2022 has been the worst year for the cryptocurrency industry so far. The crypto market as a whole has fallen over 50% from its peak in 2021. Talking specifically about Bitcoin, it witnessed a whooping loss of over 60% in value, starting the year at $47,669 and ending at $16,547.
The devastating drop of Bitcoin was highly unexpected due to the astonishing 2021 year, but it was triggered due to multiple global economic events, from increasing inflation and rising interest rates to the fall of major crypto exchanges FTX. So, this article will shed light on key market events that triggered the downward path of Bitcoin and then predict what 2023 looks like for Bitcoin.
What Caused Bitcoin to Lose 60% of its Value – Key Market Events in 2022
2022 has not been just the worst year for the crypto market, but the bond markets also fell by over 20% from their 2021 peak, while the benchmark S&P 500 fell by around 19.4% year to year. So, what led to such downfalls? Let’s divide 2022 into three parts and highlight the key events:
Start of 2022
With the start of 2022, governments around the world faced the growing issue of inflation. The start of Russia Ukraine war just worsened the whole situation and bought a new wave of inflation. In order to address inflation, central banks worldwide started to increase interest rates. For example, Fed hiked a 0.25% point interest rate on March 16, 2022, which was the first increase since December 2018. Afterward, the Fed again hiked the rate by 0.5% on May 4, 2022. Similar hikes were seen in other central banks around the world as well.
The strict monetary policies with concerning inflation decreased investors’ appetite for risk. So, investors started pulling out their investments, which caused panic. Investors were selling their high-risk assets aggressively to grab the attractive yield until the market stabilizes again. Owing to that, Bitcoin, which started the year at $47,669, dropped to around $29,000 by May 2022. The crypto cap, which topped 3% in 2021, was fallen over $1 trillion by the end of the second quarter of 2022.
Middle of 2022
The crypto market started showing some signs of stability by the end of the summer. The confidence of investors began to return. In fact, the CoinDesk Market Index (CMI) achieved a summer top level of $1,092 on September 12. Bitcoin made a high of $24,424 on August 13 after making a low of $19,000 by June 18. In the meantime, the Fed was continuously increasing the interest rate, but it was no longer damaging the market like before.
Another main reason behind investors’ confidence was due to FTX, one of the largest cryptocurrency exchanges that once even hit a $32 billion valuation. FTX also helped BlockFi, the large CeFi lender, from bankruptcy and also invested heavily in crypto companies, startups, etc. In short, FTX was considered one of the trusted companies in the crypto world.
End of 2022
The crypto market didn’t face any major crash until the late fall of 2022. However, the unexpected revelations about FTX and its sister company Alameda Research in November changed the whole scenario. Furthermore, Changpeng Zhao, Binance CEO, responded instantly to the public about his concerns with FTX’s solvency, which resulted in massive withdraw of funds from FTX, eventually making FTX pause withdrawals of customers.
It was discovered that Sam Bankman-Fried, the CEO of FTX, had created a ‘secret backdoor‘ through which he could access investors’ money without anyone knowing. After the discoveries, FTX filed for bankruptcy protection in late November. All these devastating news destroyed the sentiments of investors. The crypto market crashed, the CoinDesk Market Index dropped to $795, and Bitcoin price touched the $16,000 figure.
How’s the Future Looks for Bitcoin in 2023
Looking at the patterns of the crypto crash in 2023, it is evident that the unregulated market is not giving investors the confidence they need. The shocking FTX incident has impacted the credibility of the crypto market greatly. Theft, fraud, careless lending, and bankruptcies are also becoming more prominent in the crypto world now. Owing to that, users are now calling for regularizing crypto with more involvement of government to oversight activities and reduce the chances of fraud.
One thing worth knowing here is that all the issues in the crypto market in 2022 have nothing to do with blockchain technology. No one doubts the technical aspect of crypto. In fact, the crypto industry has also seen some great tech developments in 2022, such as successful shift of Ethereum from proof of work to proof of stake blockchain model. Users can utilize the platform Bitcoin Era for a effective and mobile-friendly trading platform.
In 2023, the Bitcoin pattern is not much predictable because there are both positive and negative opinions around Bitcoin. If we look at the current trend, Bitcoin started the year 2023 at $16,540 and is currently trading at $23,013 (January 26, 2023). It shows Bitcoin has been in a bullish trend ever since the start of 2023. One justification is the negotiations around Fed’s interest rate, which might make Bitcoin continue the upward movement. In addition, many wealthy investors called “Bitcoin Whales” have also started accumulating Bitcoin once again.
However, many analysts still believe that Bitcoin will follow the bearish trend once again. Mark Mobius, the founder of Mobius Capital Partners, predicts that Bitcoin might fall into the $10,000 range in 2023. In fact, Standard Chartered, the global bank, even predicts a crash of Bitcoin up to $5,000 in 2023. Many believe that higher inflation, tighter monetary policy, and similar other factors will make investors avoid holding Bitcoins for the long term.
Overall, Bitcoin is in a bullish trend currently. But it is true that investors will be more cautious this time considering what happened in 2022. So, if Bitcoin price starts plunging, we might see aggressive profit-taking. So, it is likely that Bitcoin will move in sideways with some highs and lows throughout the year. To sum up the discussion, it’s going to be an exciting year for Bitcoin, which is likely to set the trend for the upcoming years.