Annual report 2022

Annual report 2022

The year 2022 for cryptocurrencies will be remembered as a year of decline in cryptocurrency prices. The most significant events of the year included the collapses of cryptocurrency exchange FTX and the Terra ecosystem, asset manager BlackRock's decision to offer cryptocurrency services, and the successful Ethereum Merge. This article reviews the price movements and most significant events of the cryptocurrency market in 2022.

First quarter

We started the year 2022 with a rather interesting situation regarding the prices of cryptocurrencies. The largest cryptocurrencies by market cap, Bitcoin and Ethereum, had fallen by around 30% and 20% at the start of 2022 from the price records set at the end of 2021. Bitcoin started 2022 at just over €40,000 and Ethereum at just over €3,200. The decline at the end of 2021 continued into January, but after a positive February and March, the price of Bitcoin was around €41,000 and the price of Ethereum price was just under €3,000 at the end of the first quarter. In the first quarter of the year, the cryptocurrency market moved in much the same way as the stock market, with a high correlation with, for example, the Nasdaq Composite stock index, which consists mainly of shares in the technology sector.

Ukraine, which is suffering from the war, began receiving cryptocurrency donations in February. Ukraine announced on the community and microblogging service Twitter the Bitcoin and Ethereum addresses, through which it was possible to send bitcoin, Ethereum (ether), and USDT-stablecoin, among others. Cryptocurrency donations were collected for Ukraine through several channels, and in March, cryptocurrency donations received by Ukraine already amounted to almost €100 million. Ukraine's decision to collect cryptocurrency donations in the war situation was an indication of the global functionality, speed, and censorship resistance of cryptocurrencies for crowdfunding purposes.

The southern Swiss city of Lugano announced in March that it would make bitcoin, the USDT stablecoin, and the city's own LVGA token legal tender of the city. With the decision in Lugano, it became possible to pay taxes, tuition fees, as well as all public service fees with these cryptocurrencies. In addition to this, hundreds of Lugano-based companies started accepting these cryptocurrencies as a payment method in 2022.

In March, it came out that the largest U.S. oil and gas company, ExxonMobil, has had a pilot program underway in the U.S. since early 2021 to use excess natural gas to Bitcoin mining. In March, the company considered expanding the pilot program to Germany, Argentina, Nigeria, and Guyana. In addition to ExxonMobil, another major U.S. multinational oil and gas company, ConocoPhillips, announced a pilot program related to Bitcoin mining in early 2022. Namely, the company said it would sell the excess natural gas to a Bitcoin miner operating in the region. Using excess natural gas, which is harmful to the environment and otherwise often ends up being flared in the atmosphere, to mine Bitcoin can be considered both economically and environmentally sound.

Second quarter

The second quarter was a very negative time for the price development of cryptocurrencies. The price of Bitcoin dropped just under 55% during the quarter, while the price of Ethereum fell by around 65%. The prices of Bitcoin and Ethereum hit lows below €17,000 and below €850 in June. The fall in cryptocurrency prices can be seen to have been mainly due to two things. The decline in both the stock and cryptocurrency markets was influenced by, among other things, general economic uncertainty and increased inflation. The stock market was in a downtrend throughout the second quarter, with the Nasdaq Composite stock index, for example, falling more than 20% in the second quarter. Another major factor behind the decline in the cryptocurrency market was the collapse of the Terra ecosystem and the resulting problems for cryptocurrency players.

El Salvador, the first country that made Bitcoin a legal tender, gained a successor last year when the Central African Republic adopted bitcoin legal tender in April, alongside the Central African CFA franc. At the same time, the operating conditions of cryptocurrencies in the country improved in general. The Central African Republic is a country of around five million inhabitants in Central Africa, and it is one of the poorest countries in the world in terms of gross domestic product.

As a result of the collaborations announced at the Bitcoin Conference in Miami, U.S., in April, the potential use cases of the Bitcoin Lightning Network increased significantly. Strike, a payment company specializing in the Lightning Network, announced a partnership with NCR, the world's largest point-of-sale payment service provider, and Blackhawk Network, a payment company offering alternative payment methods. In the U.S., these collaborations made it possible to pay virtually cost-free and instant at hundreds of thousands of locations of major players such as McDonald's and Walmart using the Lightning Network. In addition, Strike's partnership with Shopify, a specialist in e-commerce, allowed approximately 1.7 million online merchants to accept payments using the Lightning Network. Merchants who accept payments can especially benefit from using the Lightning Network, as they can save themselves a few percent of the credit card system's fees and the days of waiting for the final transactions.

