Chronicle Blockchain. Deciphering four particularly striking facts to draw lessons for the future of this market.
The start of the year is often an opportunity to look back on the events of the past year, particularly if it was a very eventful one. It should be noted that the year was particularly significant, full of novelties. We have therefore selected four particularly salient facts that we are going to detail, in order to draw lessons for the future of this market.
A year of sharp decline
The cryptocurrency market reached its all-time high in November 2021. The price of Bitcoin then surpassed $69,000. But since early 2022, a sharp decline has rocked the entire market, with declines approaching 65%. It is not the first time such decreases have occurred, the last one was in 2018, where we could observe a decline of more than 85% over the course of the year.
In fact, the four-year cycles are repeating themselves for at least the third time: 2014, 2018 and 2022 are bearish years, while otherwise the cryptocurrency market has made good progress. The fact remains that many observers took the opportunity to announce the disappearance of this entire ecosystem. These four-year cycles appear to be related to the halving of Bitcoin mining rewards.
Conversely, it is important to consider the growing correlation between the crypto-asset market and that of traditional financial assets, especially the S&P 500. Since 2020, the arrival of institutional investors, especially in the United States, causes an increasingly strong correlation between these two universes, and it has now become essential to follow macroeconomic news and Fed announcements as closely as possible in order to know the evolution of the market.
There are therefore two potentially contradictory arguments that explain the evolution of the cryptocurrency market, one based on the history and intrinsic characteristics of the assets that compose it, the other dependent on broader economic factors and determined by the economy as a whole. The year 2023 should allow us to state which of these factors has the greatest weight.
Chain failures on centralized platforms
The year 2022 was marked by chain failures of trading and credit platforms in the market. Major players such as Celsius, Three Arrows Capital, Voyager and BlockFi have had to go out of business, facing liquidity or solvency crises. Most observers attribute these problems to the fact that these players have taken risky credit positions, using cross-platform positions. With a sharp drop in the market and a reduced number of players, the failure of a single player could drag the others along with it.
At present, the situation has not yet stabilized, as other players such as Genesis are also in turmoil, and could even go bankrupt.
But the worst event was, of course, the failure of the third largest platform in the world, FTX. There is no longer even talk of taking risky positions, but rather of fraud and abuse of corporate assets. This bankruptcy will obviously have significant legal repercussions and has shown a real need to regulate the activities of these companies.
MiCA, a European regulation
And precisely, the European Parliament decided in 2022 to create a single regulatory environment: Markets in Crypto Assets (MiCA). This new regulation should make it possible to clean up the market, guarantee the safety of investors’ assets and ensure compliance rules practically identical to those of traditional financial markets.
We can only welcome such a development, particularly as it creates a unique framework that all companies working in the sector will have to respect, and thus generate a particularly competitive environment. France has also been ahead on this point, as the provisions of the MiCA largely reflect the PACTE law of 2019, in particular in the description of the status of companies subject to this regulation.
2022 was therefore a year full of bad financial news, with a significant impact on prices. Many projects without solid technological foundations have stalled or disappeared. However, such a purge is desirable: it allows investors to focus on the most interesting projects, and to make the others disappear. It is not yet the first time that this phenomenon has occurred. For example, over 90% of the crypto-asset projects that existed on the market in 2014 have now disappeared.
Technical developments on Ethereum continue at a steady pace and the next protocol update is scheduled for March.
2022 is therefore a year that has seen particularly rich news, resulting in a significant drop in the prices of the assets that make up the crypto ecosystem. But we must not dwell on this observation: with prolific technological development, balanced market regulation and the disappearance of less serious players, the conditions seem to exist for a reasoned growth of the entire ecosystem in the medium term. Early 2023 also saw a fairly spectacular rebound in prices, although it is too early to announce a return to the growth figures this market has accustomed us to.