Reviewing the headline events of 2022 in the crypto market and how industry prospects fare in 2023

20th January 2023.

The global cryptocurrency market meltdown in 2022 is one for the record books. A combination of harsh macroeconomics and a deeply entrenched crisis involving key industry players saw the crypto market capitalization collapse from over $2 trillion to $750 billion when the market reached its current bottom in November.

The cryptocurrency industry has always adhered to a faster pace than other industries, but 2022 felt like a year where a decade happened. Central banks aggressively hiked interest rates to combat inflation, playing into a sell-off that affected the global financial markets. The crypto space contended with these severe macro risks alongside the demise of multi-billion dollar valued projects, including Terra, Three Arrows Capital, FTX, Celsius, BlockFi, and several other casualties. Meanwhile, the long-awaited Ethereum Merge happened with the biggest smart contract blockchain transitioning to proof-of-stake consensus.

In our first newsletter release of 2023, our analysts summarize critical events that shaped last year's abysmal crypto market performance. A closer review underscores the unhealthy relationship between several major players and how the failure of one led to socialized losses for both retail and institutional investors. This release also highlights two unresolved risks with the potential to impact the crypto market and how the industry is shaping up after the FTX collapse.

Harsh macroeconomics exacerbated the 2022 crypto winter

The crypto market headed into 2022 on the back of a historic bull run. The total market capitalization nearly hit $3 trillion as investors largely profited from a loose monetary policy by central banks combined with a nearly insatiable appetite for risk from institutional and retail investors alike.

Unsurprisingly, the market turned bearish as soon as central banks pivoted to fighting inflation. Beginning in Q1 2022, the U.S. Federal Reserve consistently increased interest rates from 0.1% to over 4.5% by the end of the year.

(U.S. Federal Funds Rate Chart via Trading Economics)

Central banks worldwide took the same course, causing a massive sell-off that affected global financial markets and, more severely, risk-on assets like cryptocurrencies. The global cryptocurrency market cap had lost over $1 trillion before a more severe internal crisis sent prices crashing.

As the year wore on, bridge hacks gradually became the order of the day. Wormhole's Ethereum-Solana bridge protocol momentarily topped the chart when hackers carted away $320 million in February. Roughly one month later, popular Web3 gaming platform Axie Infinity suffered a record-breaking $625 million security breach on its Ronin Network bridge protocol.

The controversial Terra (LUNA) ecosystem dramatically collapsed in May after incentives began drying up for its closely intertwined stablecoin TerraUSD (UST). A market panic ensued, eventually wiping out Terra's $40 billion ecosystem and liquidating several entities, including crypto lenders and hedge funds, that heavily invested in the project.

Once $10 billion crypto hedge fund Three Arrows Capital (3AC) was prime among the casualties. 3AC's and other hedge fund defaults on loan deals led to the implosion of centralized lending platforms, including Celsius, Voyager, and eventually, BlockFi, which held billions in assets under management.

The Terra (LUNA) contagion would affect Alameda Research, a proprietary trading firm with close ties to the now-defunct crypto exchange FTX. FTX's effort to bail out Alameda Research from its shortfalls led to the platform lending over $10 billion in customer assets to its sister firm without collateral.

Market sentiment declined significantly in the wake of the crisis at what was once the third-largest crypto exchange by trading volume. The situation unsurprisingly led to a further market decline and brought to climax a grossly underperforming year for crypto assets. Bitcoin had dropped by 65%, its worst performance since 2018, while the global market capitalization dropped nearly 75% to $798 billion.

Is a 2023 recovery on the cards for the crypto market?

After a distressing year, many crypto investors are optimistic about a substantial market rebound in 2023. Yet, prevailing macroeconomic and unresolved crypto market risks suggest the need for caution.

On the optimistic side, the inflation rate in the United States has likely peaked in the past year, with the Federal Reserve expected to slow down interest rate hikes. The macroeconomic policy's considerable influence in the recent crypto market decline supports the idea of a Fed U-turn positively impacting prices.

However, there are also reasons for concern. The World Bank, in its recent annual report, warned of a possible recession in 2023 as global economic growth slows. The inflation rate remains relatively high in Europe, with the European Central Bank still focused on taking more adverse measures to reverse its fortunes. Additionally, political tension remains unabated, with the Russia/Ukraine war ongoing and pushing the world deep into its first truly global energy crisis.

The aforementioned risks have not stopped global financial markets, including risk-on assets like cryptocurrencies, from rallying early in 2023. The total crypto market capitalization has gained nearly $50 billion on the YTD chart and a higher $100 billion since the November bottom.


If history is anything to go by, the crypto market more than doubled its value in 2019 following a grueling 2018 bear market that mirrors 2022's market's performance. All the same, investors must remain wary of increased crypto regulation and other FTX contagion risks. The company's bankruptcy lawyers have recovered over $5.5 billion in cash, securities, and liquid cryptocurrencies that may be market sold to repay creditors. There is growing tension around industry behemoth Digital Currency Group as it battles its way out of a crisis involving its lending business, Genesis Capital.

It will be interesting to see whether a resolution of imminent threats to market confidence could set the tone for a market recovery in 2023. However, the early market movements of 2022 are certainly positive for the broader industry.

Crypto market spotlight:

  • FTX bankruptcy boss mulls exchange restart: FTX's new CEO, John J. Ray III, has revealed they are considering restarting the exchange as part of efforts to reimburse customers and creditors.
  • U.S. authorities burst a $700 million exchange linked to Russian criminals: The U.S. Department of Justice (DOJ) arrested the founder of Bitzlato. This Hong-Kong-based crypto exchange helped funnel $700 million to Russian criminals.
  • HashKey raises $500 million for Web3: Despite the crypto winter, venture capital firm HashKey recently closed its Web3-focused fund, raising $500 million from investors.
  • Genesis set to file bankruptcy protection: The latest twist to Digital Currency Group (DCG) > Gemini saga will see DCG subsidiary Genesis file for bankruptcy, according to fresh reports.
  • Polygon completes hardfork to lower fee spikes: Ethereum layer-2 network Polygon completed a hardfork to boost its network performance, albeit in controversial circumstances, as only 13 validator teams approved the upgrade.