Key points to remember

    • While 2021 created many success stories in crypto, with everyday people becoming millionaires, 2022 reversed course as billions of dollars were wiped from space.
    • The catastrophic collapse of FTX has damaged investor confidence, and many victims are emerging from this debacle after what has already been a difficult year for digital assets.
    • There were times in 2021 when you couldn’t turn a corner without hearing about cryptocurrency. The cryptocurrency peaked in November 2021 and has been in a meteoric crash since then, with bitcoin’s value dropping from around $68,000 to under $20,000.

    In 2021, it was all about stock market rallies and crypto. In 2022, you could say the same is true for crypto, but for very different reasons.

    The cryptocurrency market has collapsed, to put it mildly. The industry has been plagued by macroeconomic pressures, scandals and meltdowns that seemingly wiped out fortunes overnight. As 2022 draws to a close, many crypto proponents are confused about the state of the industry, especially after the recent collapse of FTX and all its casualties.

    Let’s look at what’s happened to crypto over the past year to understand how the house of cards has fallen…

    How the House of Cards Falls

    As this dark year in the crypto space draws to a close, it’s only fitting that the man once touted as a “Crypto Robin Hood” has ended up behind bars. At the same time, investors and government officials are struggling to understand how a relatively new company with a peak valuation of $32 billion could end up filing for bankruptcy by November. Sam Bankman-Fried, often referred to as SBF, was supposed to appear before Congress to testify about what happened to FTX, the crypto exchange of which he was CEO until early November.

    On the evening of December 12, SBF was arrested by authorities in the Bahamas at the request of the United States Department of Justice. He will face various civil and criminal charges as Congress tries to figure out how FTX imploded and discusses possible regulatory structures for the digital asset space. The DOJ plans to bring charges against Bankman-Fried that include wire fraud, securities fraud, and money laundering, to name a few. The SEC filed its civil lawsuit accusing Bankman-Fried of executing a “multi-year fraud” and orchestrating a scheme to defraud investors.

    SEC Chairman Gary Gensler issued the following comment in a statement on the charges against SBF:

    “We allege that Sam Bankman-Fried built a house of cards based on deception while telling investors it was one of the safest buildings in crypto.”

    Before breaking down the timeline of this crypto meltdown, we need to briefly mention some of the bankruptcies that rocked the space. The following crypto exchanges and lenders have either filed for bankruptcy or suspended client withdrawals in 2022:

    • FTX.
    • Genesis.
    • Capital of the Three Arrows.
    • Search Alameda.
    • Digital traveler.
    • BlockFi.
    • Celsius network.

    Crypto Born Millionaires

    Cryptocurrency has become massively popular during the pandemic months. You would often hear rags to riches stories of people becoming millionaires seemingly days after buying “coins”, tokens that were basically presented as a joke.

    In 2021, Shiba Inu, a meme coin, soared over 700,000%, and one man shared how he was able to quit his warehouse job because he was now a millionaire. Many more stories like this popped up throughout the year, and it looked like the crypto space was filled with free money.

    By creating wealth through high returns with cryptocurrency tokens, the space has lured users by promising generous returns on investments. We all know that banks offer meager interest rates for savings accounts. Lenders and crypto exchanges have taken advantage of this by offering returns approaching 20%. Naturally, this has led many people to gravitate towards the crypto space.

    The cryptocurrency peaked at the end of 2021.

    In October 2021, SBF was on the cover of Forbes (for good reason) and the Miami Heat started a new season at the FTX Arena, where the crypto exchange paid $135 million for a naming rights deal. 19 years old. At that time, SBF shared his benevolent plan to give the majority of his fortune for the good of mankind.

    Towards the end of 2021, cryptocurrency prices skyrocketed and it felt like everyone in the space was getting rich. Around November last year, bitcoin was trading at around $68,000, the price of ether was around $4,800, and the crypto market was estimated at around $3 trillion. It felt like the crypto space was unstoppable.

