Crypto in 2022: Invasion of Russia, ETH merger, Terra and FTX collapse, aftermath

The Kaiko Research team focused on the ten key market events for cryptocurrencies in 2022, which include new crypto activity during the Russian invasion of Ukraine, the collapse of Terra, the crypto credit crisis, the dominance of Binance , the evolution of Uniswap, the merger of Ethereum, the collapse of FTX and its consequences and macros.

Kaiko, the provider of historical and real-time data on cryptocurrency trading, order books and aggregated prices, has released a special year-end edition of its Data Debrief.

In it, the Kaiko Research team focused on the ten decisive market events for cryptocurrencies in 2022, which include new crypto activity during the Russian invasion of Ukraine, the Terra collapse, the crypto credit crisis, the dominance of Binance, the evolution of Uniswap, the Ethereum merger, the collapse of FTX and its consequences and macros.

The report analyzed each definition of each occurrence and added comments/predictions for them. We quote the latter below:

  • 1. Invasion of Russia causes increased cryptocurrency activity: “Cryptocurrencies have proven they can be leveraged in times of extreme uncertainty, especially stablecoins, allowing citizens to escape volatile currencies. This conflict has also demonstrated how quickly sanctions and restrictions enforced by global payment networks can curb the unwanted use of cryptocurrencies.
  • 2. Earth’s collapse destroys billions in value: “It now stands to reason that if returns sound too good to be true they probably are. The collapse of Terra was also a prime example of the importance of on-chain data when investigating warning signs of a token or project’s health. In 2023, pay attention to what happens on DeFi protocols!
  • 3. Crypto Credit Crisis Brings Down Illiquid Lenders: “stETH is a relatively small crypto token, but it played a huge role in the Celsius crash and the wider crypto credit crisis. This scenario demonstrates the risks involved when centralized platforms invest client funds in high-risk DeFi protocols. Again, if the returns look too good to be true (in this context, on centralized platforms), they probably are. More broadly, the crypto credit crisis continues to unfold today and could have a bearish impact on the markets if bankrupt lenders are forced to liquidate their crypto holdings in the new year.
  • 4. Binance Becomes Even More Dominant: “Despite posting a record $6 billion in outflows following concerns over the strength of its reserves in December, Binance continues to dominate spot trading. However, as the world’s largest exchange, it faces increasing scrutiny from both regulators and clients, which could reach a boiling point in 2023. Traders increasingly value transparency, and there could very well be a shift towards more regulated centralized platforms.
  • 5. Uniswap evolves into a formidable CEX competitor: “Uniswap’s volume has been impressive during this bear market. Will governance trigger the long-awaited fee change to divert part of the revenue to token holders? How will DEXs be impacted by regulations? And can any DEX affect the domain of Uniswap V3? Overall, the cryptocurrency market structure continues to be dominated by centralized exchanges with Ethereum-based DEX volumes still far lower than their centralized peers. However, DEXs have shown remarkable resilience to the current market turmoil, and innovations continue to make them more competitive with CEXs, especially after the FTX crash.”
  • 6. Ethereum merged and nothing bad happened: “Although the price of ETH has dropped since the merger, in the long run the update bodes well for the future of the network as it paves the way for future improvements in the scalability. However, it has also been controversial, as nearly 70% of blocks are OFAC compliant, raising concerns about censorship continuing into 2023. While there is growing anticipation (and some concern) regarding a deadline for staking withdrawals of ETH and the network scaling roadmap, Ethereum-based Layer 2 scaling solutions have gained significant traction and will likely continue to do so into the new year (we discuss more about L2 here).”
  • 7. FTX’s crash revealed a scam of epic proportions: “In hindsight, it seems obvious that FTT was a huge vulnerability, as a token with next to no utility, liquidity or demand. To prevent the next collapse of FTX, the industry must question all business models and balance sheets and demand transparency from the centralized offices it uses.”
  • 8. Liquidity Drying Up in a Post-Alameda World: “Hopefully the decline in liquidity is temporary and there are already signs that market makers are re-entering the markets and regaining confidence. However, it is likely that market makers will be more careful in choosing the exchanges on which they hold funds, perhaps increasing the market share of more regulated exchanges”.
  • 9. Asset valuations come into question after FTX: “The industry needs to start recognizing that market cap and fully diluted valuation are theoretical numbers that do not accurately reflect the value of a token, especially if a large holder is looking to cash out. A return to altcoin liquidity would be beneficial to the market, as would DeFi protocols that rely on price oracles for less liquid tokens.”
  • 10. The Year of the Macro: “Concerns about the global recession and tight liquidity will continue to weigh on risky assets, especially as the quantitative tightening accelerates. However, the US Fed and other central banks are widely expected to slow the pace of rate hikes next year, perhaps providing respite for risky assets.

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