After a lackluster rise of crypto in 2021, which saw many new crypto millionaires and several crypto startups attain unicorn status, came the dramatic fall in 2022. The industry was plagued by macroeconomic pressures, scandals and meltdowns that wiped out fortunes virtually overnight.

As 2022 comes to a close, many crypto proponents are perplexed about the state of the industry, especially in light of the contempo FTX collapse and the contagion it has acquired, taking down several firms associated with it.

Many who couldn’t stop talking most crypto and recommending their family to invest in information technology last yr at Christmas dinner could run across the tables turn this twelvemonth, with them having a lot of explaining to practise about the land of crypto today. While as awkward equally that conversation is going to be, Cointelegraph prepared a small recap to help ‘crypto bros and sisters’ explain what really happened to crypto in 2022 when market pundits were expecting the rise to go along throughout the year.

The downfall was universal, simply crypto turned it into a contamination

The starting time of the crypto downfall was triggered by external factors, including growing inflation, rate hikes from the U.s. Federal Reserve and the international disharmonize between Ukraine and Russian federation that shook investor confidence in the market, leading to a sell-off in traditional and crypto markets.

The external market place conditions, aided past the unchecked centralized conclusion-making process, claimed its get-go large thespian of this bull cycle in Terra. The $xl-billion ecosystem was reduced to ruins within days. More importantly, information technology created a crypto contamination that claimed at least half a dozen other crypto players, mainly crypto lenders that had exposure to the Terra ecosystem.

The plummet of the Terra ecosystem had the greatest impact on lenders, bankrupting Three Arrows Capital and many others. Celsius paused withdrawals due to extreme market place weather condition, causing crypto prices to fall, and and then alleged bankruptcy. BlockFi had to be bailed out by FTX with a $400 million cash injection.

Cryptocurrencies, Cryptocurrency Exchange, FTX, New Year's Special

At the fourth dimension, FTX seemed too eager to bail out several troubled crypto lenders. But, just a quarter later, information technology turned out FTX was not equally liquid and greenbacks-rich as it claimed to be. In fact, the crypto substitution was using its native tokens and in-business firm, non-existent projects equally leverage against multi-billion-dollar valuations and loans. Its sister company, Alameda Research, was found to exist involved in building a house of cards that eventually came crashing down in November.

The FTX crypto exchange and its founder, Sam Bankman-Fried, have built a philanthropic outlook for the world, turned out to exist outright fraud and stole customers’ funds. The former CEO was found to be misappropriating customers’ funds and was eventually arrested in the Bahama islands on Dec. 11.


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FTX collapse: The crypto industry’s Lehman Brothers moment

Bankman-Fried was extradited to the Usa on charges of securities fraud and misappropriation of funds. Nonetheless, the former CEO managed to secure a bail plea against a $250 million bond paid by his parents who put upward their house to comprehend his astronomical bond bond.

While the abort of Bankman-Fried and his trial in the U.S. have given some hope to FTX users, the chances of many customers getting back their funds are very slim as lawyers have predicted that information technology might take years and fifty-fifty decades to get the funds dorsum.

Cryptocurrencies, Cryptocurrency Exchange, FTX, New Year's Special
SBF in handcuffs during his extradition to the U.South. Photo: Regal Bahamas Police

Two back-to-back crypto contagions acquired by a series of bad decision-making and the greed of a few, might not be an piece of cake thing to explain to the family. Then, own upwards — everyone makes mistakes in the balderdash market, thinking they are doing the correct affair by getting their family unit involved. Nevertheless, one tin ever talk nigh the bright sides and the lessons learned from the mistakes, and the 2022 crypto contagion is no dissimilar.

Centralized exchanges and coins may come and become, just Bitcoin will stay

Terra ecosystem’s plummet was a significant setback for the crypto industry —both in terms of value and how the outside globe perceives it. Crypto managed to bear the burden of the collapse and was on its way to redemption, only to face another knock in the form of FTX. The FTX saga is far from over but it highlighted what corruption and hefty donations tin can practice to your public image even when you have robbed people billions of their coin.

The mainstream media frenzy saw the likes of the New York Times and Forbes write puff pieces for the criminal old CEO before the charges were framed against him. Bankman Fried was portrayed as someone who was a victim of bad decisions when FTX and Alameda were involved in illicit trading from day one, as mentioned by SEC in their charges.


Related: Regulators face public ire after FTX collapse, experts call for coordination

The FTX downfall and the crypto contagion are being portrayed by many as the end of trust in the crypto ecosystem. U.S. regulators are alert that it is only the starting time of the crypto crackdown, with SEC chief Gary Gensler comparing crypto platforms and intermediaries to casinos.

Nevertheless, whatever crypto veteran will tell you that the manufacture has seen much worse and has always bounced dorsum to its feet. While the collapse of the 3rd largest crypto commutation (FTX) is definitely significant, information technology doesn’t come up close to the Mt. Gox hack from the early days of crypto exchanges.

Mt. Gox was one time the biggest external gene that cast doubtfulness on the cryptocurrency industry, especially Bitcoin (BTC). When the exchange was hacked in 2014, it business relationship for more than than seventy% of BTC transactions at the time. The hack did have a wild affect on the price of BTC at the time, merely the market shot back up once more in the adjacent cycle.

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Years later, the FTX collapse in one case again reminded users of the risks involved with centralized entities, triggering a significant movement of funds from centralized exchanges to self-custody wallets.” Cocky-custody wallets allow users to serve as their ain banking concern, just the trade-off is that wallet security besides becomes their sole responsibility.

Crypto users are withdrawing their funds from crypto exchanges at a rate non seen since April 2021, with well-nigh $3 billion in Bitcoin withdrawn from exchanges in Nov, moving them to self-custody wallets.

New data from on-chain analytics business firm Glassnode shows that the number of wallets receiving BTC from exchange addresses hit nearly xc,000 on Nov. 9. The movement of funds away from exchanges are commonly a bullish sign that BTC is existence “hodled” for the long term.

Every other token might look lucrative in a bull run, as evident from the concluding one where the likes of LUNA, Shiba Inu (SHIB) and Dogecoin (DOGE) broke into the summit 10. But today, these projects be information technology Terra-LUNA or meme coins are either obsolete or far from their bull run hype.

Cryptocurrencies, Cryptocurrency Exchange, FTX, New Year's Special

Bitcoin, the original cryptocurrency, has seen downfalls of several major exchanges over the past decade and yet has come up up on peak of each of those collapses in the next bike. This is the reason most early crypto investors and Bitcoin proponents frequently advocate for self-custody and hodling BTC over investing in new altcoins that might seem lucrative in a balderdash run, but there is no guarantee that they would make it to the next balderdash run

The plummet of these centralized entities in 2022 could also prompt policymakers to somewhen come with some form of official universal regulations to ensure investor security.

The bottom line

The cadre technology of decentralization and Bitcoin, the OG cryptocurrency, is here to stay regardless of the crypto entities involved in facilitating different use cases and services on superlative of them. 2023 could see a new wave of crypto reforms, with more aware users who believe in self-custody rather than letting their funds sit on exchanges. Also, it’southward amend not to give out fiscal communication to anyone, especially in a balderdash market.