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Crypto crashes in 2022 after starting at record highs: NPR

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FTX founder Sam Bankman-Fried leaves Manhattan Federal Court after his first court appearance in New York. Federal prosecutors charged him with criminal fraud.

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FTX founder Sam Bankman-Fried leaves Manhattan Federal Court after his first court appearance in New York. Federal prosecutors charged him with criminal fraud.

Michael M. Santiago/Getty Images

There’s an expression that crypto enthusiasts use, fingers crossed, in hopes that the value of a given digital currency will soar: “To the moon!”

Much of the cryptocurrency scraped the stratosphere in early 2022 when enthusiasm was astronomically high, but a few months later it all came back down to Earth.

Bitcoin’s value is roughly a quarter of what it was a year ago, and the industry is just beginning to grapple with the fallout from the catastrophic implosion of the FTX cryptocurrency exchange.

In the future, 2022 can be considered a turning point for the world of virtual currencies, when they lost their luster and were dismissed as a fringe product that most people approach with skepticism and caution. Or it may simply be remembered as a stretch of excruciating growing pains for an industry still in its infancy.

Regardless, 2022 was a year for the crypto history books.

how did it start

Ads were everywhere – on TV, at bus stops and even in fortune cookies. Crypto companies spent tens of millions of dollars on marketing, flooding the Super Bowl with commercials. Coins and tokens may have been virtual, but cryptocurrencies became more real for many Americans in the first few months of the year.

The industry appeared to have hit “peak of hype” in January and February, says Molly White, a researcher at Harvard University who is skeptical of cryptocurrencies. She runs the Web3 is Going Just Great website.

“Prices have reached historic highs,” she says. “People were making unreasonable amounts of money.”

The value of the most famous cryptocurrency – bitcoin – had just reached an all-time high, and the industry was trying to “go mainstream”, as White puts it. That is to say, crypto companies were doing everything they could to attract more customers.


A statue of Satoshi Nakamoto, an alleged pseudonym used by the inventor of bitcoin, is displayed in Graphisoft Park in 2021 in Budapest, Hungary. The statue’s creators, Reka Gergely and Tamas Gilly, used anonymous facial features, as Nakamoto’s true identity remains unconfirmed.

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A statue of Satoshi Nakamoto, an alleged pseudonym used by the inventor of bitcoin, is displayed in Graphisoft Park in 2021 in Budapest, Hungary. The statue’s creators, Reka Gergely and Tamas Gilly, used anonymous facial features, as Nakamoto’s true identity remains unconfirmed.

Janos Kummer/Getty Images

A woman better known for setting fashion trends than financials, Paris Hilton, appeared in The Tonight Show with Jimmy Fallon in January. After talking about her recent wedding and Burning Man trip, the former reality TV star delved deeper into the NFTs, or non-fungible tokens, that she was selling.

The audience looked a little taken aback when she promised, Oprah-style, to give each of them an NFT — another type of digital asset that is basically cryptographic cartoon art. But when Fallon, who is also an NFT enthusiast, looked impressed, they cheered.

“Peak hype”, though, quickly peaked.

How’s it going

Like almost everything else in finance, cryptocurrencies saw their prices plummet as the Federal Reserve started raising interest rates to combat high inflation.

This shocked many of bitcoin’s biggest supporters, many of whom believed the virtual currency would be an inflation hedge like gold. They predicted that the value of bitcoin would rise during a period of high inflation; instead it was falling.

What is called the “crypto winter” – a downturn that continues unabated – began before 2022 even reached its halfway point.

“You know, we’ve been living in ‘crypto winter’ for almost a year now,” says Lee Reiners, who teaches cryptocurrency law at Duke University.

Individual investors were hurt, especially people who bought digital assets near the highs. But according to Reiners, the crypto winter has also revealed larger systemic issues in the industry.

“It really exposed a number of cryptocurrency companies that were, you know, overextended, had poor risk management, or were engaging in fraudulent activity,” he says.

A series of failures began in May: a cryptocurrency pair called Terra e Luna, the Voyager trading platform, a crypto hedge fund called Three Arrows Capital, BlockFi, Celsius…

The list goes on, and according to Reiners, it highlights something problematic about cryptography.

“These companies are deeply interconnected, and so the moment you have a problem somewhere in the crypto space, it spreads very, very quickly,” he says.

Financial regulators have also begun to crack down. They even went after another big name celebrity for how she released “EMAX tokens”. None other than Kim Kardashian had to settle with the Securities and Exchange Commission in October for over $1 million.

And what comes next

Which brings us to FTX.

In early 2022, the cryptocurrency company was valued at $32 billion. Now it’s bankrupt, more than a million people are worried about the money they invested disappearing, and the company’s founder, Sam Bankman-Fried, has been accused of criminal fraud.


New FTX CEO John J. Ray III testifies during the House Financial Services Committee hearing on the company’s collapse.

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New FTX CEO John J. Ray III testifies during the House Financial Services Committee hearing on the company’s collapse.

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Bankman-Fried cultivated an image that made him both memorable and seemingly approachable, with tousled hair and a tendency to wear shorts and T-shirts. His goal was to get more ordinary people to buy cryptocurrencies and more conventional Wall Street companies and funds to invest in them.

The 30-year-old has been so successful in bringing cryptocurrencies to the masses that he has been considered the unofficial spokesperson for the industry. He is currently under house arrest at his parents’ home in Palo Alto, California.

Reiners calls FTX’s rapid and utter collapse “the biggest event in the history of cryptocurrencies” – a history, he adds, “filled with many failures, scams, frauds and hacks”.

Now, people are wondering what could be the next domino to fall.

Binance is the world’s largest cryptocurrency exchange, and after several huge waves of panic-driven withdrawals, it looks like it has the potential to be that domino.

But the company is grappling with crypto fears and skepticism more generally. It has to be, said White.

“If people start questioning the industry as a whole, or cryptocurrency as an asset class, it will be devastating for Binance,” she says. “So they are doing everything they can to prevent that from happening.”

For many, it is disorienting to see how quickly cryptocurrency’s fortunes have reversed, and they are struggling to assess the depth of FTX’s damage.

“I think cryptocurrencies would be lucky if they all got delayed [was] for a few years,” says White.

True believers hope that bitcoin will recover and this “crypto winter” will thaw eventually.

But for people who weren’t deep into cryptography – who maybe saw an ad or who were afraid of missing out to get involved in buying tokens – it’s a different story, especially with daily revelations from Bankman-Fried’s former co-workers about how the client’s money was allegedly transferred from FTX into their own pockets.

“I think people are starting to think of cryptocurrencies as one big scam that they wouldn’t want anything to do with,” says White.

And that poses an existential problem for cryptocurrencies, she adds. Because, for it to work, an ever-increasing flow of people needs to keep buying.

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