The cryptocurrency crash in 2022: What have we learnt?

Posted on: 14th December 2022 in Investments

One of the significant financial events in 2022 has been the cryptocurrency crash. Some say that cryptocurrencies fell as banks fell back in 2008. However, some of the banks were bailed out, so investors managed to reduce their losses. 

This is not the case with cryptocurrencies. As cryptocurrencies are not regulated, there is absolutely no guarantee that any safety net will protect you in the event of a market crash. Some specialists suggest that cryptos will regain ground in the next few months, whilst others forecast further value drops. 

In this blog, you will read what exactly happened in the crypto world during 2022 and how you can protect your investment portfolio from such incidents. If you are not familiar with cryptocurrencies, read our detailed article on digital currencies.

2022 was a bad year for cryptos

Since the beginning of 2018, cryptocurrencies have often made the financial news headlines as they hit new highs, making some of us believe that fiat currencies had met worthy adversaries. Blockchain technology and lack of control by financial regulatory authorities made cryptocurrencies a hot trend among investors who didn’t have a problem investing in risky assets. 

Whilst many investors enjoyed significant profits in the last few years, 2022 was a crypto crash year. Let’s see some of the major events that made 2022 a year that many investors would like to forget.

FTX cryptocurrency exchange goes bankrupt

On November 11th, major cryptocurrency exchange FTX announced that it and its U.S. subsidiary FTX.US had filed for Chapter 11 bankruptcy. Later that day, the businesses were hit by a hack that apparently stole $600 million from customers’ accounts.

Bloomberg reported that FTX advisers overseeing the bankruptcy proceedings were having trouble locating most of the company’s reported assets, suggesting that FTX may have limited funds with which to repay its creditors.

Lawyers specialising in bankruptcies referred to the company’s demise as “one of the most abrupt and painful collapses in the history of corporate America” and accused Bankman-Fried of treating the business as “his own personal fiefdom” when he was in charge of it.

According to The Guardian, “Sam Bankman-Fried, the former boss of the failed crypto-exchange FTX, has said he hopes to start a new business to help pay back the victims of his old firm’s collapse.” Unfortunately, Sam Bankman-Fried was arrested on Monday, December 13th, by the Bahamas’ police after receiving formal notification from the US of criminal charges against him.

The bankrupt cryptocurrency exchange FTX was worth $32 billion in October 2022.

Terra Luna cryptocurrency crash

The Terra ecosystem has its own cryptocurrency, known as LUNA. Until its recent collapse, Terra Luna was one of the world’s most well-known and valuable cryptocurrencies. But since the crash, Terra Luna has lost more than 99.9% of its worth. 

In the Terra ecosystem, UST functions as a stablecoin. Stablecoins are digital currencies linked to a stable asset’s value, such as gold or another fiat currency. On the other hand, UST is not an asset-backed stablecoin but rather an algorithmic stablecoin.

When the Luna cryptocurrency network failed, it caused a market-wide shock and wiped out an estimated $60 billion in value. 

Bitcoin price tanks

Between November 2021 to mid-June 2022, the price of a bitcoin ranged from  $69,000 (its all-time high) to  $17,000. Ever since then, the price has hovered around $20,000. Supporters of bitcoin perceive the apparent stabilization as a pause before the next wave of growth.

However, the fact that FTX went bankrupt and dropped the bitcoin price to much below $16,000 makes it increasingly difficult for economists to forecast the value fluctuations of the world’s first digital currency.

Despite a rough year for the cryptocurrency highlighted by industrial failures and plummeting prices, venture capitalist Tim Draper predicts bitcoin will surpass $250,000 a coin by the middle of 2023.

Draper had forecast that the price of bitcoin would reach $250,000 by the end of 2022, but in early November 2022, he revised his prediction to June 2023 during the Web Summit technology conference in Lisbon.

As Pantera Capital analysts suggest, Bitcoin could hit rock bottom by the end of December, make a slowly rebound through 2023 and early 2024, and then explode afterwards.

It’s clear that there are a lot of different opinions on the future of Bitcoin’s value. 

Safer investments than cryptocurrencies are available for you!

Accepting this significant risk is necessary if you plan to invest in digital currency or any other asset that exhibits extreme volatility. If you are an investor still bullish on cryptocurrency for the long haul, it would be advisable to limit these investments as much as possible so they can be a small part of your portfolio.

Any intelligent investor needs to have a firm grasp on the specifics of their investment. It is essential to carefully consider the benefits and drawbacks of investing, as well as the factors that will determine the investment’s success. They are unable to perform the calculation if they do not have access to this kind of information. In this instance, what you’re doing is not actually investing; rather, it’s more akin to gambling.

 Working with a financial adviser makes things easier for you

The world of finance is filled with a lot of jargon, and it may often appear to be rather confusing. Because there are so many different investment vehicles to choose from, it can be difficult to determine which one is the most suitable for your specific requirements and desires.

If you have access to a skilled wealth manager, they will be able to provide you with the expert financial guidance you require to build a lucrative portfolio that can thrive in any situation.

Over the past twenty years, clients have placed their trust in Holborn Assets to manage their global investment portfolios. You will be provided with individualized financial guidance and ongoing support, which will equip you with the tools required to build a solid investment portfolio. No matter what your objectives are with regard to investments, the wealth managers on our team can assist you.

Simply fill out our short form if you are interested in learning more about how Holborn Assets may assist you with managing your investments. We will reach out to you so that we can begin the process of investing off to a good start.

Building a safe investment portfolio with Holborn

The last few months have shown that cryptocurrencies are not the safest investments that exist. Even the most experienced economists cannot forecast if their values will increase or decrease in the coming months. Lack of regulation and difficult-to-predict fluctuations make cryptocurrencies more of a risk to your investment portfolio than an advantage. 

When it comes to investing your hard-earned money, you should have a thorough plan. You simply can’t afford to lose money in dangerous ventures that could jeopardise your and your family’s future. 

Over the past twenty years, clients have placed their trust in Holborn Assets to manage their global investment portfolios. You will be provided with individualized financial guidance and ongoing support, which will equip you with the tools required to build a solid investment portfolio. No matter what your objectives are with regard to investments, the wealth managers on our team can assist you.

Simply fill out the contact form if you are interested in learning more about how Holborn Assets may assist you with managing your investments. We will reach out to you so that we can begin the process of investing off to a good start.