Oh, what a year this one has been.
It’s like the longest yet fastest year in history.
And we had it all, didn’t we?
Lockdowns. Protests. Frozen assets. And some major tech crashes.
Then there was the stablecoin mushroom cloud, the death of a hedge fund that led to a leverage and collateral contagion. Then a pretend hedge fund dropped the grenade pin, taking millions in deposits with it.
Then came a war where crypto became a critical piece of infrastructure.
The Metaverse developed cobwebs. The early NFT craze went looking for greener fields.
Then a billionaire splurged on a forty four billion dollar present before Christmas.
Followed by a white night that turned out to be a phantom.
I have no idea if this year can be topped. But one thing is for sure, this storm doesn’t look like it’s over just yet.
Yet, in spite of all of this, the building continued. Investment money was raised.
And there’s a lot more room for the good guys to build and develop the space now that a bunch of the trash has been taken out.
So unfortunately for the haters out there, crypto still ain’t dead.
Sunny days turned to dark skies
Looking back at 2021, you’d say, you know, that was wild. Some big moves in bitcoin and ether. Some huge new projects on the radar. And some developing projects got their stride.
Coming into 2022, the Metaverse was hot. Digital land was the thing, and celebrities were staking their claim.
The NFT craze started to ebb a bit, and auctions started to wane.
And in Q1, big tech was like their crypto brethren, just discovering something problematic.
The massive hiring spree in 2021 was heading toward the brick wall of reality.
It looked like no one considered the possibility of a reversion to the analog mean after things started opening up.
Reality bit hard
After 50-100% growth in staff at almost every digital company on the planet in 2021, tech ran into the brick wall of reality going into Q2 2022.
That’s when the Fed awoke like a dragon from its slumber.
Inflation, driven by a combination of excess reserves, supply chain disruptions, and insane energy policies, finally put pressure on prices.
Inflation went from “whatevs,” to transient, to %#&^ we better get this under control!
And so the central banks took flight torching economies around the world with the fastest, most aggressive upside move in rates perhaps ever.
But what they can’t control are supply chain problems, counterproductive energy policies, and a labour market tightened by unexplained excess deaths and disabilities among working-age people.
And that was only part of the excitement.
A convoy for self-custody
Lockdowns and mandates over the winter gave rise to a convoy to Ottawa and a protest. If you’ve ever been to Ottawa or Montreal in February, you know no sane person would go there and stand outside all day unless it was important.
The protest was broadcast across the world.
The convoy raised more money in two weeks than any national political party.
Which led to a panic and the invoking of the updated War Measures Act.
Then in an unprecedented step, the government targeted people and froze their assets.
But the government didn’t know about self-custody in crypto. So there was some confusion.
Powell of Kraken and Armstrong of Coinbase took bullets for the industry by publicly reminding everyone of this key element of crypto.
This storm passed, and things began to change rapidly.
War drums were beginning to beat in the media as conflict was being provoked in a far-off land.
And this conflict would have an impact on a whole host of things.
The Eurasian laundromat
Before the Fed woke up and unleashed rate hellfire, inflation was brewing. Restrictive energy policies combined with unstable supply chains became mixed with war.
NATO backed Ukraine in a conflict with Russia, which proved to be an important catalyst for numerous events.
One aspect was cutting Russia off from financial infrastructure, followed by sanctions.
Crypto stepped into the breach providing financial infrastructure for innocent citizens on both sides of the conflict. And western governments flooded the laundromat of the region with copious amounts of financial and military “aid.”
The conflict exposed Europe’s dependence on Russian energy, something the Germans laughed at only a few years earlier.
Sanctions and various trade maneuvers to punish Russia have added to supply chain instabilities and generated upside biases to several key commodities just in time for winter.
Elon Musk found himself front and center in the conflict by providing key communication infrastructure to both sides. Starlink became an unexpected lifeline.
And this wouldn’t be the last we would hear of the billionaire marketing genius.
All of these events precipitated an explosion in prices across the globe.
The inflation that was predicted for a decade finally arrived. And the Fed and every other central bank were forced to act, setting in motion a recession time bomb that could go at any time.
And then came a certain stablecoin that claimed to be reproducing the equivalent of the Federal Reserve System, which would be ominous if the outcome foreshadowed what is to come with the OG Federal Reserve System.
Mike’s Terra Luna Tattoo
May saw rumours of trouble at high flier Terra Luna.
The coin had been on fire. But there were problems. On Twitter, someone figured out how it could be thrown into a death spiral.
The CEO denied it, which is the signal to any Wall or Bay Streeter that there is more than likely some truth to it.
From denial to mushroom cloud took a matter of a week or two.
Billions were vaporized, and massive losses were taken across the industry. The pain was a shock to numerous holders, including many seasoned traders and investors.
But what everyone really wanted to know was, will Mike Novogratz get his Luna tattoo removed?
The shockwave from Terra set off a cascade of losses across the industry.
And as the liquidity tide went out, numerous other problems were revealed.
Absolute zero Celsius
Celsius, which pitched itself as a sort of crypto bank, was actually operating more like a hedge fund. Their obscene yields attracted all kinds of people unaware of the hidden risk contained in the company.
In order to provide the returns they promised, Celsius had to trade aggressively in a liquidity pool that was flush with leverage and collateral risk as it was contracting.
The net result was like heating an empty can. They literally caved in on themselves, leaving a string of destroyed clients in their wake.
The other big story was the failure of one of the most widely known crypto hedge funds.
No arrows capital
Once, darlings of the industry, it was discovered that 3AC had their fingers in every lending pie across crypto. They consumed so much credit and leverage that they became the equivalent of a truckload of C4 sitting next to a fireworks show.
