2022, a pivotal year for the crypto-asset ecosystem

Blockchain Chronicle. Decoding four particularly surprising facts to draw lessons for the future of this market.

The beginning of the year is often an opportunity to look back on the events of the past year, especially if it has been very eventful. It should be noted that the year was particularly important, with a lot of news. Therefore, we have selected four particularly salient facts that we will detail, in order to draw lessons for the future of this market.

A year of sharp decline

The crypto-asset market reached its all-time high in November 2021. The price of Bitcoin then crossed $69,000. But since the beginning of 2022, a sharp decline shook the entire market, with declines approaching 65%. This is not the first time that there are such declines, the last one is 2018 where a decline of more than 85% can be observed during the year.

In fact, four-year cycles are repeating themselves for at least the third time: 2014, 2018 and 2022 are down years, while the rest of the time the crypto-asset market has seen 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 “Halfing”, meaning 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, in particular the S&P 500. Since 2020, the arrival of institutional investors, especially in the United States, causes an ever-increasing correlation and stronger between these two universes, and it has now become essential to follow macroeconomic news and Fed announcements as closely as possible to know the evolution of the market.

There are therefore two potentially contradictory lines of reasoning that explain the evolution of the crypto-asset market, one based on the history and internal characteristics of the assets that make it up, the other depending on broader economic factors and determined by the economy as a whole. The year 2023 should make it possible to assert which of these factors has the greatest weight.

Chain failures on centralized platforms

The year 2022 was marked by chain bankruptcies of exchange and lending platforms in the market. Major players such as Celsius, Three Arrows Capital, Voyager and BlockFi have had to cease operations, facing liquidity or solvency crises. Most observers attribute these problems to the fact that these players have taken risky credit positions, using cross positions on multiple platforms. With a sharp decline in the market and a reduced number of players, the bankruptcy of a single player could drag others down with it.

Currently, the situation has not stabilized yet, as other players such as Genesis are also in turmoil and may also go bankrupt.

But the worst event was, of course, the bankruptcy of the third largest platform in the world, FTX. We are no longer even talking about taking risky positions, but about fraud and abuse of corporate assets. This bankruptcy will certainly have significant legal consequences 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 clear the market, guarantee the safety of investors’ assets and guarantee compliance rules practically identical to those of traditional financial markets.

We can only welcome such a development, especially because it creates a unique framework that all companies working in this sector will have to respect, thus creating a particularly competitive environment. France was also ahead on this point, as the MiCA provisions largely reflect the 2019 PACTE law, especially in describing the status of companies subject to this regulation.

Union

Therefore, the year 2022 was rich in bad news at the financial level and had a significant impact on prices. Many projects that lacked a solid technological foundation have stalled or disappeared. However, such a purge is desirable: it allows investors to focus on the most interesting projects and eliminate others. This is not the first time this phenomenon has happened. For example, more than 90% of crypto-asset projects existing in the market in 2014 are now gone.

Technological evolution has continued in the most powerful projects, and the most interesting example is that of Ethereum. Blockchain, the second in terms of valuation and the first in terms of use, has achieved a major evolution of its protocol, called “The Merge”, which has changed the way transactions are validated on the network. his. The result is a drop in its electricity consumption of more than 99% and a drastic reduction in its monetary creation.

Technical developments in Ethereum continue at a steady pace and the next protocol update is scheduled for March.

Therefore, 2022 is a year that has had particularly rich news, resulting in a significant drop in the prices of the assets that make up the crypto ecosystem. But we should not stop at this observation: with the fruitful technological development, the balanced regulation of the market and the disappearance of less serious players, it seems that the conditions have been created for a reasonable growth of the entire ecosystem in the medium term. The beginning of 2023 also saw a pretty spectacular price rebound, even if it is too early to herald a return to the growth numbers this market has taught us.

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