Falling inflation, rising debt and the evolving crypto landscape
At a time when the industry was making headlines around the world for all the wrong reasons, the cryptocurrency market took a hit in 2018. It's down more than 70% by 2022 – from the bankruptcy of FTX and the arrest of Sam Bankman-Fried to the collapse of the $50 billion Terra ecosystem.
Inflation has been high in the United States for almost 40 years as the nation's national debt continues to rise.
But it wasn't all doom and gloom. In September 2022, Ethereum made its long-awaited transition to a proof-of-stake network, and Bitcoin's hash rate tripled throughout the year. The market rebounded strongly in 2023.
Here are some major industry events between 2022 and 2023.
Explore the history of CRYPTO
US inflation remains elevated for now.
Declining inflation is one of several macroeconomic factors that contributed to Bitcoin (BTC)'s 77.2% price decline from its previous all-time high of $68,990 to a cycle low of $15,740 in November 2022.
In fact, US Consumer Price Index (CPI) inflation rose to 9.1% in June 2022, marking the highest level since 1982, according to the US Bureau of Labor Statistics.
Fortunately, CPI inflation starts to decline after June 2022, falling to 3% in June 2023. Since then, monthly figures have hovered in the 3% range.
Since June 2023, Bitcoin has risen more than 135% from $30,480 to set a new all-time high above $73,000.
However, as of November 2021, CPI inflation has increased by 11.65%, meaning Bitcoin has still not reached its inflation-adjusted all-time high. That happens when Bitcoin hits $77,026.
America's national debt continues to rise.
US National Credit It continues its sharp rise in 2022 and 2023, rising 4.35% to $33.2 trillion in those two fiscal years, according to U.S. Treasury data.
The debt has soared to $34.5 trillion, putting America on an “unsustainable fiscal path,” according to US Federal Reserve Chairman Jerome Powell.
Fortunately, the U.S. debt-to-GDP ratio has fallen from 3.2 percent to about 123 percent.
Financial markets can withstand another 20 years of accumulated deficits under current U.S. fiscal policy, according to researchers at the University of Pennsylvania. After that, the debt flexibility begins to “dissolve.”
Explore the history of CRYPTO
Coinbase CEO Brian Armstrong recently said that increasing adoption of Bitcoin (BTC) in the US could serve as a “check and counterbalance to excessive deficit spending”, which he believes is necessary for the US dollar to remain strong.
Bitcoin's inclusion would signal a “return to financial discipline,” he added.
El Salvador is a textbook example of this, according to venture capitalist Tim Draper, who believes the country's bitcoin investment will help pay off its $215 million debt to the International Monetary Fund.
“[If] Bitcoin reaches $100,000, you can pay off the IMF. [and] You don't have to talk to them anymore.
The fall of FTX shocked the world as the SEC played police on the crypto industry
In the year The deteriorating macroeconomic environment between 2023 and 2023 has affected every cryptocurrency company, leading to multiple bankruptcies, liquidations and even jail time for some of the industry's most controversial figures.
The incidents sparked a wave of regulatory action by the US Securities and Exchange Commission (SEC), led by Gary Gensler, who has declared himself the cryptocurrency industry's “cop on the beat.”
No failure was greater than FTX's, which saw more than $8 billion of customer money stolen from the crashed market. BlockFi has filed for Chapter 15 bankruptcy after its excessive leverage in long positions led to the bankruptcy of Three Arrows Capital, citing its defaulted loan from FTX.
Celsius and Voyager were other notable firms that filed for bankruptcy.
Former FTX CEO Sam Bankman-Fried was indicted in November 2023 for his role in orchestrating what some have described as the largest fraud in US history.
The collapse of the $50 billion Terra ecosystem and the algorithmic stablecoin TerraUSD (UST) will result in a May 2022 carnage.
Chiefly responsible for that failure is Do Kwon, the former CEO of Terraform Labs, who spent more than five months on the run between countries and was eventually caught by immigration authorities in Montenegro using a fake Costa Rican passport.
He has been accused of fraud in his native South Korea and the US for his role in the collapse of Terra.
The SEC was more determined to catch the remaining “hucksters”, “fraudsters” and “fraudsters” in the cryptocurrency industry after Bankman-Fried. In particular, he sued Binance, the world's largest cryptocurrency exchange, and its former CEO, Changpeng Zhao, who were found guilty of money laundering in November 2023.
The securities regulator sued Coinbase in June 2023 for illegally soliciting the trading platform's listed cryptocurrencies.
RELATED: Rising Bitcoin Banking Crisis ‘Attracts More Institutions': ARK's Catie Wood
In the year March 2023 saw a local banking crisis, when three cryptocurrency-friendly banks collapsed: Signature Bank, Silvergate Bank, and Silicon Valley Bank (SVB). This raised concerns that the US banking system may not be as strong as originally thought.
Even Fed Chairman Powell was left scratching his head at SVB's failure.
Explore the history of CRYPTO
Despite several industry setbacks, builders continue to build.
In particular, Ethereum transitioned to a proof-of-stake consensus method in September 2022, and by doing so, reduced its energy consumption by more than 99 percent.
The Bitcoin network is also becoming more secure between 2022 and 2023, with its hash rate growing 200% to 515 terrahashes per second, according to data from Blockchain.com.
Magazine: Unstable Coins: Devaluation, Bankruptcy and Other Risks Ahead.
