The first half of 2022 saw several notable events in the cryptocurrency industry, as summarized in part 1 of this two-part series. This article, part 2, covers regulatory developments, adoption trends, and critical events in the second half of 2022. This includes the FTX collapse, which has had reverberating effects throughout the industry.
6. Regulators Leveled up their Game
The U.S.
Authorities around the world are establishing legal frameworks to address illegal activities and manipulation in the cryptocurrency market. While some believe that this could hinder innovation, others believe that clearer regulations could encourage wider adoption. In March 2022, the U.S. government issued an executive order directing federal agencies to develop comprehensive plans for regulation and enforcement.
India
In India, the answer to the question “Are cryptocurrency gains taxable?” is a definite yes. This April, India implemented a 30% tax on all gains from the transfer of digital assets. Despite this new rule, India still ranks among the top 10 countries with the highest number of cryptocurrency users, according to Statista.
The EU
In October 2022, the European Commission passed the Markets in Crypto Assets (MiCA) framework, which provides the foundation for the EU to become one of the first major jurisdictions to establish a comprehensive regulatory framework for digital assets. The MiCA framework will bring crypto exchanges, wallet services, and issuers of crypto assets under EU supervision. Lawmakers are set to vote on the MiCA in early 2023, with the possibility of it coming into effect as early as 2024.
7. Growing Global Adoption
Brazil
In November, the Brazilian Chamber of Deputies passed a regulatory framework that allows for the use of cryptocurrencies as a form of payment within the country. While the bill does not make cryptocurrencies legal tender, it does establish the foundation for a comprehensive regulatory regime.
While this development may not seem as significant as regulatory developments in the U.S. or Europe, it is part of a trend of increasingly crypto-friendly policies in Latin America. In contrast to the more cautious approach taken by many Asian jurisdictions and the U.S. and Europe, Latin American countries have been making notable progress toward the adoption of cryptocurrencies.
Hong Kong
Hong Kong debuted its first two cryptocurrency futures exchange-traded funds (ETFs) on December 16, following through on its promise in October to transform the city into a major digital asset hub to rival Singapore. These ETFs, which CSOP Asset Management developed, allow investors in Hong Kong to access cryptocurrency futures traded on the Chicago Mercantile Exchange. Before their listing, the ETFs had raised more than $70 million in funds.
The launch of these ETFs is a key part of Hong Kong’s plan to become a cryptocurrency hub, even in the face of the collapse of Sam Bankman-Fried’s FTX exchange, declining digital asset prices, and recent market turmoil.
8. Musk Acquired Twitter
Tesla CEO Elon Musk’s $44 billion acquisition of Twitter may seem unrelated to cryptocurrencies at first glance, but there was significant market speculation about the potential integration of Dogecoin (DOGE), a meme-based cryptocurrency, with various paid services on Twitter. This speculation caused a 35% rally in Dogecoin’s value over just a few days in October 2022. Elon Musk is often referred to as the “Dogefather” due to his support for DOGE. It is interesting to see how Twitter and Dogecoin may interact with each other in the future.
9. The Fall of FTX
By the autumn of 2022, the cryptocurrency industry had become accustomed to disasters. Terra had collapsed, several prominent companies failed over the summer, and the U.S. Treasury had banned an open-source protocol, among other issues. However, the most shocking disaster occurred in November, when rumors of illiquidity at FTX, a Bahamas-based exchange known for its high-profile promotions and partnerships with sports figures, sparked a bank run on the platform. It was later revealed that most of FTX’s assets had been lent to Alameda Research, a sister company controlled by FTX’s CEO, Sam Bankman-Fried, which lost billions on risky positions and left a $10 billion hole in FTX’s books.
Evidence suggests that FTX used customer deposits to cover Alameda’s losses and had little oversight or record-keeping in place. When FTX halted withdrawals during the bank run on November 8, it may have been because the company did not even know where the money was. Three days later, FTX filed for bankruptcy, and Bankman-Fried resigned as CEO. He was replaced by John J. Ray III, who testified that he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information” as he had at FTX. The company’s collapse has raised questions about the need for more regulatory oversight and the concentration of control in the hands of inexperienced individuals.
The collapse of FTX is probably one of the most spectacular disasters the cryptocurrency world has ever seen, and it is not yet over. The legal battles and investigations into the failure are just beginning, and more shocking details will likely come to light in the future.
10. Bitcoin Sees New Lows in Two Years
The crypto market, particularly Bitcoin, reached a two-year low in the aftermath of the FTX collapse in November. The price of Bitcoin briefly dropped below the $16K level to around $15,500, before slowly recovering to around $16,800 as of this writing. Despite the recovery, the market remains fragile. Bitcoin ends the year with the 27th largest market capitalization at $324.29 billion, slightly below Mastercard’s $330.35 billion market cap.
Key Takeaways
- Despite losing $2 trillion in market value and experiencing the failures of major players such as Terra, Three Arrows Capital, and FTX in 2022, the cryptocurrency ecosystem did not collapse.
- Ethereum successfully transitioned to Proof-of-Stake (PoS) through “The Merge” after years of anticipation.
- Clear regulations can remove significant roadblocks for cryptocurrencies, resulting in greater institutional and retail adoption.
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