The result of the trifecta of Terra, Celsius, and 3AC was a series of financial Roman candles throughout the industry.
It took down Blockfi, Voyager, and several others.
But there was a white night throwing cash around to failed businesses, the press, and politicians like free cucumbers at a vegan convention.
Except that the white night had a little problem that nobody was aware of, yet. He was eight billion cucumbers short of a full market.
Meta and NFTs had hiccups
The Metaverse started the year with fanfare. Digital land was going for insane prices. Gaming, NFTs, and development followed.
And by the third quarter, Meta had to admit that their signature investment was about as busy as Chernobyl.
NFTs also went through a transformation. From the fanfare of early 2021, Topshots, Bored Apes, Punks, and many more became ETH storage devices.
Trading across OpenSea went quiet. And the bustling NFT space dried up like an apple on a hot summer sidewalk.
Ok. That was intense even just to write about. But it wasn’t all bad.
There were some bright spots in 2022.
The diehards continued to build and test
Throughout what seemed like a hurricane of events, companies continued to invest in and explore the potential of these products.
Various companies took out trademarks and developed offerings for the Metaverse. Luxury brands continue to explore the potential of NFTs.
And moving beyond art and collectibles, NFTs have a vast number of potential use cases. Chris Dixon and punk6529 talked extensively about where NFTs could shape the future.
These use cases are being imagined and explored during the downturn. And they also have the infrastructure to experiment extensively.
Part of this infrastructure is coming from bridges.
2022 was good for bridges
One of the criticisms of crypto was all the individual blockchains. For the purists, it’s Bitcoin and everything else. But other chains have developed decent communities.
And one of the challenges is to knit together these various communities into more of a decentralized financial tapestry. This is where the bridges come in.
Bridges took off in 2022, including Vancouver’s LayerZero Labs.
Bridges have been going through some growing pains but appear to be catching their stride as the year comes to a close.
DeFi outperformed its naysayers
In spite of the chaos in crypto, DeFi projects have performed surprisingly well.
All those that poo-pooed smart contracts have ironically faced some serious crow-eating in CeFi this year.
As these projects advance, they are evolving their governance models to reflect reality.
And to their credit, these projects have done much better than expected during the stress test of 2022.
And then came a surprise.
One of the biggest crypto exchanges got rolled by their competitor in the Caymans.
From Binance without love
Now, it’s impossible to say that someone didn’t see it coming because there were a couple of voices in the forest of social media that called this one out. But they were no match for the PR machine behind the homeless-looking altruist.
The problem began with a leak of a balance sheet for another hedge fund. This one the famed crypto quant fund Alameda.
The leak precipitated a series of events leading to a throwdown by the founder of Binance. His weapon of choice was his rival’s own illiquid and apparently vastly overvalued token, FTT.
In a matter of days, starting on the day of the US midterm elections, the exchange and its hedge fund owner fell apart like a Russian Lada.
And never wanting to be left out of the picture, Elon entered stage left.
Worlds greatest marketer buys himself a $44 billion present
Elon was a significant part of the crypto 2021 story. He talked to Saylor on Twitter and got into bitcoin. Then he stopped with bitcoin because of environmental issues. Then he said bitcoin was too high. Then the mining situation was OK. It was a roller coaster of confusion that created numerous trading opportunities.
Then he embraced DOGE. Again all through Twitter.
Then he started asking people on Twitter if he should buy it.
Which culminated in his bid for Twitter.
Then came a halt to the deal and a court battle over bots.
But the cunning commissars of speech at Twitter forced Elon’s hand through the court.
And he proceeded to take it over right as the midterms were coming up and crypto had its latest SNAFU. We all watched the wild story unfold in real-time, which never seemed to end.
Time will tell what becomes of the platform, but there is a strong possibility crypto will be involved.
But guess what? Crypto’s still standing
In the weeks that have followed, we’ve seen a supposed boy genius pretend to be an invalid. And we’ve got to see the overall infrastructure of an expertly constructed corporate behemoth that is no more.
Well, there will be more scrutiny and regulation. Some institutions have a sign on their eye saying closed for the weekend. And some people are more cynical about the space.
But here’s what didn’t happen.
None of the core decentralized cryptocurrency projects failed. From Bitcoin to Ethereum, Cardano, even Solana, bruised by the relationship, continued unabated.
Altruist all-knowing centralized government
2022 was anything but boring.
There were spectacular blowups.
There were painful losses and life lessons.
We learned a lot about what works and what does not.
We’ve learned a lot about what to look out for in the future.
And the interesting thing is that the building continues. DeFi sailed through with maybe a couple of bruises. Much of the infrastructure based on decentralized principles continues to work uninterrupted and without any bailouts.
Which is something to think carefully about. Because right now, governments and central banks around the world are attempting to consolidate power and impose CBDCs from a super duper centralized all-knowing altruist entity, otherwise known as themselves.
What could possibly go wrong?
The infrastructure is there. What’s next?
In his book, Doing Capitalism in the Innovation Economy, William Janeway talks about the dot com meltdown. And the byproducts of that period.
Yes, there was overinvestment back then.
And there was plenty of fraud then too.
But the infrastructure that remained when the dust settled was what we built the economy we’ve benefited from for the last two decades.
There is much more going on in the world today. And no one knows how it will play out.
But one thing that will be interesting to see and participate in, is what all this crypto infrastructure can and will be used for next year and the years that follow.
After all of the excitement, one can be pretty confident that lots of the excesses have been removed from crypto. Many of the bad actors have been exposed.
And regulators know exactly where to focus their attention.
All of which leaves more room for the good guys in crypto to develop, build and create a better future.
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