All the Ways That Crypto Broke in 2022
If you’ve been watching the rise of cryptocurrencies, you might have seen a few signs that they will soon begin to decline in value. One of these was the recent crash of the FTX and Celsius Network, as well as the continuing depreciation of Bitcoin and the other major cryptocurrencies. What will happen to them in the coming years?
FTX’s downfall
FTX was a crypto exchange that collapsed in November of 2022. The company’s problems were primarily due to mismanagement and a lack of internal controls.
The collapse of FTX was a reminder that the unregulated financial industry is a dangerous environment. FTX was run by Sam Bankman-Fried, who was arrested on fraud charges after the company filed for bankruptcy.
Despite a promising start, FTX became overleveraged and was unable to meet its demand for withdrawals. As a result, the exchange was forced to file for Chapter 11 bankruptcy.
According to reports, FTX had $9 billion in liabilities. In addition, a report published by the Financial Times revealed that the company’s balance sheet had a messy set of entries. Some of the entries indicated that there was no clear list of account signatories.
Celsius Network
Celsius Network is one of the biggest names in the crypto lending space, but the firm is now filing for bankruptcy. That’s a big deal for the industry. There is a lot of uncertainty surrounding the firm’s customers.
Celsius has a lot of creditors. According to the filing, the company has 500,000 creditors owed nearly $5 billion. But the company has only $167 million in cash on hand.
The most recent round of funding for the company was the Series B round in November. At the time, the firm was valued at $4.1 billion. In June, the company had roughly 1.7 million users.
At the end of May, the company had held around $12 billion in assets. However, the value of the crypto market has since fallen by about 60%. During the crash, Celsius froze withdrawals and transfers. This left 1.7 million customers without access to their money.
Declining value of cryptocurrencies
Cryptocurrency prices are plummeting. More than $2 trillion has been wiped off the value of the crypto market since it peaked in November 2021. The drop is largely due to high inflation, which has driven investors away from risky assets like the crypto market. In addition, the war in Ukraine has caused economic uncertainty.
Some experts believe the collapse is a speculative bubble, but others believe the broader financial system is not at risk. But the recent downturn has raised serious concerns.
Amid the recent volatility, the Securities and Exchange Commission is ramping up its enforcement actions against crypto companies. It is also considering new rules to regulate cryptocurrencies.
The decline is also a result of the failure of some of the largest crypto exchanges. For example, Coinbase, the largest exchange in the U.S., has been forced to announce layoffs. Other major players have also struggled to keep their businesses afloat.
Rise of decentralized finance
Decentralized finance is a growing industry that utilizes a range of technologies including the Internet of Things (IoT) and Distributed Ledgers (DL) for financial transactions. It has the potential to become a game changer for the 2 billion unbanked people in the world.
Decentralized finance is an umbrella term for a number of financial applications based on blockchain technology. It is designed to offer mainstream financial services while eliminating the need for a central bank.
The DeFi protocol uses smart contracts to automate business activities. These include lending, borrowing, insurance, and asset securitization. Smart contracts also allow individuals to manage their assets and exchange products and services globally.
A number of companies and organizations have incorporated DeFi platforms in their operations. These include Huobi Global and Ivy Blocks. Several other projects are also in the works.
Bitcoin’s appeal to criminals and terrorists
Amongst security agencies, cryptocurrencies like bitcoin are on their minds as they debate the best way to fight the ever-expanding global threat of cybercrime. With the right technological know-how, a terrorist could launder a tidy sum in a matter of minutes. For example, a lone wolf could fund his nefarious activities via the dark web, a virtual tunnel that connects encrypted websites.
Despite its flaws, it’s hard to ignore the appeal of crypto currencies. For example, Daesh operative Bahrun Naim has made his mark on the online underworld, and a slew of other nefarious individuals and groups have opted for virtual currency as their primary source of funding. Also, while banks are a convenient option, they are subject to stringent anti-money laundering regulations.
