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When it comes to cryptocurrencies, Bitcoin usually dominates.
The most popular digital currency has often been confused by the general public as representing the entire cryptocurrency industry.
Since its creation in 2009 by one or more anonymous individuals, Bitcoin has always played a leading role. Cryptocurrency fans, most prominently, see cryptocurrencies as a way to become financially independent and free from the dictates of central banks and politicians. Therefore, they assume that nothing can stop its rise.
So everything has always revolved around that digital currency, whose price hit an all-time high of $69,044.77 in November 2021.
But this year, Bitcoin played a supporting role in the crypto movie. Some experts even call Bitcoin special, even though its value has lost about three quarters from its record high.
Luna and UST down, hard
That’s because the real star of the crypto industry in 2022 was bankruptcy.
The emerging financial services industry powered by blockchain technology is being rocked by an avalanche of large corporate bankruptcies. These failures came in parallel with his $3 trillion to nearly $2.2 trillion crypto market loss recorded in November 2021.
It all started when sister cryptocurrencies Luna and UST, or TerraUSD, collapsed on May 9th. After UST lost its peg to the dollar, the two tokens plummeted and the foundation certified it as a stablecoin. Such cryptocurrencies are associated with more stable assets such as US dollars and gold.
At least $55 billion in market capitalization disappeared between May 9th and May 13th, with many investors suffering huge losses.
UST was an algorithmic stablecoin backed by its sister asset, Luna, rather than the dollar reserve. Algorithmic stablecoins differ from centralized alternatives such as Tether and US dollar coins, which are backed by real dollars or equivalent assets stored in banks.
The disaster sparked a credit crisis that proved devastating for many companies, including hedge fund Three Arrows Capital (3AC).
3AC was forced into liquidation. Celsius and Voyager filed for Chapter 11 bankruptcy.
The drop in TerraUSD led to investigations in the US and South Korea, reviving calls for tighter regulation of stablecoins.
Institutional investors appreciate these cryptos because they are less volatile than other coins and are designed to move funds easily within the crypto ecosystem.
Investors lost millions in cryptocurrency crash
According to blockchain security firm Chainalysis, investors have suffered huge losses following the de-pegging of Terra’s UST coin and the collapse of Celsius and 3AC a few weeks later. $20.5 billion for UST and $33 billion for Celsius and 3AC.
The crisis has largely revealed ties and exposure between cryptocurrency companies, like banks during the 2008 financial crisis. Another lesson is the lack of transparency of largely unregulated, centralized cryptocurrency companies.
This uncertainty created another circumstance that triggered FTX’s overnight implosion months later.
This summer, cryptocurrency exchange FTX and its sister company, Alameda Research, a hedge fund that doubles as a trading platform, announced that founder Sam Bankman-Fried had taken advantage of the crisis of confidence in cryptocurrencies to form a company. became. industry. He consolidated power and became the new heavyweight in the crypto space.
Bankman-Fried used two firms to help companies in trouble, but some of these deals were questionable, like the one with lender BlockFi, as it became clear later.
More on the FTX fiasco
In less than three months, the Bankman-Fried empire was bankrupt.
Regulators have accused former traders of committing fraud and conspiring to defraud FTX customers and investors. It will take time to pinpoint exactly what happened, but it appears that FTX customer funds were mixed with Alameda funds and illegally used for high-risk trading.
Bankman-Fried has refuted the fraud allegations and denied any intent to defraud.
For many insiders, the collapse of cryptocurrency exchanges is due to a lack of transparency and a closed, centralized and reckless power.
According to Chainalysis, the drop cost FTX customers $9 billion, but that figure doesn’t take into account the potential losses of those who deposited their funds on exchanges. The likelihood of these investors recovering them is unknown.
As 2023 approaches, these bankruptcies cast a shadow of suspicion across the crypto industry, which must learn from its mistakes and mature.
Its survival depends on it.
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