Crypto Market's 2022 Downturn and 2023 Rebound: A Rollercoaster Journey Amid Increasing Regulations and Financial Shifts
Summary:
This article discusses the stark downturn that the cryptocurrency market underwent in 2022. It highlights the bankruptcy of crypto firm FTX, and ongoing rise in US inflation and national debt. However, it also notes Ethereum's successful transition to proof-of-stake and Bitcoin's increased hash rate. It concludes with the crypto market's resilient rebound in 2023 amidst continued regulatory scrutiny and industry downturn.
The crypto market experienced a significant downtrend in 2022, declining by over 70% during a period marked by multiple negative events. These included the bankruptcy of FTX, the arrest of its founder Sam Bankman-Fried, and the massive $50 billion meltdown in the Terra Luna ecology. Coinciding with controversial instances, the US witnessed its highest inflation in four decades and continued growth of the nation's debt. Nevertheless, it was not all unpropitious; Ethereum migrated to proof-of-stake, and Bitcoin's hashrate thereby expanded threefold. A solid rebound in the market surfaced in 2023.
In the timeline from 2022 to 2023, major upheavals played out in crypto. The US inflation rates reached their peak, leading to harsh inflation that played a crucial role in Bitcoin's 77.2% plunge from its all-time high of $68,990 to a low of $15,740 in November 2022. The US Consumer Price Index (CPI) inflation rate peaked at 9.1% in June 2022, a figure not seen since 1982, as per the US Bureau of Labor Statistics. Fortunately, post-June 2022, the CPI inflation showed a decelerating trend and plummeted to about 3% in June 2023.
From June 2023, Bitcoin made a remarkable recovery, surging upward by more than 135% from $30,480 to an all-time high of $73,737. Notably, Bitcoin is yet to reach its inflation-adjusted all-time high due to the 11.65% rise in the CPI inflation rate since November 2021.
The US national debt experienced an accelerated growth trajectory during 2022 and 2023, increasing by 4.35% to $33.2 trillion, according to US Treasury data. The spiraling debt, which has now increased to $34.5 trillion, puts the nation on an unsustainable financial path, warns Jerome Powell, Chair of the US Federal Reserve. However, there has been a decline in the US debt to GDP ratio from approximately 3.2% to roughly 123%.
A key voice in the crypto industry, Coinbase CEO Brian Armstrong, suggested that an increased adoption of Bitcoin in the US could counterbalance excessive deficit spending. According to Armstrong, this is crucial for maintaining the strength of the US dollar.
The shockwaves caused by the bankruptcy of FTX in the crypto world underscored the harsh macroeconomic conditions between 2022 and 2023. This unfolded amid a series of bankruptcies, liquidations, and imprisonments of many infamous figures in the industry. The SEC got active, stepping up its regulatory actions. Its most significant actions involved lawsuits against the world's largest cryptocurrency exchange, Binance, and Coinbase, alleging these firms listed cryptocurrencies that were considered securities.
Meanwhile, continuing despite numerous industry setbacks, developers kept on building. Ethereum transitioned to a proof-of-stake consensus mechanism in September 2022, thereby reducing its energy consumption by over 99%. Likewise, the Bitcoin network became more secure between 2022 and 2023. Its hash rate expanded by 200% to 515 terrahashes per second during this timeframe.
Published At
4/16/2024 5:05:00 PM
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