This year, crypto experienced a range of highs and lows. From the historic decision to make Bitcoin legal tender in the Central African Republic to the emergence of Central Bank Digital Currencies (CBDCs) worldwide, we saw some absolutely wild stories unfold.
As you know, those wild stories weren’t all great. MiCA regulations from Europe forced many businesses to close their doors, and we experienced significant hacks. 2022 was also the year Big Oil got involved in Bitcoin mining, and large crypto industry players like 3AC and Celsius went bankrupt.
Finally, with Ethereum moving away from Proof of Work to Proof of Stake via The Merge and Grayscale suing SEC for not granting them ETF approval, among other things, this truly was one fascinating year for the crypto industry.
Below we list the top 16 stories of 2022:
Despite the lack of clear regulation in the space and face-melting price corrections, interest in the space has not only not abated, but it also accelerated.
According to Reuters and Pitchbook data, new capital inflows to the industry rose by more than 40% year over year. While this may come as cold comfort to our portfolios, the momentum of institutional engagement continues to demonstrate a rapt interest in the space.
Besides another year of 100% uptime for the leading digital asset (despite being banned by the country, which had historically hosted the vast majority of its worldwide mining activity), and its Layer 1 and Layer 2 lighting network continuing to pick up steam (...and users, and participants, and developers) in 2022, Bitcoin devs introduced a new upgrade which now allows the development of Smart Contracts on Bitcoin Layer 2 and Layer 3 protocols called Taproot.
A protocol proposal to Bitcoin and the Lightning Network that allows for the minting, sending, and receiving of most any kind of digital asset over the Bitcoin Network? Yes. Taro uses Taproot to facilitate the issuance of any digital asset over the Bitcoin blockchain while still taking advantage of Bitcoin's immutable proof-of-work verification/consensus mechanism. Taro facilitates all kinds of assets (like stablecoins, stocks, and bonds) to be issued over Bitcoin, creating opportunities for much more functionality and use cases down the road.
Stop the presses! This is news to write home about, and it all but makes up for every other industry failure in 2022. But on to the rest of the year…
As surprising as this sounds, given the severity of this year’s crypto winter, the numbers are in, and they–despite everything that happened in 2022–are promising, to say the least.
According to industry analytics stalwarts DappRadar and CoinTelegraph, unique active wallets (UAW) demonstrated a 50% increase year over year from 2021 and 2022. Up from 1.58M UAW in 2021 to an average of 2.37M in 2022.
Another surprising feat manifested itself in the nature of how many of these unique daily wallets were being used: NFTs and Blockchain games accounted for 49% of 2022 activity, with an average of 1.15M daily UAW.
Considering that Total Value Locked (TVL) for Defi fell by nearly 50% in 2022, it will not surprise you to conclude that NFTs and Blockchain Games (also referred to as P2E or Play to Earn) accounted for the vast majority of the beneficiaries in terms of how new users were interacting with digital assets.
It was exciting to see big oil get involved in Bitcoin mining this year… For many, it showed just how far the industry has come–a significant level of mainstreaming–and its enormous potential going forward to incentivize the use of otherwise stranded energy sources
This demonstrates how more people are embracing the idea of using alternative energy sources for mining, and it's clear that these developments have had an immense impact–not just in mining but also–on the energy industry at large. It’ll likely continue to shape their respective futures over the coming decades.
Grayscale's lawsuit against the SEC in 2022 was a major headline for the industry. Grayscale, one of the largest asset managers specializing in digital assets and the largest Bitcoin holder, sued the SEC for not approving its application to convert its Bitcoin Trust (GBTC) into an exchange-traded fund (ETF). The company argued that this decision was arbitrary and capricious and that it was well within its rights to have such a conversion approved.
From being seen as too risky or unregulated to having a $10B+ AUM Trust like Grayscale take legal action against the very regulators that seek to oversee it, is–to put it mildly–a sign of progress… (If not a forward movement!) It’ll be interesting to see what comes of this and whether other entities decide to follow suit (no pun intended) should they face similar perceived discrimination by establishment officials with regard to standard and transparent treatment. (Such as Caitlin Long’s suit against the New York Fed over her bank Avanti being given the run-around regarding its pending account with the Fed.)
2022 was a wild year for crypto hacks and exploits. We saw major breaches at Ronin Network, BNB Chain, and Nomad Bridge resulting in the loss of hundreds of millions. These security flaws exposed how vulnerable exchanges and cross-chain bridges can be, how vulnerable early blockchain pioneers and investors can be to hackers, and the importance of taking proper safety measures when using many of these cutting-edge protocols.
When all is said and done, over 300 attacks, hacks, and exploits total losses shy of $50B in 2022. It was, by large, the worst year on record for such losses since Bitcoin’s inception.
When the algorithmic stablecoin known as UST started to depeg from its US dollar benchmark, it set in motion a chain of events that not only caused the Terra Luna coin to overinflate and lose virtually all of its value, it caused a cascade of failures in the industry, the likes of which we’re still watching unfold today.
