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By Andrew Asmakov
Dec 28, 2022Dec 28, 2022
11 min read
This year will haunt the crypto industry for years to come, with scores of high-profile firms going bust or reducing their headcount and prices of major digital currencies plummeting.
The festive period offers a chance to reflect on the highs and (mostly) lows of the year.
In our two-part review of crypto's year, part one takes a look back at the biggest events from January through June.
Despite a rough start to the year, which saw the price of Bitcoin fall from over $46,000 the levels below $34,000 just some three weeks into January, the leading cryptocurrency rebounded strongly by the end of March, changing hands above $47,000 at the first quarter’s close.
After the November 2021 all-time high of above $69,000, many expected another good year for the sector. Those expectations weren’t without reason with the various infrastructure developments happening and venture firms continuing to pour more money into the industry.
Fresh after a $420 million extension to its Series B fundraise in October 2021, crypto exchange FTX made a solid start to the year, raising $400 million in a Series C round, which propelled the firm’s valuation to a whopping $32 billion.
Investors at that time included Paradigm, Lightspeed Venture Partners, Temasek, SoftBank Vision Fund 2, IVP, Tiger Global, and even the Ontario Teachers’ Pension Plan Board, demonstrating the high level of trust and confidence in the Sam Bankman-Fried’s, also called SBF, business at the time.
As SBF said then, the Series C funds were expected to be used to fund mergers and acquisitions. Many of these acquisitions did indeed happen, but as we know now, the source of that funding wasn’t from its Series C.
Other uses for the fresh cash included philanthropy, with FTX pledging up to $1 billion just a month later for "ambitious projects in order to improve humanity's long-term prospects."
The announcement came just days after FTX US closed its own $400 million Series A round on January 26, which valued the U.S. arm at $8 billion. It also followed the launch of FTX Ventures, a $2 billion venture capital arm that sought to draw on FTX’s fast-growing global reach and resources, with the primary focus on Web3 gaming, as well as consumer and social Web3 applications.
Other notable investments in Q1 2022 included infrastructure giant Fireblocks raising $550 million, interoperability and scaling framework Polygon and Ethereum software company ConsenSys both closing $450 million rounds, NFT and metaverse-backer Animoca Brands securing $358,888,888, and blockchain software company Alchemy and Ethereum NFT gaming startup Immutable both raising $200 million.
The wider NFT market boomed alongside OpenSea.
The world's largest marketplace for non-fungible tokens and crypto collectibles smashed its previous records in January, posting more than $5 billion in trading volume between Ethereum and Polygon sales.
The January record still stands unbeaten by the end of 2022, and given the events that followed throughout the year, the question of when—if ever—it will be cracked remains.
On February 8, the Department of Justice (DOJ) announced the seizure of over $3.6 billion worth of Bitcoin linked to the infamous hacking incident of the Bitfinex exchange, as well as the arrest of a New York couple on charges of conspiracy to launder the stolen funds.
While the seizure of Bitcoin linked to the Bitfinex hack was undoubtedly massive news in itself, the story was also quick to capture mainstream attention given the culprits’—Ilya Lichtenstein and his wife Heather—rather opulent and eccentric lifestyle.
Lichtenstein, an American of Russian origin, was giving online advice about tech and finance. He also had a YouTube channel where he acted as an amateur magician and mentalist. Morgan—known as “Razzlekhan” to her followers—had a YouTube channel on her own and also worked as a contributor at Forbes, where she wrote several articles, including one called "Protect Your Business from Cybercriminals."
Lichtenstein, who was considered a flight risk, was denied bail and is currently in jail in Virginia, while Morgan has been released until her trial.
On March 9, President Biden signed the Executive Order on Ensuring Responsible Development of Digital Assets—the first "whole-of-government" approach to regulating the cryptocurrency industry.
The executive order aims to address multiple issues faced by the crypto space, including consumer protection, illicit finance, financial inclusion, and "responsible development.” It also tasks federal agencies, such as the Federal Trade Commission, the SEC, and the CFTC, to coordinate their oversight efforts.
The industry, however, was divided on the move. According to Circle CEO Jeremy Allaire the White House's intent to use a "whole-of-government approach to at once harness opportunities while controlling and mitigating inherent risks in responsible innovation is encouraging."
Human Rights Foundation CSO Alex Gladstein, on the other hand, pointed out that the order is "heavy on CBDCs" and "doesn't mention Bitcoin," suggesting it’s not all bad.
Senator Cynthia Lummis (R-WY) quipped that she was "unconvinced on the need for a central bank digital currency."
In the same month, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) passed its Markets in Crypto Assets Regulation (MiCA) legislative package, which, like Biden’s bill, aims to coordinate the EU's regulatory approach to the crypto industry.
One of the top priorities of the legislation is "ensuring that the EU financial services regulatory framework is innovation-friendly and does not pose obstacles to the application of new technologies.”
The package also takes aim at creating legal certainty for the industry and ensuring financial stability, which is also tied to what has been a less-than-stable stablecoin market.
In a separate move, the EU Parliament has voted to impose new regulatory measures that would essentially prohibit anonymous cryptocurrency transactions.
The dramatic meltdown of the Terra ecosystem was the major talking point during the second quarter of the year, as the implosion of the UST algorithmic stablecoin and its sister token LUNA in May wiped out $40 billion worth of investors' money in a week's time, shrinking the combined market cap of all cryptocurrencies by almost $700 billion.
Amid the crash, the price of LUNA, once a top 10 coin by market cap, fell 100% to a fraction of a cent, and UST, designed to hold 1:1 parity with the U.S. dollar, bottomed out at $0.13 cents.