The most significant event in the cryptocurrency market in the first half of the year was the collapse in the prices of cryptocurrency Terra (Luna) and stablecoin UST. Terra's Luna token was still among the top ten cryptocurrencies by market cap at the beginning of May, when its price was around €80. However, at the end of May, the price of Luna was only fractions of a cent. On the other hand, the price of stablecoin UST was supposed to follow the price of 1:1 US dollars, but by the end of the month, the price of UST had plummeted to under $0.03. The collapse in prices began when UST began to lose a one-dollar price, at which point the price of Luna also began to plunge downwards due to the connection between Luna and UST. The collapse of the Terra ecosystem can be seen to have been caused by a failed stablecoin experiment that proceeded too quickly and left the consideration of potential risks to too small a part.

May's collapse of the Terra ecosystem had repercussions when, among others, cryptocurrency lending service Celsius and the cryptocurrency hedge fund, Three Arrows Capital (3AC), ran into major problems in June. Among other things, Celsius froze the withdrawals of all its customers, citing exceptional market conditions, and about a month after that filed for bankruptcy. The problems with Celsius, which was used by approximately 1.7 million customers, were due to failed investments in Terra and various DeFi services. Also, 3AC suffered significant losses in the collapse of the Terra ecosystem. In June, the collaterals for 3AC's loans were liquidated, i.e., force sold, among other things. This hedge fund, which managed assets of around ten billion euros, also filed for bankruptcy shortly after the problems became public.

Third quarter

After a weak second quarter, cryptocurrency prices were rising on average in the third quarter. The price of Bitcoin rose about five percent during the month, while the price of Ethereum rose by more than 30%. The stronger rise in the price of Ethereum can be seen as a result of the larger decline in the previous quarter and the approach of the Merge at the end of the third quarter.

The world's largest asset manager, BlackRock, announced in August that it would start offering cryptocurrency services to its institutional clients. BlackRock justified its decision by the increased interest of institutional investors in the cryptocurrency market. The provision of cryptocurrency services is carried out in cooperation with the US-based cryptocurrency exchange Coinbase. Soon after its announcement, BlackRock released its first Bitcoin fund. Regarding Bitcoin, BlackRock commented as follows: "Bitcoin is the oldest, largest, and most liquid cryptoasset, and is currently the primary subject of interest from our clients within the cryptoasset space." The launched fund was a Bitcoin spot fund, which means that the fund tracks the market price of Bitcoin. BlackRock said it would initially only offer the fund to its U.S. institutional clients. The clients of the world's largest asset manager include government actors such as central banks and several major pension companies and foundations. BlackRock managed approximately €8 trillion in assets at the end of the year.

Ethereum underwent the biggest update in its history in September when the years-awaited Merge took place. Before the Merge, Ethereum blockchain was maintained by miners, i.e., practically powerful computers. However, this Proof of Work (PoW) consensus algorithm familiar from the Bitcoin blockchain became a thing of the past for Ethereum. After the Merge, the Ethereum blockchain is based on the Proof of Stake (PoS) algorithm, where it is possible to become the validator of the Ethereum blockchain by staking Ethereum's own ether tokens instead of buying mining equipment. Staking cryptocurrencies means locking cryptocurrencies, in this case, ether, for the maintenance of the blockchain. The fees for blockchain maintenance work are also paid in ether as before the Merge. With the Merge, Ethereum became significantly more energy efficient than before when the use of electricity-intensive mining equipment was abandoned. With the PoS algorithm, Ethereum energy usage is even more than 99% lower than before the Merge. The Merge also lays the foundation for the planned upgrades of Ethereum, as post-merge upgrades only work on the PoS algorithm.

Fourth quarter

On average, cryptocurrency prices declined slightly during the fourth quarter. The drop in prices can be seen to have been largely due to the collapse of the cryptocurrency exchange FTX and its impact on other cryptocurrency players. Bitcoin was priced at just under €20,000 at the beginning of the quarter and ended at around €15,500 at the end of the year. The price of Ethereum was around €1,350 at the beginning of the quarter and just over €1,100 at the end of the year.

Tech giant Google announced in October that it would begin accepting cryptocurrency payments as a payment method for its Google Cloud cloud services in early 2023. Cryptocurrency payments are enabled in partnership with Coinbase. In addition to enabling cryptocurrency payments, Google and Coinbase announced the start of strategic collaboration. The aim of this collaboration is, among other things, to make the development of the future of the internet based on blockchain technology, i.e., Web3, faster and easier, and to make Web3 accessible to new users.