    Crypto prices are starting to drop

    Towards the end of 2021, it was apparent that inflation was still skyrocketing and that the Fed would need to raise rates to cool the economy. Bitcoin fell 19% in December as the stock market sell-off began and investors began to liquidate their assets. At the start of 2022, market volatility escalated further for stocks and crypto. Even though many crypto enthusiasts touted that digital assets would serve as a hedge against inflation, that is not what happened. When it became clear that inflation should be brought under control by rate hikes from the Fed, markets began to swing.

    Investors rushed to cash in, and many felt that the crypto winter had begun. It became apparent that crypto would not be the inflation hedge that many were hoping for. Crypto was just another speculative asset that fluctuated based on macroeconomic factors. Crypto prices have continued to decline with each rate hike and they have shown no signs of recovery as of late.

    Luna’s Collapse

    When the Luna crypto network collapse occurred in May, it was considered the biggest crypto crash of all time, with an estimated loss of around $60 billion. Stablecoins were no longer stable. This shook the entire global digital currency market as there were many casualties and retail investors lost a lot of money.

    There were two major players involved in the collapse: the stablecoin TerraUSD/UST and the real luna coin. When Luna and UST crashed, there was a liquidity crunch throughout the crypto space. The Luna coin fell from an all-time high of around $119 to dip below a fraction of a penny, before being delisted.

    The fall of TerraUSD sparked the crypto contagion that bankrupted Three Arrows Capital and many other lenders. In June, Celsius suspended withdrawals due to “extreme market conditions,” and this news sent crypto prices crashing even further. Then a month later, Celsius ended up filing for bankruptcy. BlockFi had to be bailed out by FTX with a $400 million injection.

    FTX went down and caused many casualties

    When crypto enthusiasts thought things couldn’t get any worse, they do. The FTX platform collapsed and brought down even more crypto lenders. Although we have already covered this ongoing saga in other articles, it bears repeating that the FTX exchange went from too big to fail to melting down completely in just a few days.

    Investigations are underway to determine whether FTX was lending its clients’ money to trading firm Alameda Research, also owned by SBF. Bankman-Fried has attempted to blame management failures and poor accounting for the once $32 billion exchange’s collapse, but those simple answers need to be expanded upon.

    What’s next for crypto?

    MicroStrategy co-founder Michael Saylor recently said the crypto industry needs to grow and speculated that this crypto crash could lead to accelerated regulation in the space. There is no way to avoid government scrutiny at this point.

    White House press secretary Karine Jean-Pierre explained last month that cryptocurrencies risk harming ordinary Americans and that proper oversight is needed. Jean-Pierre also said, “The most recent news further underscores these concerns and underscores why careful regulation of cryptocurrencies is indeed necessary.”

    Many crypto enthusiasts are hoping that the worst is behind them. Others aren’t sure what to expect. What will this government involvement mean for the crypto space? It’s hard to say what will happen next.

    How should you invest?

    Since crypto exchanges and lenders are not overseen by the same regulations as banking, investing in these speculative digital assets can be extremely risky. If 2022 has taught us anything about investing, it’s that when something looks too good to be true, it almost always is.

    If you are looking to invest in the cryptocurrency space, you may want to consider our Emerging Technology Kit, which helps spread risk across the industry, in favor of investing in a single coin or company. . If you’re looking for something more stable, less speculative, and even less affected by current market volatility, check out the Large Cap Kit.

    Q.ai eliminates investment assumptions. Our artificial intelligence scours the markets for the best investments for all kinds of risk tolerances and economic situations. You can activate portfolio protection at any time to protect your gains and reduce your losses, regardless of the sector in which you invest.

    Conclusion

    Earlier this year, Katy Perry took to Instagram to joke about how she quit her music career to become a trainee for FTX. Since this morning, the former CEO of FTX has been behind bars.

    It’s hard to say if crypto will be doomed for the foreseeable future or if the space may eventually rebound, but the entire industry has been exposed. The crypto space is filled with loopholes and risks that will make it difficult for retail investors to regain the confidence to invest heavily in this industry again. Many retail investors have seen their hard-earned money evaporate and disappear over the past year.

    Download Q.ai today to access AI-powered investment strategies. When you deposit $100, we add an additional $100 to your account.

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