Needless to say, this was the beginning of the most painful period for the industry in 2022. And we think it’s safe to say that this story has been dissected ad-nauseum and requires no further coverage for the time being.
The Central African Republic made the groundbreaking move to follow El Salvador’s decision to make Bitcoin a legal tender. This is a huge step forward for crypto adoption and shows governments' continued willingness to recognize the leading digital asset’s true potential to level the playing field.
With this new development, citizens of CAR will be able to buy goods and services using Bitcoin, which could potentially increase its usage in everyday life. But more importantly, it'll be exciting to see how this move could open up opportunities for people in the region with little to no access to traditional banking services.
As several key industry friends (and foes!) have been pushing for ‘comprehensive’ legislation, one of the most recent bills proposed would create a legal framework around digital currencies and help to provide clarity on taxation, custody regulations, and other important aspects such as AML/KYC (anti-money laundering and ‘know your customer’) requirements.
When one of these bills becomes law, it’ll undoubtedly be a major step forward for adoption in the US. It could ostensibly open up many new opportunities for investors and businesses alike. Of course, there’s still some way to go before anything concrete happens, but it’s definitely an exciting prospect nonetheless, and certain forward momentum was achieved throughout 2022. Here's hoping we can continue moving forward with positive developments like these in 2023.
MiCA is the EU crypto framework that stands for the Markets in Crypto-Assets Regulation and proposes a comprehensive framework of rules surrounding digital assets. It’s far from perfect, but it provides a certain level of clarity on areas such as registration requirements, investor protections, and strict (if a tad stringent) anti-money laundering laws.
While MiCA will go a long way toward legitimizing digital assets in the eyes of governments and institutional investors alike, we'll have to wait and see how this legislation progresses.
Cardano's move to Guogen Phase is a major milestone for the cryptocurrency that could pave the way for more adoption: This phase integrates the aspects of Cardano that govern its smart contract capabilities. Users may now exploit its newfound scalability and privacy, as well as create their own decentralized applications on top of Cardano, as is the case with Ethereum. This step forward could open up many new possibilities for developers and investors alike.
How soon we could start seeing real-world use cases, however, remains to be seen. But if Cardano’s vibrant community is any indication, it won’t be long.
Whether he intended to cause the damage that he ultimately inflicted on the industry or not is still being decided by the courts. There is no denying this will go down in history as one of the biggest stories of 2022 and one of the industry’s darkest moments to date. We wish his victims justice and a speedy recovery.
When the US Treasury's Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash, a privacy-preserving Ethereum protocol (commonly known as a Mixer), the first thing that the crypto community wondered was: ‘Is it even legal to sanction a piece of code?’, and ‘Isn’t code protected as Free Speech?’
The protocol–used by many individuals, businesses, and non-governmental organizations alike to process payments in a secure and anonymous manner–was created to ensure their data remained protected from prying or authoritarian eyes. But when it was used by the rogue North Korean government to launder the proceeds of hacked funds, the US Treasury stepped in.
Although some key industry players have refused to follow OFAC’s ‘directives’ unless explicitly forced to do so, most ‘mainstream’ or institutional Ethereum stakers have blacklisted or refused to validate transactions by OFAC-sanctioned Ethereum addresses. Further, OFAC is currently being sued by Coin Center (a crypto advocacy group) over its legal standing/ability to sanction an open-source protocol in the first place.
As more and more countries look to launch their own central bank digital currencies (CBDCs), the debate is on whether they will truly add value for their users/holders.
While some experts believe CBDCs will become a major theme globally (with governments already investing considerable sums researching these technologies), there's no doubt that we'll start seeing real-world consequences of their roll-outs and usage soon enough… China notably rolled out its first CBDC pilot in 2020, and many other countries have begun to follow suit.
And last but not least…
"The Merge"–which took Ethereum from a proof-of-work consensus to a proof-of-stake (Pos) system–meant that ETH holders could now stake their coins and earn rewards instead of having to use energy-intensive computers to mine for them.
The move to PoS ostensibly added more security and decentralization to the network and reduced its energy consumption by 99.9%.
Additionally, the Ethereum Foundation recently came out with a tentative date for their next big upgrade (so-called Shanghai) for March 2023.
From Bitcoin and crypto donations being used to pour support into an embattled Ukraine, to big oil beginning to embrace Bitcoin mining, to more countries making Bitcoin legal tender, and while governments scramble to regulate an industry that grows more complex by the day, it's clear that 2022 has been a tumultuous year for Bitcoin and crypto.
With great strides forward, simultaneously accompanied by tremendous losses, the community is eager to see what 2023 has in store... One thing is certain–as 2022 can attest–there is never a dull moment in the future of money, web3, smart contracts, and distributed ledger technology–and 2023 is sure to be a banger. Stay safe out there, friends–and happy new year!
Ndax team
Disclaimer: This email is not intended to provide investment, legal, accounting, tax or any other advice and should not be relied on in that or any other regard. The information contained herein is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of cryptocurrencies or otherwise.