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  • Writer's pictureThomas Poff, CFA

A Look at the Cryptocurrency Market in 2022

It’s not a stretch to say that 2022 was the worst year on record for cryptocurrencies and crypto exchanges. FTX, one of the world’s largest cryptocurrency exchange platforms filed for bankruptcy. It’s one of just 51 crypto exchanges to collapse in 2022. On top of that, some of the most popular cryptocurrencies have crashed. Together, it could signal the demise of crypto.

Cryptocurrency Market in 2022

What’s behind the brutal year for cryptocurrencies? Cryptocurrencies like Bitcoin and Ethereum minted many, many millionaires and billionaires, seemingly overnight. Those afraid of missing out jumped in sending prices skyrocketing. But a number of major scandals have seen the industry rocked, with cryptocurrencies taking a beating.

Bitcoin, the world’s most popular cryptocurrency, has been trending lower since it hit a peak of more than $65,000 in November 2021. One year later, and Bitcoin is trading hands at just $17,720, having lost 75% of its value.

It’s expected to get a lot worse with one scenario predicting Bitcoin could fall to a low of $5,000—it’s lowest level since March 2020. That’s a far cry from earlier predictions that Bitcoin could reach $100,000 in 2022 and rise to $12.5 million in 2030.

What Happened to FTX and Other Crypto Platforms?

The collapse of TerraUSD and Luna rippled through the crypto market with dozens of exchanges filing for bankruptcy. Crypto lenders promised investors astronomically high returns, as much as 30%, if they deposited their Bitcoin, Ethereum, and other cryptocurrencies in their platforms.

The meltdown of TerraUSA and promise of massive returns prompted financial watchdogs, like the Securities and Exchange Commission (SEC), to focus their attention on the industry. It didn’t take long for platforms to crumble under the microscope. In 2022, 51 crypto exchanges shuttered their virtual doors.

The one attracting the most attention is FTX. Founded in 2019, FTX quickly became one of the biggest crypto and trading platforms and made its CEO Sam Bankman-Fried a billionaire. The company started the year out with a valuation of $32 billion. That didn’t last long.

A November report suggested that Bankman-Fried had improperly funneled billions of dollars of customer deposits to FTX’s affiliated trading firm Alameda Research and used it to fund his lavish lifestyle.

Nervous investors rushed to take their money out of FTX. In just 72 hours, FTX was hit with $6 billion in withdrawals. On November 11, Bankman-Fried stepped down as CEO and FTX filed for bankruptcy. At the time, the platform’s holdings, which Bankman-Fried said were worth $5.5 billion, were actually just $659,000.

In addition to regular retail investors, a lot of so-called sophisticated investors such as BlackRock, Sequoia Capital, and the Ontario Teachers’ Pension Plan lost hundreds of millions of dollars.

On December 13, Bankman-Fried was arrested in the Bahamas and charged with numerous civil and criminal fraud charges. Since FTX collapsed, other platforms, like BlockFi, have filed for bankruptcy.

The fall of FTX is already rippling through the broader industry and could, some believe, be the tipping point for the “demise” of crypto.

Keep a close eye on cryptocurrencies in 2023, because the crypto winter could be just getting started.

Choose Sharp Asset Management for Your Retirement Planning

Bitcoin and other cryptocurrencies have become popular alternative investments to stocks and bonds. But the collapse of FTX and the crash of Bitcoin show that no investment is a sure thing.

If you live in Toronto, Mississauga, or anywhere in the GTA and are looking for a portfolio management firm or asset management company to diversify and grow your investment portfolio, the private wealth management team at Sharp Asset Management can help.

Sharp Asset Management Inc. is an independent portfolio management firm that is 100% owner-operated. Since we are a highly concentrated group of professionals, we can respond quickly to changing market conditions. To learn more about investing with Sharp Asset Management, contact us today.

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