For the cryptocurrency ecosystem, the year 2022 will remain special. After a 2021 that will have been a record one, with a trading volume of over 14,000 billion dollars (compared to 1,800 billion in 2020), but also 30 billion invested by venture capital funds worldwide (four times more than in 2018), cryptocurrencies were on the rise.
Hopes were therefore high for industry watchers as 2022 dawned. However, nothing went as planned. Rather than being structuring, the past year will have been a greatness stress test for this ecosystem which is now expected to turn around.
It has been the spring of 2022 that clouds have been gathering in the cryptocurrency sky. And it is no coincidence that if the price of these digital assets was uncorrelated by the upheavals on Wall Street until 2020, the adoption of bitcoin, and more generally of crypto-assets, by financial institutions around the world has changed the situation. As tech stocks took a hit on the Nasdaq, cryptocurrencies started following the dynamics of stock market assets on the New York Stock Exchange, and then declined.
There was indeed an illusion of bitcoin becoming a safe haven as the war began in Ukraine, but it was just a smokescreen. The anxious climate of traditional markets, with increasingly cautious investors, has thus extended to cryptocurrencies, which have not played the role of backlash much hoped for by some speculators. The price of bitcoin went from €41,500 at the beginning of January 2022 to €15,600 a year later…
The crash of the earth, “a phenomenon very close to Lehman Brothers in the world of cryptocurrencies”
However, this shift to a bear market it initially had nothing necessarily threatening to the sustainability of the ecosystem. And for good reason, the industry is used to cycles of volatility. Furthermore, market downturns are also an opportunity to highlight the players with the strongest backs. But these market fluctuations were compounded by the collapse of stablecoin Terra in May, which led to the bankruptcy of the Three Arrow Capital fund and platforms such as Celsius Network and BlockFi.
Indeed, the stablecoin of the Terra ecosystem suddenly collapsed, causing investors to lose $40 billion and more than $500 billion on the cryptocurrency market in just one week. All because of a mass liquidation of several wallets and a faulty algorithm, which led to the failure of the entire Luna (Earth) project, while it was among the most watched and anticipated initiatives in the entire ecosystem. .
As a result, its failure has put a huge damper on an already bogged down market. “I think we have experienced a phenomenon very close to Lehman Brothers in the world of cryptocurrencies. There has been a chain reaction behind it. We experienced it in 2008 with the subprime phenomenon on an unfortunately much more dramatic scale. But in cryptofinance, which is less developed than global finance, the phenomenon is contained, the impact has been very violent, because it is still a very young sector”analyzed Nicolas Louvet, co-founder and CEO of Coinhouse, with Digital.
Sam Bankman-Fried, the face of the cryptocurrency debacle
The cryptosphere was not at the end of its troubles and the year 2022 ended with a huge explosion caused by the FTX scandal. This cryptocurrency exchange platform found itself in the spotlight after the revelations of the specialized media in early November CoinDesk, which shed light on the curious financial structure of the Alameda Research company, which was in particular powered by FTT, the token of the FTX platform. These two companies were founded by the same man: Sam Bankman-Fried, aka SBF.
In the following days, new revelations made known the scam that was FTX and the illegal financial practices of its founder. SBF even allegedly took the liberty of implanting a backdoor into the accounting system, allowing it to discreetly run commands to change the financial records of the company, which has more than a million customers desperate to get their money back.
Worse still, US authorities accuse the 30-year-old of embezzling billions of dollars and violating US electoral laws, paying large sums of money “stolen” from his investors to politicians to “buy influence” in Washington. Arrested in the Bahamas and then extradited to the United States, SBF faces up to 115 years in prison for all of his work. Alone, he embodies the distrust that is rocking the cryptosphere right now.
Coinbase and Binance, giants under pressure
In this context, the behavior of the remaining market heavyweights, such as Coinbase and Binance, will be followed very closely in 2023, by both investors and regulators. Furthermore, the two companies mentioned have not yet sent positive signals in recent months. Therefore, Coinbase is in the crosshairs of the US stock market policeman, the SEC (Securities and Exchange Commission). Eager not to be left behind by the competition, Coinbase has continued to add new cryptocurrencies to its platform. However, according to the American regulator, some of these tokens fall under the “titlesIn other words, the SEC suspects that Coinbase offers its users securities that should be registered in its eyes.
To make matters worse, the SEC has already charged a former Coinbase executive, along with his brother and a friend, with inside trading. The latter are accused of having carried out illicit transactions on at least 25 crypto-assets, for a profit of 1.5 million dollars based on confidential information. In these conditions, it is difficult to restore a climate of confidence in the cryptosphere, especially as the American company decided to lay off 18% of its workforce, or about 1,100 positions, in mid-June, while its valuation was almost seven times in a year. Rocked by the crypto-crash, the company is no longer even among the top 10 cryptocurrency exchange platforms.
For its part, Binance is the first global exchange platform in the industry. He’s a scarecrow on the market and doesn’t even hesitate to play the competition anymore. In November, when FTX found itself cornered, Binance pretended to bail out its rival, before turning to executioners less than 48 hours after signing a letter of intent to buy the platform from SBF. This Machiavellian maneuver is the fruit of the imagination of Changpeng Zhao, says CZ, the boss of Binance, who sold his FTT tokens for $529 million following the CoinDesk revelations regarding FTX. Subsequently, the price of FTT crashed, creating panic among investors who wanted to withdraw their assets as quickly as possible, effectively pushing FTX towards bankruptcy.
However, while CZ has managed to eliminate SBF and FTX from the cryptocurrency landscape, it has yet to show its credentials on some aspects of its platform activity. In fact, fifteen French investors have filed a complaint with the Paris prosecutor’s office against Binance, accusing the platform of engaging in deceptive commercial practices and violating French regulations governing crypto assets.
Since the Pacte law of May 2019, digital asset service providers (PSAN) are required to request authorization from the Autorité des marchés financiers (AMF) to carry out their activity on French territory. And if Binance did indeed get the MFA blessing in May 2022, the platform didn’t wait for this green light to market its services and promote them after French users, according to the plaintiffs’ lawyers. Accusations that even the world leader in cryptocurrency exchanges rejects. Desperate action by investors or real violation of French regulations? This is what the Paris Public Prosecutor’s Office will have to ascertain. If not, the crisis of confidence that is shaking the sector will worsen further.
The cryptosphere will have to overcome a crisis of confidence in 2023
While much obfuscated, there are some operations in the cryptocurrency landscape that could steer the ecosystem in the right direction. This is especially true of The Merge in mid-September. Long awaited, this step marked a turning point for the sector. And for good reason, it is no longer minors who validate transactions, as with bitcoin, but the validators are responsible for ensuring that the network works properly. With its new approach, Ethereum has become a blockchain much less energy consumption which consumes 99% less energy. In addition to limiting the pollution generated by Ethereum activities, this operation will make it possible to multiply the possibilities offered by this blockchain. In this way, Ethereum has a great chance of positioning itself as the keystone of Web3, heralded as the next big mutation of the web.
It is more with this type of operation than with scandals like FTX that the crypto ecosystem will regain credibility. If calm gradually returns to the sector, 2023 could be the year of consolidation to allow the cryptosphere to mature. In addition to the news to kick off Web3, the arrival of international regulations, such as the MiCA (Markets in Crypto-Asset) regulation by 2024 in the European Union should allow for further regulation of the sector to make it pass a new heading. It is at this price that investor confidence will return. For the cryptosphere, we just have to hope that there are no new SBFs around…