Bitcoin and other major cryptocurrencies finished off a disastrous 2022 on a quiet note in December, a month marked by low volatility and little price movement in the crypto market.
Markets continue to follow the drama surrounding the collapse of crypto exchange FTX, including the December arrest and extradition of FTX founder Sam Bankman-Fried. Meanwhile, FTX’s downfall has triggered renewed calls for heightened regulation of the crypto space.
Looking ahead to 2023, crypto industry experts expect more difficulties ahead for investors as rising interest rates continue to weigh on risk asset prices.
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December Crypto Market Performance
FTX’s bankruptcy sent Bitcoin tumbling to new two-year lows under $15,600 in November, but Bitcoin prices stabilized in December.
Bitcoin prices increased 1% in December, finishing 2022 above $16,500. Ethereum (ETH) prices dropped another 1.4% in December to close out the year at $1,199. Bitcoin prices dropped nearly 65% in 2022, its worst annual performance since its 73% decline in 2018. Ethereum prices dropped 67.7% in 2022.
The total market capitalization of the global cryptocurrency market peaked at over $2.9 trillion in November 2021. As of the end of 2022, that market cap now stands at just $798 billion.
Rising interest rates triggered crypto winter in 2022, producing a wave of bankruptcies in the crypto industry and sending the prices of most popular cryptocurrencies tumbling. Among the 10 largest cryptocurrencies by market capitalization, Tron (TRON) was the best performer with a 27% decline. Polkadot (DOT) took the hardest hit with an 83.6% price decline on the year.
FTX Fallout Continues
The chaos in the cryptocurrency market came to a climax in November when crypto exchange FTX, which was once worth $32 billion, officially filed for bankruptcy protection. CEO Bankman-Fried resigned on Nov. 11, and FTX bankruptcy proceedings began on Nov. 22 in federal court in Delaware.
On Dec. 12, Bahamas authorities arrested Bankman-Fried at the request of the U.S. government just one day before he was scheduled to testify in front of the House Financial Services Committee.
On Dec. 13, the U.S. Securities and Exchange Commission (SEC) filed a civil fraud lawsuit against Bankman-Fried and alleged he illegally used FTX customer funds to support his hedge fund, Alameda Research. That same day, the U.S. attorney’s office for the Southern District of New York charged Bankman-Fried with eight counts of criminal fraud.bangladesh
Bankman-Fried was transferred to U.S. custody on Dec. 21 after a judge approved his extradition.
Caroline Ellison, former CEO of Alameda Research, and Gary Wang, former chief technology officer of Alameda, both pled guilty to criminal charges in December and are reportedly now cooperating with federal investigations of FTX.
GlobalBlock analyst Marcus Sotiriou says the egregious behavior of FTX insiders may actually help preserve crypto’s reputation among the general public.
“It is astounding to see how fast things have folded, as just over a month ago hardly anyone knew about the fraudulent activities. I think this will benefit public perception of the crypto industry, as people can be fully assured that this collapse is due to fraud as opposed to an inherent problem with crypto,” Sotiriou says.
Bankman-Fried was released on a $250 million bond package on Dec. 23, and his next trial date is scheduled for Jan. 3.
Other December Crypto News
FTX’s collapse triggered fears of contagion in the crypto market, especially after crypto exchange BlockFi filed for bankruptcy protection on Nov. 28.
Popular cryptocurrency exchange Binance endured $6 billion in customer outflows in just three days in early December. Accounting firm Mazars withdrew a report on Binance’s reserves from its website and said the firm has paused all work for crypto-related clients. Binance said it has reached out to multiple large accounting firms to complete a proof-of-reserves report to reassure investors but has not yet found a firm willing to work with a private crypto company.
On Dec. 5, Circle Internet Financial, which runs popular stablecoin USD Coin, said it is ending its bid to go public via a merger with a special purpose acquisition company, or SPAC. Circle said it still plans to go public, but it has not determined the timing or path it will take.
On Dec. 19, Grayscale Investments, which operates the popular $10.5 billion Grayscale Bitcoin Trust (GBTC), said it is considering a tender offer for up to 20% of the trust’s shares if it is unable to convert the trust to an exchange-traded fund. In June, the SEC rejected Grayscale’s application to convert the GBTC trust to the first publicly-traded spot Bitcoin ETF, and Grayscale responded by suing the SEC.
Uncertainty surrounding the future of the GBTC trust has led to the trust trading at a record 48% discount to its net asset value. If Grayscale loses its suit against the SEC, the firm said it may choose to repurchase shares of the trust directly from investors.
More Calls For Crypto Regulation
The Biden administration is once again calling on Congress to impose more strict and clear regulations on the industry following the FTX collapse.
On Dec. 16, the Financial Stability Oversight Council (FSOC) made several recommendations to Congress for policies aimed at protecting investors, ensuring financial stability and protecting national security. It called for legislation that allows U.S. regulators to police spot market crypto assets that aren’t classified as securities and do not currently fall under the jurisdiction of the SEC. The council also called for Congress to crack down on “regulatory arbitrage,” the process by which crypto companies circumvent U.S. oversight by structuring their businesses to take advantage of lighter regulations in other jurisdictions.
Thomas Gorman, partner at the international law firm Dorsey & Whitney and former senior counsel in the SEC’s Division of Enforcement, says lack of cryptocurrency market regulation opened the door for the FTX collapse.
“Now is the time to stop being wowed by notions such as blockchain, smart contracts, defi and others that are invented daily, it’s time to create rules for crypto so that the assets are properly regulated,” Gorman says. “Otherwise, the difficulties will continue.”
2023 Crypto Market Predictions
In 2022, crypto delivered its worst performance since 2018, but investors are hoping 2023 will usher in a repeat of the 2019 market rebound.
Crypto exchange Bitbank projects Bitcoin prices will recover to between $20,000 and $50,000 in the second half of 2023, but only if the Federal Reserve can stop interest rate hikes by mid-2023 and begin cutting rates by early 2024.
VanEck analyst Matthew Sigel has predicted Bitcoin will recover to $30,000 in 2023, but warns it could remain in the $10,000 to $20,000 range in the first quarter of the year.
Standard Chartered has cautioned investors that crypto winter will extend into 2023, leading to more liquidity issues and bankruptcies, as well as further deterioration of investor confidence. Standard Chartered says Bitcoin prices could fall another 70% to around $5,000 in 2023.
Bank of America analyst Alkesh Shah says recent cryptocurrency price declines and bankruptcies have overshadowed the long-term thesis for digital assets and blockchain technology. The top 100 cryptos are still up more than 2,000% on average since the end of 2016, and developer blockchain activity actually accelerated in 2022.
“We expect the digital asset ecosystem’s market value to trade in line with risk assets over the course of 2023, but see the potential for token price divergence as investors shift focus from speculative trading to the development and adoption of blockchains and applications powered by tokens with utility and cash flows,” Shah says.
He says the digital asset ecosystem is still a nascent industry, and it will continue to develop in 2023.
“Bitcoin is 14 years old, but dozens of blockchains and hundreds of applications have emerged that are less than 3 years old and remain in version 1.0,” Shah says.