end of December. Moreover, more than 200,000 BTC was lost by Coinbase, which was least affected by the crisis, 90,000 BTC left Binance, and about 70,000 BTC traders managed to take from FTX before blocking the withdrawal. The other 190,000 BTC were withdrawn from other exchanges. Most of them are still without movement.
At the end of December, a respite came for Binance, as regulators focused on tightening regulation of cryptocurrencies in general. And according to Arcane Research analysts, by the end of the year, Binance even increased its influence on the cryptocurrency market, becoming a de facto monopolist. Now the exchange is trying by all means to strengthen its position and compensate for the consequences of the negative that has fallen on it. To do this, for example, it joins various associations and even tries to buy out large companies affected by the collapse of FTX.
But such growth also has negative effects. Binance is becoming too big to fail for the cryptocurrency market, but at the same time the main goal for everyone interested in weakening cryptocurrencies. Indirect factors say that the power of Binance should not be overestimated. For example, the capitalization of BUSD after the sharp collapse on December 14 decreased by another $2 billion and now stands at about $16.4 billion. This means that the exchange continues to spend its reserves, while USDT and USDC do not show a downward trend in capitalization.
Another touch of 2022 is the “deglobalization of cryptocurrency exchanges.” Even such a major player as Coinbase is forced to cut staff and leave the promising Japanese market. And Huobi, one of the largest players in the Asian market, is losing its Korean division.
Financial problems may also arise with the largest cryptocurrency fund GBTC, which stores more than 3% of the global bitcoin issue. Without taking into account the potential difficulties of the parent company Grayscale, which is still unknown to the public, there are no reasons for closing the fund and dissolving assets. Moreover, a large investment company Valkyrie has shown interest in acquiring it. However, the year 2022 has already accustomed us to the fact that surprises happen completely unexpectedly.
El Salvador, which accepted Bitcoin as an official means of payment
In 2022, Bitcoin gained a foothold in El Salvador. This tiny Latin American country is almost invisible in the global economy and politics. However, in the fall of 2021, it thundered all over the world, recognizing bitcoin, along with the American dollar, the state currency, mandatory for adoption by all organizations in the country.
Despite forecasts of the collapse of the economy and the collapse of the “dictatorial Bukele regime”, bitcoin has remained the state currency of El Salvador for the second year, although it has not gained mass popularity among the population.
So far, no country has followed the example of El Salvador. However, neighboring Costa Rica, which has not become a full-fledged US state, is also thinking about benefits for cryptocurrency investors. Paraguay is also showing interest in the full legalization of bitcoin.
The impact of mining
After the change of consensus in Ethereum, Bitcoin remained the only cryptocurrency on PoW in the top ten by capitalization, with the exception of the Litecoin/Dogecoin bundle. But even their total capitalization does not reach 5% of the capitalization of bitcoin.
Although the event does not have any strategic consequences, the status of the only cryptocurrency mined through mining will make bitcoin an even more convenient target for eco-activists. The energy crisis in Europe has pushed the “green agenda” into the background, and yet it will inevitably pop up in the statements of politicians.
What could happen in 2023
In the coming year, there is a possibility of a slowdown and even a recession in most major economies. Despite the flight of corporate investors, which weakened the integration of cryptocurrencies into traditional markets, bitcoin is unlikely to return to the marginal status of a decade ago. Therefore, it will correlate with stock and derivative markets. These markets are just trying to return to unstable growth. However, all this fits into not yet completed crypto winter and even into the halving theory. In the near future it is better to count on a protracted drift or even a new wave of falling. But there is always a backup option.
In January, a thaw began in the cryptocurrency market, accompanying the stock market rebound. Does this mean that investors are “tired of being afraid” and the upward game has begun? Quite possibly. But it will be possible to talk about a serious movement only after overcoming $ 20,000.
One of the main news that launched the revival of interest in bitcoin is the decision of the largest investment fund, BlackRock, to add some bitcoin to the basket for its richest clients. This means that not all the whales of traditional markets have become disillusioned with cryptocurrencies. Locally, such seemingly insignificant news as the postponement of compensation payments to MtGox customers to September also helps to push bitcoin up. The card of this exchange has been wagered for a long time, but more than 100,000 BTC will not appear on the market until almost the end of the year.
You can’t endlessly escalate the negative. If the geopolitical confrontation does not escalate, the economy will gradually begin to recover from the crisis. People will have more free money, and against the background of high inflation, even the most stable fiat currencies previously, many will pay attention to bitcoin. Retail investors are unlikely to provide explosive growth, but they will support demand, and the big players will also go for the smell of money. Therefore, the second half of 2023 may mark the beginning of a new bullish cycle.