29 Dec 2022
Wrapped Macro Crypto 2022
We take a look at the crypto markets and review the macro outlook of 2022
2022 was a long and challenging year for crypto, so many liquidations occurred for traders and funds. I don't think anybody could have predicted the events we have gone through, as this year is shaping to be one of the craziest yet.
January
To start, here is a snapshot from January 1st, 2022, of the top 10 coins by market capitalization:
The crypto market began the year on a solid note, with Ethereum and Bitcoin fresh off their all-time highs, trading at $3800 per ETH and $47,000 per BTC. The total market cap for crypto was over $2 trillion, and everyone thought this was just a tiny correction in our super cycle. At the time, The US Federal Reserve strongly considered issuing a CBDC, which sent shockwaves throughout our industry. The Federal Reserve issued a report debating the cost and benefits of a move towards digital money. At the same time they were considering raising interest rates swiftly, because inflation was transitory. We saw how this all worked out.
February
The month we thought mass adoption occurred, Russia invaded Ukraine in a significant escalation of the Russo-Ukrainian War, which began in 2014. Over 69 million dollars were donated to Ukraine and NGOs through cryptocurrencies. Multiple wall street firms also decided to adopt crypto. State Street, a United States bank, was set to provide crypto custody services. BNY Mellon also agreed to offer custody services BlackRock, the world’s largest asset manager, opened up a crypto trading business.
March
March was an excellent month for crypto; the market cap of the whole crypto industry started hovering over $2T shortly before March ended. This month also witnessed crypto’s highest correlation with the US equity market as the Federal Reserve raised its interest rates for the first time with 25bps.
April
As we saw the correlation between equities and crypto grow in March, this extended further in April. The S&P 500 suffered its worst April in 52 years, plunging by 13.3% since the year to date. Respectively, Bitcoin and Ethereum went down by 16.6% and 18.9%. April was also the month of decentralized algorithmic stablecoins. We saw Near compete with Luna and UST by offering 20 % APY on their stablecoin; after that, we saw Tron and USDD take it a step further and offer 30% APY on their native stablecoin. Little did they know that this was the beginning of the end for algorithmic stablecoins.
May
In May, Terra’s native stablecoin, UST, started to lose its peg. Chaos ensued, sending the 18 Billion dollars of stablecoins all over the place. The Luna Foundation tried to defend the peg by deploying its billion-dollar Bitcoin reserve to protect it. Unfortunately, this wasn't enough, as UST fell to 35 cents. Adding to the fear and uncertainty of this month, the CPI print came out higher than expected at a staggering 8.6%, the most significant 12-month increase since 1981.
June
As May had inflation talks, June was the start of the crypto industry's layoffs. Coinbase cut 1,180 team members, which was 18% of its workforce. BlockFi laid off a fifth of its staff, Gemini cut 100, and Crypto.com cut 260 employees. Following the layoffs, Celcius, one of the biggest crypto lenders, started to struggle and paused all their withdrawals. Finally, they filed for chapter 11 bankruptcy. Apart from the crypto struggles, the Federal Reserve decided to raise interest rates with 75bps, the most significant monthly increase in 28 years.
July
July was the first nail in the coffin; Three Arrows Capital, one of the most well know funds in the space, lost over $ 10 Billion in investors' money. They owed $2.36 Billion to Genesis and $270 million to Crypto.com. With inflation running rampant and the US technically entering a recession with two consecutive quarters of GDP declines, the Federal Reserve decided to raise rates with 75bps further.
August
In August, the US Treasury sanctioned Torando Cash. As a result, Circle, the issuer of USDC, froze all USDC in different sanctioned ETH addresses and blacklisted them. This caused the community to turn on Circle and pivot to other stablecoins because many feared that Circle could abuse this power in the future. Thinking any USDC that may have traveled through Tornado Cash could be frozen, despite who ended up with it.
September
After many delays throughout the year, the Ethereum Foundation launched the Ethereum Merge. Ethereum finally merged from Proof of Work to Proof of Stake. Unfortunately, Macro Tailwinds have held back significant price action in ETH, the inflation print came in worse than anticipated, and the rate hikes are slower than expected. The biggest news story that is forgotten is that the Bank of England resumed purchases of long-duration UK sovereign bonds despite 10% inflation because pension funds were getting margin called that the
October
In October, annual inflation in the US rose by 8.2% after the country’s Consumer Price Index recorded a 0.4% increase in September. Also, the Bank of New York Mellon started its endeavors with crypto holdings, becoming the first large US bank to safeguard crypto assets. Unfortunately, October was the quietest month; it just set the stage for November's atrocity.
November
What occurred in November was something nobody expected. The house of cards that Sam Bankman Fried built-in FTX and Alameda collapsed. FTX experienced a bank run and lost about $ 10 billion in user funds. With Sam losing multiple billions in funding, a class-action lawsuit was filed alleging that Bankman-Fried created a fraudulent cryptocurrency scheme designed to take advantage of unsophisticated investors across the country. The story of FTX and the contagion effects are still to come from the FTX collapse.
December
December was filled with bankruptcy fillings and crypto funds losing multiples in the FTX collapse; while FTX did collapse, inflation does seem to have cooled off, and the Federal Reserve only decided to raise interest rates with 50 bps. With Inflation cooling off to 7 percent and interest rates at 4.25%, everybody thinks that 2022 was one of the worst years for crypto; what if I were to tell you 2023 won't be any better? Filled with no volatility, economic growth, and inflation still too high, more projects are filing for bankruptcy.
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