In November 2021, the crypto world was still fine: Bitcoin, the oldest and largest cryptocurrency, was listed at $69,000 (€64,850). But the world already looked different in early 2022: fears of a war in Ukraine and rising inflation in the US put cryptocurrencies – especially Bitcoin – under pressure. After all, central banks try to get the high inflation under control by raising interest rates.
As a result, Bitcoin’s price rattled below $33,000 in the second half of January. With the outbreak of war in Ukraine, the fears came true – and Bitcoin continued to be under pressure. The fact that El Salvador had previously accepted Bitcoin as an official means of payment could not change that.
But the US Federal Reserve’s decisive action to bring inflation under control by raising interest rates has not failed to impact crypto markets. Because when interest rates are higher, investors turn away from riskier investment options and prefer to invest in dollars. And one of the riskier investment options is simply due to Bitcoin’s high volatility.
The call for regulation is getting louder
In addition, in 2022, the call for regulation of digital currencies became increasingly loud. On March 1, the capital gains tax for cryptocurrencies came into effect. And central banks called for tighter regulation of these markets. In any case, the EU has agreed on the name of the set of rules that should come into effect at the end of next year: “Markets in Crypto Assets”.
Bitcoin’s price development so far has also persuaded many investors to rely on this digital currency in 2022. In 2009, a bitcoin traded at $0.07 – in November 2021, the price rose to almost $68,800 before dropping to $50,000. Given these earning opportunities, there were numerous scammers in the market this year who abused investor trust under the guise of cryptocurrencies.
The resulting price turbulence did not go unnoticed in the industry. For example, the crypto banks Celsius Network and Voyager Digital had to file for bankruptcy in the summer.
FTX bankruptcy damages industry reputation
Added to this were the bankruptcies of brokers and stock exchanges, which suffered huge losses from the price losses. Above all, the bankruptcy of the FTX trading platform has damaged Bitcoin’s reputation. Although the largest crypto exchange FTX wanted to catch up on Binance, it gave up on this plan.
Binance, in turn, struggled with high cash outflows after it became known that, according to a financial report from the company, its financial buffer exceeded the sum of customer deposits in just one day. The bankruptcy of FTX also dragged other companies into the financial abyss, including crypto bank Blockfi.
FTX boss now in custody
FTX founder Sam Bankman-Fried, who in the previous months had been celebrated as a billionaire crypto guru, is now in custody in the US. And high interest rates in the US are still a problem for digital currencies, even as US inflation may have peaked.
But confidence in cryptocurrencies has vanished after a series of bankruptcies and scandals that saw investors lose their savings. This year Bitcoin fell from 46,300 to almost 16,600 dollars (about 15,600 euros).
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
