In the cryptosphere, the disastrous year of 2022 was followed by that of the Great Purge. The big stars of this digital universe have lost their footing in this big housecleaning commanded by a toughening of the tone and action of regulators. Regulations should follow. Result: bitcoin has taken off again, for the umpteenth time.
As of mid-December, bitcoin was up nearly 150% for the year, its highest since spring 2022. With bitcoin at over US$43,600 swelling the market capitalization of all cryptocurrencies at more than US$1,600 billion, we are, of course, still far from the peak of more than US$67,000 in November 2021 and a record total market capitalization then exceeding 3,000 billion. But this other upward trend is attracting attention in that it is this time part of a purging movement which can only reassure institutional investors and encourage them to become more involved in this highly speculative universe, believes we.
The year 2022 has been rather disastrous in the cryptosphere. Fraud, market manipulation, conflicts of interest, opacity and endemic dysfunction have become entangled. Based solely on capitalization, the cryptoasset market suffered an erosion of 60% year-on-year in 2022, some 75% since its peak in 2021. But if fans of these assets are used to volatility sometimes extreme, the shock wave mainly came from the collapse of the FTX exchange and the bankruptcy of the Celsius Network platform.
The continuation of these cryptodramas took place in 2023, with these big cryptoasset stars caught up in the scandals. The latest, Changpeng Zhao, known by the abbreviation CZ, whose fortune was estimated by Forbes to 65 billion in 2022, five years after founding Binance, which has become the largest exchange in the world. He pleaded guilty to money laundering charges and agreed to pay a $50 million fine and step down as CEO of the company. Binance also admitted its guilt and agreed to pay penalties of 4.4 billion.
Shortly before, Sam Bankman-Fried, accused of fraud, criminal conspiracy and money laundering, was found guilty by a New York jury of the seven counts brought against him, in particular of having used, without their knowledge, the funds deposited by customers of its cryptocurrency exchange platform FTX, we can read in a text from Agence France-Presse (AFP).
SBF founded FTX in 2019, which quickly became one of the largest cryptocurrency exchanges in the world. In the meantime, his fortune reached $24 billion in 2022, according to Forbes. But he began using FTX clients’ money for everything from buying luxury real estate to hedging risky trades at his investment firm Alameda Research. Everything collapsed when these operations were revealed in the media in November 2022. FTX then went bankrupt, summarizes AFP.
Arrested in the Bahamas in January, he was convicted in early November of what U.S. prosecutors described as “one of the largest financial frauds in U.S. history.” He faces up to 110 years in prison.
Finally, there is the South Korean Kwon Do-kyung, known as Do Kwon, co-founder of Terraform Labs in 2018, which develops the TerraUSD and Luna cryptocurrencies. The value of these cryptocurrencies, so-called “ stablecoins », collapses in May 2022, destroying around 40 billion dollars of investments and causing a shock wave in the sector. AFP also indicates that, according to experts, Do Kwon actually set up a Ponzi scheme, a fraudulent financial arrangement which consists of remunerating clients’ investments mainly with funds provided by new entrants. He was finally arrested in Montenegro. The United States and South Korea are demanding his extradition.
And 2024?
It was a big year of cleaning, therefore, which could pave the way for greater acceptance, or even the consecration of cryptocurrency and the emblematic bitcoin as a recognized component within a mainstream financial system. If only by the increased power of attraction among institutional investors that a tightening of the regulatory framework would bring. At least, those who hope so now have their eyes fixed on the exchange-traded fund project linked to bitcoin piloted by investment giants, including BlackRock, which is awaiting approval from the Securities and Exchange Commission, the American regulator of the securities market.
Oh yes ! These experts also welcome a year 2024 which should be marked by the “halving” of bitcoin, i.e. a halving of the premium linked to the mining threshold. An event which occurs roughly every four years and which aims to limit the total number of bitcoins in circulation, or even to reinforce their scarcity, in order to maintain or increase its value.
A strange mechanism for a currency that aspires to be part of a mainstream financial system, but hey.