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Updates on Cryptocurrency 2022

Updates on Cryptocurrency 2022



Cryptocurrency, once an impressive dinner party anecdote for those with superior financial industry knowledge, has become widely known among all, thanks to its news generating volatility, celebrity endorsements, and increasing popularity with about 16% of Americans having at some point investing in, trading, or using it. The first of which, and still one of the most popular today-Bitcoin-was initially released back in 2009, and since, the market has saturated with over 21,000 cryptocurrencies to choose from today with a market capitalization of $850 billion. So, is cryptocurrency a good investment? This article will analyze how cryptocurrency investments performed in 2022. 

2021

2021 was a record-breaking year for cryptocurrency, with its value and popularity increasing steadily for the majority of the year. This led to highlights like bitcoin, an industry leader, breaking record for its largest market capitalization at $1.28 trillion and several non-monetary gains for the industry as well. For example, FTX-the third-largest name in cryptocurrency-purchased the naming rights for the Miami Heat Arena in June 2021, and Central American country, El Salvador, adopted bitcoin as legal tender. This proved to be its peak, however. Since then, its investors have ridden Bitcoin's valleys all the way back down to $384.24 billion, and just earlier this week, a judge ruled FTX's naming rights deal void-as the currency tanked in value this past November, leading owner and previously self-proclaimed "king of cryptocurrency" Sam Bankmanfreed filing for bankruptcy and in debt of over $8 billion to his investors. 

So, what went wrong?

Luna, a cryptocurrency that started the year 2021 at approximately $1 and made it up to $116, was considered a stablecoin-which means its value was directly correlated to the value of another coin, currency or financial instrument. One example of another stablecoin is tether-which is tied to the value of the US dollar and is, therefore, relatively stable. Where Luna differed from tether, was in that it wasn't connected to a currency, but was an algorithmic stablecoin connected to the Terra network. 

An algorithmic stablecoin uses an algorithm to systematically match supply to demand, effectively keeping the value of the coin at a constant. It's believed that this algorithm was maliciously mishandled by the leader of the Terra network, Do Kwon. He's been accused of purchasing a high quantity of UST (US Terra) with BTC (Bitcoin) and selling it at a discount OTC (over the counter), lowering the coin's liquidity and pushing the price down from $1 to $0.91. Because this didn't prevent owners from swapping their UST for Luna at a 1:1 ratio, most of the investors took this option, leaving Luna to cover the decrease in the currency value for the savvy investor-who then cashed out, realizing its stability had become a cause for concern. 

Without the money to keep up with this major sell off the Luna Foundation guard-a crypto group and its operator-was forced to sell off their BTC reserves in an effort to save this supposedly stablecoin, which, in turn, decreased the liquidity of BTC, decreasing its value. As an industry-leading coin with a market capitalization of over a trillion dollars at the time was affected by this, the rest of the industry was too. Through the connections between the coins themselves, as well as the decrease in public trust towards cryptocurrency that resulted from the news of this breaking, sent the entire economy on a downward spiral. 


What goes down...

Despite all the negatives that 2022 brought for cryptocurrency, there were positives as well. One of the most notable was the effects of cryptocurrency on the wartime funding efforts of Ukraine in their ongoing battles against Russia. At the war's beginning, the government turned to crypto for its funding and defense efforts. Donations from personal wallets, as well as exchanges, began flooding in. Since Russia first invaded Ukraine until today, nearly $100 million in aid has come into the country via cryptocurrency.

In other news, cryptocurrency adoption was still on the rise despite its instability in 2022. Dat a shows that MENA (Middle East and North America) topped the charts of nations to adopt the currency. From July 2021 to June 2022, this region received $566 billion in cryptocurrency transactions-a rise of nearly 49% from the year prior.  Europe came next with a 40% increase, which was followed by North America at 36%. Central and Latin America saw increases as well, with South Asia and Vietnam also following suit. 

Some changes that you may notice regarding American adoption of cryptocurrency, can be viewed on social media. Instagram by Meta was one company that, in 2022, announced they were beginning a testing program for NFTs (non-fungible tokens). Facebook would come next or the platform as they are currently working on other innovations in trading NFT on their platform. Another site you can find NFT on is Reddit. Its users reached numbers as high as 5 million in NFT avatars spread across 4 million unique wallets.

Conclusion

Cryptocurrency, like many of us,had a 2022 full of ups and downs. Although I personally wouldn't recommend getting into a currency this unstable as an investment, it's easy to see, with its growing worldwide recognition and uses, why some still call cryptocurrency the future of currency and would insist you join the revolution today. 

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