The Federal Reserve's interest rate hikes spooked investors away from speculative bets like crypto in 2022.
The industry endured a series of collapses, including FTX, algorithmic stablecoin UST, and centralized lender Celsius.
Despite market doldrums, Wall Street giants like BlackRock inked majors crypto-related deals.
Crypto endured major blows this year as the industry's market cap sits more than two-thirds below its record high. The nascent space took hits from a harsh macroeconomic environment, a slew of bankruptcy filings and criminal charges against top crypto executives.
Yet despite declines of over 60% for bitcoin and ether in 2022, venture funding continued to funnel into the space while major traditional financial institutions inked partnerships and expanded crypto-related offerings.
Insider spoke with several crypto experts and charted the most influential events for the industry in 2022.
January and February
Non-fungible tokens, or NFTs, seemed all the rage in the beginning of 2022, especially after dictionary publisher Collins anointed the phrase as its "Word of the Year" in 2021. NFT monthly trading volumes peaked at $17 billion in January, according to Dune Analytics.
Popular collections, often called "blue-chip" projects, were selling for millions. Singer Justin Bieber even bought a Bored Ape Yacht Club NFT for $1.3 million.
Then NFT trading volumes began to decline in February, a month that also saw Sotheby's cancel a live auction of 104 CryptoPunks NFTs valued between $20 million to $30 million due to lack of interest. Some say this signaled the end of the NFT hype.
March
The macro backdrop began to worsen in March, when the Fed announced its first rate hike in years to combat decades-high inflation.
Investors turned away from speculative bets like cryptocurrencies, causing a further decline in token prices. Bitcoin's reputation as an inflation hedge was called into question as the cryptocurrency started to trade in tandem with tech stocks.
Venture funding was still strong in the space though. Yuga Labs, creator of the Bored Ape Yacht Club NFT collection, raised $450 million in a seed round to give it a $4 billion valuation.
May
Amid the fifth straight month of losses in crypto markets, algorithmic stablecoin TerraUSD, or UST, lost its 1-to-1 peg to the dollar, causing mass liquidations and the eventual collapse of its $18 billion ecosystem.
Many retail participants lost their life savings because they were treating UST, which was advertised as a way to park your assets and earn 20% yields, as a savings account.
"This began the great unraveling of crypto in 2022 and showed that, for way many projects, the emperor had no clothes." Jeremy Epstein, CMO of blockchain startup Radix, told Insider.
June and July
Three Arrows Capital, the massive crypto investment firm that once reported $10 billion in assets, had exposure to UST and some reports put its exposure to sister token Luna at around $560 million. The firm filed for insolvency in June, leading to widespread contagion.
Three Arrows, commonly known as 3AC, invested in crypto startups and then allowed some of their portfolio companies to store funds with them as a custodian as well. Cofounders Kyle Davies and Su Zhu – both former derivatives traders for Credit Suisse – were hailed by many, with 3AC even called the "adult in the room."
Also in June, crypto lender Celsius paused all withdrawals and user activity on its platform. A month later, the firm filed for bankruptcy, listing $4.31 billion in assets and $5.5 billion in liabilities. The firm couldn't hold to its promise of offering up to 17% annual yields to customers.
In July, digital asset brokerage Voyager, which allowed users to store their digital assets on its platform, filed for bankruptcy.
"Certain failures of exchanges have highlighted the risks of centralized projects and served as a reminder of the dangers of granting a single entity or organization full financial control," Daniel Kisluk, CMO of blockchain infrastructure developer Pendulum, told Insider.
September
The market then turned its attention to Ethereum's Merge, an upgrade that cut energy usage on the smart-contract network by more than 99%. Crypto markets had a brief uptick in September.
The Merge was the third most-important event in crypto's history, after the invention of bitcoin and ethereum, blockchain developer Ben Edgington previously told Insider.
The upgrade was "fundamentally reengineering a chain which has hundreds of billions of dollars of value so we are swapping out the engine mid-flight," he said.
Also in September, BlackRock announced a partnership with Coinbase's institutional arm, Coinbase Prime. The world's largest asset manager agreed to offer clients access to Coinbase's crypto trading and custody services.
November and December
Sam Bankman-Fried's once-$32 billion cryptocurrency empire collapsed in November, in what US prosecutors called the "worst financial frauds in American History."
The cryptocurrency exchange, along with more than 130 of its associated entities, filed for bankruptcy protection on November 11. FTX's asset were reportedly transferred to Bankman-Fried's crypto hedge fund Alameda Research, leaving an $8 billion hole on the trading titan's balance sheet.
In December, Bankman-Fried was charged with multiple counts of fraud and released on a $250 million bail bond. FTX cofounder Gary Wang and Alameda Research CEO Caroline Ellison were charged with defrauding investors and are reportedly working with authorities.
Pendulum's Kisluk said that while 2022's numerous failures hurt confidence in crypto, the resulting bear market also represented an opportunity for the industry to "focus on creating and maximizing value for users, rather than on valuations" and shift toward decentralized finance and infrastructure projects.
Radix's Epstein warned the industry must brace for more FTX contagion, but predicted crypto markets will rebound eventually.
"Ultimately, this year will be remembered as the year that, with great pain and discomfort we purged the toxic elements, preparing for healthier days ahead," the exec said.