Despite facing numerous investigations into its collapse, as well as scores of lawsuits, Do Kwon, the CEO of the Singapore-based company Terraform Labs, has denied allegations that the project was a “fraud.”
He also claimed that he had personally lost nearly all his net worth in Terra’s crash.
Then, at the end of May, the Terra community approved the re-launch of the project, which saw a new blockchain called Terra 2.0 being deployed, with the older collapsed network continuing to exist as “Terra Classic.”
Terra’s collapse was the year’s largest domino that led to insolvency troubles at crypto lending platform Celsius and cryptocurrency hedge fund Three Arrows Capital (3AC).
Citing “extreme market conditions” and a need to “stabilize liquidity,” Celsius announced that it was suspending all withdrawals on June 12, with 3AC receiving a liquidation order from a court in the British Virgin Islands on June 29.
The Singapore-based hedge fund bore a loss of roughly $200 million following Terra’s collapse, with crypto exchanges BitMEX, FTX, and Deribit liquidating the hedge fund’s positions after it failed to meet margin calls.
It didn’t end there, however, with broker Voyager Digital first revealing a $661 million in exposure to 3AC and—after the latter failed to make even partial payments—issuing a notice of default.
Another firm that moved to freeze user withdrawals was crypto derivatives exchange CoinFLEX, which too cited “continued uncertainty involving a counterparty.” CoinFLEX CEO Mark Lamb claimed at the time that the person responsible for the platform’s financial woes was none other than the longtime Bitcoin evangelist turned Bitcoin Cash promoter Roger Ver.
Extreme market conditions also saw several high-profile crypto firms lay off their workforce. These included crypto exchanges Gemini, Crypto.com and Coinbase, as well as several companies in Latin America.
Bitcoin was trading at $47,000 as of April 1. By the end of June, however, the leading cryptocurrency had more than halved, changing hands just above $20,000.
According to data from blockchain analytics Skew, this was the worst quarterly performance for Bitcoin since Q3 of 2011, when the asset plummeted by 66.62%.
Before that, on June 18, BTC briefly plummeted below $18,000, while Ethereum followed the trend to fall below $900, adding more pain for investors.
Over the same span, the combined market cap of all digital assets fell from just below $2 trillion to just above $890 billion.
Market carnage did nothing to cool investor sentiment, however.
In April, Pantera Capital secured $1.3 billion for its Blockchain Fund focused on Web3 startups, early-stage tokens, and digital tokens with established liquidity levels.
Binance's US subsidiary announced an April "seed round" of more than $200 million, which brought the exchange’s valuation to $4.5 billion, while developers behind the open-source decentralized exchange (DEX) protocol 0x raised $70 million.
Venture capital firm Andreessen Horowitz (a16z) raised $4.5 billion for its fourth crypto-centric fund in May, bringing its total raised for crypto and blockchain investments to over $7.6 billion.
A $725 million ecosystem fund was raised for the Flow blockchain platform in May, while Ethereum rival NEAR protocol raised $350 million in new funding the previous month.
Blockchain data analytics firm Chainalysis secured $170 million in Series F funding in May, bringing its valuation to $8.6 billion.
In April, a bipartisan group of lawmakers introduced a new bill to regulate developers and exchanges working with digital commodities, including stablecoins and, ostensibly, Bitcoin.
Sponsored by Rep. Glenn Thompson (R-PA), the ranking Republican member of the House Agriculture Committee, the Digital Commodity Exchange Act of 2022—if passed—would expand the authority of the Commodity Futures Trading Commission (CFTC) beyond its "historical role as a derivatives regulator" by letting the agency regulate spot trading of crypto commodities. In other words, the CFTC would regulate American crypto exchanges, such as Coinbase and Kraken.
In a separate move aimed at taking a significant amount of powers away from the U.S. Securities and Exchange Commission (SEC) in favor of the CFTC, Senators Cynthia Lummis (R-Wy) and Kirsten Gillibrand (D-NY) introduced the Responsible Financial Innovation Act.
The bill introduced a raft of other significant measures, including a provision that eliminates the obligation to report crypto gains of $200 or less to the IRS. It also seeks to codify the "Howey test," a Supreme Court doctrine from the 1940s that explains when an asset is a security and is widely used by the SEC to determine whether a digital asset should be classified as a security.
Meanwhile, in Europe, the European Union reached a deal regarding anti-money laundering rules for crypto transactions.
The new rules aim to prevent money laundering and terrorist financing by requiring crypto-asset service providers (CASPs) to collect and store information identifying crypto users with “no minimum thresholds nor exemptions for low-value transfers.”
CASPs will also have to hand that information over to authorities conducting investigations.
The regulation does not apply, however, to transfers between individuals using wallets that do not utilize a service provider. This means, for instance, that an Ethereum transaction between two MetaMask wallets would not be subject to anti-money laundering checks—something the EU Parliament initially planned in March.
On April 25—not long after it rebuffed the billionaire's initial buyout attempt—the Twitter board accepted Elon Musk's $44 billion bid to buy the social media platform
Musk, also the Tesla and SpaceX CEO, was initially set to join the board as the firm's largest individual shareholder but later backtracked, revealing his intent to buy Twitter outright and take the company private.
In a leaked Q&A session with Twitter employees in June, Musk shared further details of his earlier plans for how crypto could be used on the platform, expounding on how payments, including crypto, are a "critical area" for Twitter, while also highlighting the ongoing issue of crypto scams and bots.
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