Stumbling toward 2023, Bitcoin was slow in 2022. It's been outcast by society and closes the year slouched in an alleyway, having been cheated out of its cheap money and leveraged bets. As rates of interest rose, people were less willing to take risks, as well as companies like Sam Bankman-FTX Fried's went bankrupt, the whole Crypto market shrank by $1.4 trillion, with the leading coin losing 60 percent of its worth.

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Virtual asset management CoinShares reports that net inflows into Cryptocurrency funds have dropped to $498 million in 2022 from $9.1 billion in 2021, a trend that reflects the fact that traditional financial institutions have avoided the sector during its annus horribilis. According to UBS's director of FX strategy, James Malcolm, 70% of his time in the first half of the year was spent discussing Cryptocurrency with customers. Instead, he spent below 2% of his time talking about Crypto throughout our 10-day trip across North America last month. Cryptos were not expected to gain popularity from mainstream institutional investors for another two to three years even before the fall started in November of last year. At this point, it belongs to the utterly hypothetical future.

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Let us understand Bitcoin first and then we will proceed further with our main topic. So, let’s start.

What is Bitcoin?

To put it simply, Bitcoin is a virtual currency which could be traded between users on the Bitcoin system without the need for a central bank or single point of failure. Nodes in the Bitcoin network use Cryptography to verify and record Bitcoin transactions in a publicly shared database known as a blockchain. In 2008, a mysterious individual or group who went by the pseudonym Satoshi Nakamoto created the Crypto. The development of the money was made available as open-source software in 2009, and its usage spread shortly afterwards.

Bitcoin Meets a Recession

Due to fiscal and monetary support from nations throughout the globe seeking to fend off the financial harm from COVID lockdowns, the Cryptocurrency market reached $3 trillion in November 2021, and Bitcoin reached a record high of $69,000. While society began to recover, rising inflation resulted in central banks raising interest rates, which sent speculators running from riskier investments like technology stocks as well as Cryptos. Bitcoin, which had been touted as a useful value store in times of inflation due to its limited supply, failed the test, as investors flocked instead to the U.S. dollar and other tried-and-true havens when rates increased. A 1/3 of its value was wiped away in January, far more than the 8% loss experienced by United States equities over the same period. In 2022, digital assets were introduced to a new ecosystem. They have not lived through a downturn or seen interest rates increase.

Crypto Optimist For 2023

Still, it has not been all negative news for Cryptocurrency. In September of 2022, the Ethereum blockchain successfully implemented a massive update known as "Merge," which shifted the network to a less resource-intensive "proof of stake" method. An otherwise dismal year for Crypto has had one bright spot in this technical achievement. Those enhancements would greatly simplify interacting with the Ethereum network for users everywhere. Taking into account all this development, a Crypto optimist in 2023 seems inevitable. This year also saw a major increase in the use of blockchain-based solutions like decentralized exchanges and decentralized financing. Therefore, this is important to pay attention to in the medium to long term since it portends well for the ecology. When investors' willingness to take on more risk returns in 2023, we may see more spending on digital assets.

2022 Bubble Popped

Major projects struggled when investors abandoned Cryptocurrency. TerraUSD, a so-called "stablecoin," and its sibling coin, Luna, were the first to be compromised. In May, the value of these coins plummeted, costing investors across the world an approximate $42 billion. After U.S. Cryptocurrency financier Celsius filed bankruptcy in June, freezing client assets and disclosing a $1.2 billion deficit, the market was rocked. Three Arrows Capital, a Crypto hedge fund established in Singapore, collapsed within the same month. It only lasted 49 days, from the end of May, for Bitcoin as well as other tokens to fall by more than half. Bitcoin saw its greatest one-day percentage drop after March 2020's COVID turmoil, when it dropped over 15% in a single trading session in June. However, the greatest Cryptocurrency surprise was yet to arrive.

The large FTX exchange suddenly went insolvent in the month of November. With Bankman-Fried desperately trying to raise money to save his exchange, the price of Bitcoin dropped by a quarter in less than four days. Currently, the price of one Bitcoin is about $16,000. Generally, the year 2022 has proven to be a disastrous one for the Crypto world. Also known as the year the inflation of the leveraged bubble broke," as described by economist Noelle Acheson. This event exposed the fundamental problems of a sector which had expanded too rapidly. On January 10th, 2023, Cryptoverse will return for another season.
Disclaimer: The author’s thoughts and comments are solely for educational reasons and informative purposes only. They do not represent financial, investment, or other advice..