In 2022, global markets faced significant challenges and declines. The value of the U.S. stock market decreased by over 15%, the bond market by over 20%, and the cryptocurrency market by over 50% from their peak in 2021. This decline was a result of central banks raising interest rates early in 2022 in order to curb inflation and slow economic growth. This tightening of monetary and fiscal policies led to a decrease in demand for risky and speculative investments, causing many investors to withdraw or sell off these types of assets. Both traditional and emerging asset classes were affected, with the latter, such as cryptocurrencies, facing particularly heavy pressure.
THE SELL-OFF
The crypto market faced significant declines as central banks decreased market liquidity and raised interest rates. As interest rates increased, investors sought out lower-risk investments with attractive yields, leading to a decrease in demand for speculative assets such as cryptocurrencies. This led to a significant sell-off in the crypto market, with the market cap falling by over $1 trillion by the end of the second quarter of 2022. The sell-off was further exacerbated as leveraged positions were unwound. New projects like Terra collapsed as traders exited the market, leading to the UST stablecoin becoming unpegged from the US dollar. This caused investors to lose billions of dollars and further increased pressure on the overall market. Centralized finance (CeFi) institutions, who had lent large sums of money to hedge funds such as Three Arrows Capital, also suffered significant losses as the hedge funds defaulted on loans and were forced to file for bankruptcy. As a result, user funds held on CeFi platforms were frozen and retail investors were unable to withdraw their funds. The Fall of FTX and other companies such as Celsius Network and Voyager Digital,Terra Blockchain which had promised high returns to users, also failed, leading to users losing their funds.
What's in for 2023?
2023 may not coincide with the upcoming halving of the Bitcoin but it could be a crucial year in the resurgence of the cryptocurrency ecosystem. With advancements in blockchain technology, new business strategies, and renewed attention from investors, the ecosystem is preparing for another period of disruption.For investors, 2023 is an opportunity to regain lost ground and rebuild trust through a focus on self-custody and well-informed investments. "Success" in the crypto market is no longer solely about becoming a overnight millionaire, but instead is about building, promoting, and advocating for a new approach to the future of money.
