HomeCrypto2022 hasn’t been bad at all for cryptocurrencies (just mostly)
2022 hasn’t been bad at all for cryptocurrencies (just mostly)
January 2, 2023
Crypto had a terrible, horrible, not good, very bad year in 2022.
The coins started to rally at the beginning of the second quarter and have never strengthened; Earth collapsed in May, leading to the failure of Celsius, Voyager and Three Arrows Capital; the feds sanctioned Tornado Cash in August; FTX collapsed in November, leading to the bankruptcy of BlockFi and warning signs from Genesis and Digital Currency Group. The whole world is looking at cryptocurrencies right now, for the wrong reasons.
But the year was not All bad. The industry has seen glimmers of positive progress you’d be sorry to have missed, or forgotten, amid the mass insanity over Sam Bankman-Fried’s alleged fraud.
After years of waiting and many, many delays, the Ethereum merger event happened in September and went off without a hitch. Ethereum, the No. 1 Cryptocurrency 2, has moved from the energy-intensive proof-of-work mining mechanism used by Bitcoin (and which has long been the punching bag of environmentalists) to a proof-of-stake mechanism that uses 99% less electricity .
The impact of this transition may take years for people to realize, but it could put Ethereum in pole position to rival Bitcoin in adoption and maybe even, one day, value. Just because the price of ETH hasn’t budged since the event, and just because the mainstream reaction sounded like a whimper instead of a bang, doesn’t mean the merge was a shrug. (It also came at a time when the US economy was collapsing, inflation was skyrocketing, and every investment asset class was in steep declines.)
“It was a mammoth undertaking that the Ethereum developer community handled very well,” ConsenSys CEO Joe Lubin, co-founder of Ethereum, told me in October. “It was, I think, the last big question mark surrounding whether Ethereum will be systemically important in the future… And I think our peers in other ecosystems probably have a little more respect for the Ethereum ecosystem.” They do: even former “Bitcoin maximalists” have recognized the importance of the merger.
In cryptocurrencies, everyone talks about regulation as a dreaded bugbear: regulation = death. This is understandable, since the entire original allure of cryptography for many was to cut out the middlemen, decentralize everything, and exist outside the reach of government regulation. Over the years, it has become abundantly clear that this is not a realistic vision for most projects. Just look at Tornado Cash’s shocking penalties this year. The future of cryptocurrencies will look more regulated than purists intended, but regulation does not necessarily mean interference.
While SEC Chairman Gary Gensler’s statements were very chilling indeed, other key figures in DC are much more open-minded and are working on legislation that would regulate cryptocurrency markets in a way that doesn’t stifle innovation. Senators Lummis and Gillibrand have reached down the aisle to collaborate on a bill that would put the CFTC in charge of cryptocurrencies rather than the SEC (sorry, Gary), and Coinbase is lending its support to two other bills ( one of Senators Stabenow and Boozman in the Senate and one of Representatives Thompson and Khanna in the House) who have a similar goal.
The point is: There are encouraging regulatory steps happening quietly as everyone in cryptocurrencies is busy panicking over Gensler and the SEC. President Biden’s cryptocurrency executive order in March should also be seen as a positive indicator: The order was a (mild) call for multiple agencies to agree on cryptocurrency regulation; it didn’t say “turn everything off”. Meanwhile, abroad, the European Parliament approved a cryptocurrency legislative package in March that specifically mentioned “ensuring that the EU financial services regulatory framework is innovation-friendly and does not pose barriers to the application of new technologies” .
VCs still believe
Call them crazy or deluded, but VC firms still pour money into Web3 plays. Andreessen Horowitz (a16z), the elephant in the room in Web3, has raised $4.5 billion for another crypto-centric fund (the fourth of him); a16z alum Katie Haun’s Haun Ventures raised $1.5 billion for cryptocurrency investments; Pantera has raised $1.3 billion for a blockchain fund. A slew of cryptocurrency companies and projects also got money in the deep freeze of a crypto winter, including Fireblocks ($550M), ConsenSys ($450M), Secret Network ($400M), NEAR ($350M) , Chainalysis ($170 million), Keyrock ($72 million) and Ramp ($70 million), just to name a few.
Oh, and there was a crypto derivatives exchange called FTX that raised $800 million in 2022 ($400 million for FTX and $400 million for the “separate” US entity FTX) at a $32 billion valuation .
Oops. The last example is a reminder: VCs can be very, very wrong. It’s their job to throw money at a bunch of things and hope that a couple is successful. But even after 2022’s string of crashes and busts, those with deep pockets still want to give money to crypto founders.
Big brands have switched to NFTs
Yes, the bubble of fast-spinning JPEGs has burst. To deny it, you’d have to get your head checked. But that was mostly the PFP (profile picture) crowd, shelling out hundreds of thousands of dollars for a cartoon monkey. That madness brought us carpet rolls, comically botched artistic revelations, and “wash trading” to inflate the sales volume of a new market.
As several leaders in the NFT space have stated since the bubble burst, the craze was not sustainable for the space. “From a mental health standpoint it wasn’t healthy for Art Blocks as a team, and it wasn’t healthy for the Art Blocks artists,” Art Blocks founder Erick Calderon told us on the gm podcast.
Afterward, as the dust settles, real use cases remain. NFTs are just tokens (I think we’ll stop using all these acronyms and jargon soon enough) that can function as anything that requires instantly provable ownership, from a party pass to a sports ticket, from membership to a club to an estate deed. These are the legitimate possibilities that excite people who are able to look past the point-and-laugh contempt of those who seem to be triggered by the term “NFT” itself.
Believers now include big brands like Tiffany, Adidas, Starbucks, Bud Light, Instagram, and Reddit, all of which have moved to embrace NFTs, even after NFT trading volume plummeted. (And shout out to Polygon, chosen as the blockchain partner for three of those brands.) All of those brands are either totally and humiliatingly wrong, or is it possible did they understand something?
Yosuke Matsuda, president of “Final Fantasy” game publisher Square Enix, made a bullish note on NFTs in his year-end letter: common among the general public, with the value of any available content corrected to their true appraised value, and I seek to become as familiar as the relationship to physical goods.”
Crypto media remains hungry
To wrap up on a more meta (non-company) note: Sam Bankman-Fried’s cinematic downfall was a boom time for crypto media. The FTX crash has sparked mainstream appeal beyond anything that has ever happened to cryptocurrencies: bigger than Mt. Gox, bigger than Silk Road, bigger than The DAO hack, bigger than the Quadriga fiasco, bigger of the sudden bull run of 2017.
I’ve been writing about Bitcoin since 2011, and my phone and inbox have never exploded with so many questions from crypto-curious friends and family. Major news and broadcast outlets are recognizing that they need to understand and report on crypto events. I’m proud of how our team of journalists covered the story of FTX, and also happy to see some great work from some of our colleagues (particularly CoinDesk, who gained a lot of attention for his Alameda budget scoop).
So while it might seem contradictory to say this at a time when cryptocurrency markets are in the dead of winter and the big news is negative: it’s a thrilling time to be reporting on cryptocurrencies. As I like to say, it’s never boring. I hope you will continue Decrypt in 2023 for the latest cryptocurrency news, education, word of mouth and insights.
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