As the year began, Bitcoin was already crashing but major investors - such as El Salvador’s President Nayib Bukele - were still positive that the largest cryptocurrency by market capitalisation would hit a price of $100,000 before 2023.
As of Christmas 2022, 1 BTC was trading at a little under $17,000.
Traders investing in volatile cryptocurrencies and crypto-based assets such as non-fungible tokens (NFTs) in 2022 faced the deleterious market effects of Russia’s war against Ukraine, the fall of the Terra [LUNA] cryptocurrency, crypto lenders abruptly freezing withdrawals, mass layoffs across fintech companies, the collapse of the FTX exchange, and more legal action from financial regulators worldwide.
We take a look at five incidents that sent shockwaves through an already teetering crypto sector this year.
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1. Fall of FTX
30-year-old billionaire Sam Bankman-Fried, who was the founder and CEO of the FTX exchange, was an icon in the crypto sector. As crypto lenders and platforms failed due to the liquidity crunch caused by the Terra collapse, FTX offered to bail them out.
In November, it was FTX that was hit by mass withdrawals it couldn’t sustain as panicking users tried to pull their funds from the platform. The reasons included rumours swirling around a reportedly leaked balance sheet and allegations that Bankman-Fried’s trading company Alameda Research was being lent FTX customers’ funds. The exchange and its CEO came crashing down when rival crypto exchange Binance, headed by fellow billionaire Changpeng Zhao, stepped away from a proposed bailout deal and said it would be liquidating its reserves of FTX’s crypto token.
FTX withdrawals were blocked, the FTT token plunged in value, and Bankman-Fried was arrested in December. It is unclear how many investors have lost their funds due to FTX’s collapse, but the BBC reported that the exchange owed it 50 biggest creditors roughly $3 billion.
2. Terra Collapse
Terra’s LUNA cryptocurrency rose to became one of the top ten cryptocurrencies by market capitalisation earlier this year. Terra’s UST stablecoin, with each UST worth almost the same as 1 USD, was also strengthened as a result.
Terraform Labs CEO Do Kwon shared ambitious plans to bolster the stablecoin by buying billions of dollars of Bitcoin. In May, however, following signs of instability and increased sell-offs, UST fell from its USD peg and careened towards zero. The following panic selling plunged the price down, and sister cryptocurrency LUNA - which traded at close to $120 when at its highest in April - was worth less than $1 in around a day.
The collapse destroyed tens of billions of dollars. The ripple effects of this and the liquidity shortage caused other crypto lending platforms such as Celsius to later halt customer transfers and withdrawals before filing for bankruptcy. This triggered a chain of similar updates across the sector that impacted investors worldwide as prices nosedived due to fear.
As of December 2022, South Korean authorities were on the lookout for Do Kwon and other Terraform Labs executives, but the crypto founder was believed to be hiding in Serbia.
3. Ethereum Merge
Ethereum is a smart contract platform where users can build decentralised apps, create new crypto tokens, participate in the DeFi economy, or launch other code-based projects. Ether, the platform’s native currency, is the second biggest cryptocurrency by market capitalisation. Environmentalists have criticised both Bitcoin and Ether miners for their competitive process of adding new transactions to their chains, called proof-of-work, whose energy demand can surpass that of several countries.
In a complicated multi-year process beset by delays, Ethereum decided to change from proof-of-work to the less energy hungry proof-of-stake method, thus putting an end to Ether mining. This transition, called The Merge, was successfully completed on September 15, with Ethereum claiming energy consumption was slashed by 99.95%.
As a top cryptocurrency and platform, Ethereum’s shift will continue to impact how regulators evaluate the energy and environmental cost of cryptocurrencies.
4. Insider Trading at Coinbase
Most crypto criminals remain faceless hackers or scammers who are rarely caught, but July 2022 saw what the U.S. Department of Justice labelled the “First Ever Cryptocurrency Insider Trading Tipping Scheme” in the publicly traded cryptocurrency exchange Coinbase Global Inc.
Former Coinbase Product Manager Ishan Wahi, who was allegedly aware of what crypto assets Coinbase planned to list, passed on tips to his brother Nikhil Wahi and their friend Sameer Ramani. The trio allegedly bought up the coins in advance and sold them off as their prices rose, after the listings went public. According to the DOJ release, Nikhil Wahi and Ramani “collectively generated realized and unrealized gains totaling at least approximately $1.5 million” under different names and with anonymous wallets. Crypto traders on Twitter noted these suspicious transactions and alerted Coinbase.
In a dramatic stand-off on May 16, Ishan Wahi was caught by the U.S. legal authorities while trying to board a one-way flight to India. The trio was charged with counts of wire fraud conspiracy and wire fraud. Though Coinbase distanced itself from its ex-employee, the memorable case highlighted crypto’s serious image problem and cast doubt on the integrity of even regulated crypto exchanges.
5. Ronin Hack
As the exploding number of blockchains build pathways so that they can connect with each other and transport crypto assets, these meeting points become prone to highly sophisticated security exploits.
In March 2022, the Ronin Network’s cross-chain bridge was attacked by the Lazarus Group, which is linked to North Korea. One of the largest crypto hacks on record, crypto funds worth roughly between $500 and $600 million at the time were stolen and laundered through channels such as decentralised exchanges and crypto mixers.
The Ronin Network is linked to the Axie Infinity NFT-based game ecosystem. For many South East Asians, playing the game and investing their assets here helped them earn extra money during the worst months of the COVID-19 pandemic.