After a storming year in 2021, Bitcoin’s value declined significantly in 2022, dropping as low as $15,757 in November.
The world’s largest cryptocurrency didn’t start the year well, having its worst annual start since the dawn of crypto, and its value continued to decline throughout the year.
Bitcoin’s value stood at $47,733 on 1 January 2022 after dropping steeply from a peak of $64,400 in November 2021.
Between 1 January and 19 December 2022, Bitcoin’s value dropped by approximately 67%.
Over the course of the year, Bitcoin’s biggest drops occurred in May, June, and November. During these months, its value dropped by approximately 18%, 33%, and 17%, respectively.
Several of the most significant Bitcoin-related events of 2022 are summarised below.
Bitcoin closes 2021 with a big drop
Bitcoin closed out December 2021 with an almost 20% drop, the largest monthly loss it experienced that year since May.
That was also its worst December since 2013. And its 60% advance in 2021 marked its smallest gain for an up year since 2015, when it climbed “only” 36%.
Those tracking Bitcoin’s daily fluctuations say this is par for the course — the coin is known for its volatility and 2021 proved just as turbulent as any other.
Terra collapses
The first of two major failures in the cryptocurrency market happened in May, when the TerraUSD (UST) stablecoin and its sister token Luna collapsed.
Terra was a system of algorithmic stablecoins, with its most famous, UST, pegged to the US dollar.
In theory, the stablecoins were supposed to be kept balanced through a seignorage mechanism.
Essentially, the system allowed you to always redeem Terra stablecoins for their Luna equivalent and vice versa.
To mint $1 of a Terra stablecoin, the equivalent of $1 of Luna is “burned” — taken out of circulation. Conversely, Luna is minted when you “burn” or sell UST.
Terra’s algorithm allegedly came under attack in May. As the UST stablecoin lost its peg to the US dollar, people’s confidence in the system wavered and they sold their Luna and stablecoins simultaneously.
This caused the Luna price to drop while the algorithm drastically inflated the number of tokens in circulation, resulting in a further decline in the token’s value.
Ultimately, Luna’s value dropped too low to function as viable collateral for Terra’s stablecoins and the whole system imploded.
Luna’s price dropped to near zero after reaching a record of $119 a month earlier.
Other stablecoins were also affected, including the largest collateralised systems linked to the dollar and dollar-equivalent assets.
However, these returned to business as usual within a week.
In the wake of the disaster, the Terra community started a “Terra 2.0” blockchain, which kept the name and the Luna token while ridding itself of the algorithmic stablecoins and seignorage algorithm.
They renamed the original blockchain and tokens Terra and Luna Classic, and they continue on.
However, TerraUSD Classic is currently worth $0.02 per token instead of $1.
Luna Classic trades at fractions of a penny ($0.0001 at the time of publication). However, due to the sheer number of tokens in circulation, it remains one of the top 50 cryptocurrencies by market cap.
Terra’s collapse sent shockwaves through the cryptocurrency market, knocking some $300 billion off the sector’s nearly $1.7 trillion market cap at the time.
Bitcoin’s downward spiral continued in June
In June 2022, Bitcoin plunged through several closely watched price levels to the lowest since late 2020.
The declines were attributed to deepening stress within the cryptocurrency industry following further monetary policy tightening.
The cryptocurrency declined by as much as 33% in a single week — from 11 to 18 June.
Genesis’ head of market insights, Noelle Acheson, described a liquidation cycle that drove Bitcoin prices and sentiment surrounding the cryptocurrency lower.
“What we’re seeing is more liquidations driving prices and sentiment lower, which triggers more liquidations and negative sentiment — some flushing-out needed still, but this will at some stage exhaust itself,” Acheson said.
FTX collapse and fraud allegations
The cryptocurrency market was further rocked by the news that industry darlings Alameda Research and FTX were insolvent.
Founded by wunderkind and Effective Altruism poster child Sam Bankman-Fried, it briefly looked as though Alameda would be cleaning up most of the mess Terra’s collapse had created.
Alameda was buying up crypto companies that were over-exposed to the Terra ecosystem with the apparent aim of making customers whole.
However, it later emerged that crypto hedge fund Alameda, and sister company FTX, a centralised digital asset exchange, were themselves a house of cards.
The companies have since been accused of defrauding customers, and Bankman-Fried arrested.
Allegations have also surfaced that Bankman-Fried and his hedge fund may have orchestrated the attack on Terra, with the New York Times reporting that a US federal investigation is still in its early stages.
Bankman-Fried has denied the allegations, saying, “There is no evidence, because it didn’t happen.”
The ongoing FTX and Alameda drama caused Bitcoin’s price to drop below $16,000, and saw the cryptocurrency trade in a range between $16,000 and $17,000 for most of November December.
According to Coingecko, the total cryptocurrency market cap was $846 billion at the time of publication — down from $2.34 trillion on 1 January 2022.
By Jan Vermeulen and Myles Illidge.
