The Biggest Losers of 2022's $1.304T Crypto Slump
- The crypto market has been on a downward spiral since the year’s start.
- That slump has seen many individuals and firms lose substantial amounts of their crypto investments.
- Analysts blame rising inflation for the declining crypto sector fortunes.
Cryptocurrency investors have had a torrid time in 2022. The sector's market cap has declined from $2.366T at the start of the year to just $1.062T today - a staggering 55% slump!
This has seen investors lose billions of dollars with no signs of things improving anytime soon. So, what's behind this slump, and who are its most prominent victims today?
BanklessTimes's CEO Jonathan Merry has been following the developments in the sector. He ties the current crypto slump to the happenings across the investments market.
The current crypto slump is due to the same factors affecting stocks and other investments. Slow economic growth post the pandemic and rising inflation have pressured the cryptocurrency market. The Fed's hiking of interest rates has further heightened those pressures prompting investor sell-offs.Jonathan Merry, CEO of Bankless Times
Changpeng Zhao’s $80M Loss
It's been a tough year for crypto investors and Changpeng Zhao, the CEO of Binance, has seen his net worth plunge from nearly $95 billion in January to just $14.9 billion as of 20th May 2022.
That's a loss of $80 billion in just four months - making Zhao the biggest loser on the Bloomberg Billionaires Index this year. Zhao's tumble is mainly due to his high-profile investment in Luna, which collapsed this month after the stablecoin TerraUSD (UST) went bust.
The UST Link
UST was created to be a stablecoin pegged to the US dollar. However, it ran into trouble when its value began to fluctuate wildly. UST had a market capitalization of over $18 billion at its peak. However, it has collapsed spectacularly and, at the time of writing, stands at just $351 million.
Analysts say that UST was doomed from the beginning because it didn't have sufficient USD backing. As a result, UST could not maintain its peg to the US dollar, leading to its collapse.
UST is just one example of the many stablecoins that have failed in recent years. These failures underscore the importance of having a solid backing for stablecoins.
Big Crypto Firms Feeling The Heat
3AC, once one of the largest and most prominent crypto hedge funds, is now in hot water. The firm owes a whopping $3.5 billion to 27 different companies, according to a court filing made public on 18th July 2022. This is no small debt, and 3AC's founders are nowhere to be found.
The situation 3AC finds itself in is primarily due to the poor timing of its Luna Coin investment. This prompted investors to demand their funds back, which put a massive strain on 3AC. That forced the firm to file for Chapter 15 protection. It also sent its founders on the run from creditors and regulators.
Until it filed for bankruptcy, Celcius was one of the leading crypto lenders. With $167 million in cash on hand, the company said it took the step to stabilize its business and work out a restructuring for all stakeholders.
Celsius had amassed more than $20 billion in assets by offering interest rates as high as 18% to customers who'd deposited their cryptocurrencies. It paused all withdrawals and other functions in mid-June, citing “extreme market conditions.”
Coinbase’s $45M Restructuring Bill
Coinbase is also feeling the sting of the crypto slump. The company announced that it was cutting 1,100 jobs in a restructuring program that would cost up to $45 million. The Coinbase layoffs signify that even the most prominent crypto companies feel the pinch as Bitcoin and other digital currencies continue to lose value.
What Next For Crypto?
All indicators point to the crypto slump continuing for some time. This is due to the high levels of debt in the crypto market and the ongoing bear market in traditional assets. Consequently, crypto prices are likely to remain volatile in the short term.
However, crypto is still a promising investment opportunity in the long term. With traditional financial institutions starting to adopt crypto technologies, the demand for crypto assets is expected to continue to grow.