BNY Mellon, the world's largest custodian bank and the oldest bank in the U.S., began offering cryptocurrency custody services in October. Commenting on the decision, Robin Vince, the bank's CEO, said: "We are excited to help drive the financial industry forward as we begin the next chapter in our innovation journey." Following the announcement, it became possible for selected US customers of BNY Mellon to store bitcoin and Ethereum (ether) on the bank's new cryptocurrency custody platform. At the end of the year, BNY Mellon provided administration services for approximately €40 trillion in assets.

Fidelity Investments, one of the world's largest asset managers, started offering cryptocurrency trading services to its retail clients in November. Fidelity's trading service Fidelity Crypto makes it possible to trade two of the largest cryptocurrencies by market cap, i.e., bitcoin and Ethereum (ether). According to Fidelity, the purpose of the service was to meet customer demand, as a significant part of the asset manager's clients are interested in and own cryptocurrencies. Fidelity has approximately 40 million customers and managed nearly €3.5 trillion in assets at the end of the year.

Possibly the most significant cryptocurrency news of the entire year was the collapse of the cryptocurrency exchange FTX. The collapse of the FTX was influenced by several factors and events. The problems began when the price of the FTT token of the FTX exchange began to plunge downwards. This led to problems, as a significant part of cryptocurrency investment firm Alameda Research’s balance sheet, which was strongly linked to the FTX exchange, consisted of FTT tokens. In addition to this, FTX had probably used FTT as collateral for its loans. Another significant problem was FTX's dealings with client funds. FTX had probably lent client funds to Alameda, which in turn had used those funds for trading. As word of FTX's problems spread, several FTX customers began withdrawing their funds from FTX. Soon after, FTX stopped offering withdrawals because it did not hold sufficient client funds. FTX, its subsidiaries, and Alameda Research filed for bankruptcy in early November.

The collapse of FTX had an impact on several cryptocurrency players. The most significant players facing problems included BlockFi and Genesis Global Trading. US-based cryptocurrency lending service BlockFi filed for bankruptcy in November. The bankruptcy of BlockFi can be seen as the result not only of the collapse of FTX but also of the problems of cryptocurrency investment company 3AC, which filed for bankruptcy earlier last year. Another player facing significant problems was the cryptocurrency lending and trading service Genesis, which is one of the most prominent players in the cryptocurrency market for institutional players. After the collapse of the FTX, Genesis announced that it would temporarily suspend the issuance of new loans as well as withdrawals of client funds. The collapse of FTX will go down in the history of the cryptocurrency market as one of the biggest, most surprising, and fastest-advancing events. It is also likely that the investigation of the irregularities leading to the collapse and the cases of the FTX's creditors will continue for years to come.


The year behind was an exceptionally weak year in terms of cryptocurrency prices. The prices of Bitcoin and Ethereum fell more than 60% during the year, and most other cryptocurrencies fell even more during the year. The price movements in the cryptocurrency market were influenced by general economic uncertainty throughout the year. The reasons for the uncertainty included the war in Ukraine, the energy crisis, high inflation, and the increase in central banks' interest rates to curb inflation, among other things. On the other hand, within the cryptocurrency market, the fall in prices was most affected by the collapses of FTX and Terra.

While cryptocurrency prices were on the decline in 2022, and several cryptocurrency players went bankrupt, a lot of positive things also happened to the cryptocurrency market last year. The most significant phenomena in the cryptocurrency market in 2022 can be summarized, for example, as follows:

  1. The collapse of the cryptocurrency exchange FTX as a result of the misuse of client funds and excessive reliance on the FTT token, among other things.
  2. The collapse of the Terra ecosystem as a result of a failed stablecoin experiment.
  3. The entry of the world's major financial players into the cryptocurrency market despite the price decline. Examples include BlackRock, BNY Mellon and Fidelity Investments.
  4. The successful Ethereum Merge laid the foundation for future Ethereum upgrades aimed at improving, for example, the scalability of the network.
Due to the general economic uncertainty that has been going on for a long time, 2023 is also starting from a rather uncertain situation in the cryptocurrency market. What kind of world political twists and turns lie ahead? How effective is the tightened monetary policy of central banks against high inflation? How long will central banks' interest rate hikes continue? As 2023 progresses, we will gain more clarity on these issues and thus also on the movements of the cryptocurrency market.

Ville Viitaharju Cryptocurrency specialist
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Last updated: 09.02.2023 09:50
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