10 biggest events of 2022 that hit the crypto market and will still matter in 2023

The year 2022 saw many pivotal incidents that significantly impacted the cryptocurrency market. Russia’s attack on Ukraine and the collapse of several large companies changed trends, and this will have an impact in 2023 as well. We read more about those key events and how they affected the big picture in Kaiko’s research.

The war in Ukraine increased the trading in stablecoins

Trading volumes in both ruble and hryvnia increased immediately after Russia’s invasion of Ukraine, helped by a record devaluation of the local currency and market disruptions. Interestingly, the bulk of the share came from stablecoins, not BTC. Meanwhile, weekly volumes of Tether (USDT) jumped more than five times at the start of March compared to the beginning of the year. This coincides with the start of the war in Ukraine in late February.

While trading volumes in hryvnia remained steady throughout the year, trading volumes in rubles quickly returned to prewar levels. This was mainly due to the imposition of international sanctions against Russia, restrictions on major payment networks such as Mastercard and Visa, and crypto exchanges.

Elimination of millions of dollars in crypto trading

TerraUSD (UST) was one of the fastest-growing cryptocurrencies in history: its market capitalization rose from $2 billion to $18 billion in just six months (from late 2021 to April 2022). But after a series of events, stablecoin lost its 1-to-1 peg to the U.S. dollar. Along with it, the entire Terra ecosystem collapsed. 

Purging of illiquid creditors

Following Terra (and because of the rumors connecting Celsius to it), one of the largest centralized cryptocurrency lenders, Celsius, which managed about $12 billion in assets, went bankrupt. The company invested most of its customers’ funds in Lido Staked Ether (stETH). As a liquid token, Celsius could use stETH in other DeFi protocols. However, stETH was less liquid than ETH and began trading at a discount to ETH of about 5% as investors expected Celsius to liquidate its assets. Following Celsius, the contagion spread to other financial crypto platforms.

Binance is still unbroken

Binance eliminated fees for 13 BTC pairs in July, which immediately led to an increase in trading on its platforms. The exchange’s market share rose to more than 72% compared to 14 other exchanges (43% at the beginning of the year). 

Uniswap evolution

The largest Ethereum decentralized exchange (DEX) Uniswap has become a formidable competitor to centralized exchanges (CEX). This year, for the first time ever, its trading volume almost equaled that of Coinbase. Uniswap now accounts for more than 80% of Ethereum DEX volume.

The great Merge

In 2022, the Ethereum network successfully transitioned to a Proof-of-Stake consensus mechanism, thereby reducing energy consumption by about 99% and removing the need for mining. In August, open interest in perpetual Ethereum futures reached an annual high of $6 billion, and funding rates were primarily positive.

Scam on a galactic scale

The FTX collapse was the largest in 2022 and the most publicized event in cryptocurrency history. Here’s what was happening to the market value of the exchange’s token, FTT.

BTC loses liquidity

The cryptocurrency market is dominated by just a few market makers, including Wintermute, Amber Group, B2C2, Genesis, Cumberland, and the now defunct Alameda. Recall that about 130 companies in the FTX group, including Alameda Research, declared bankruptcy in the U.S. on November 11 after facing a “liquidity crisis.” The loss of one of the largest market makers has harmed the liquidity of the cryptocurrency markets.

Since November 2, BTC liquidity within 2% of the average price has fallen from 11,800 BTC to just 7,000 BTC, the lowest level since early June. BTC market depth on Kraken dropped 57%, Bitstamp dropped 32%, Binance dropped 25%, and Coinbase dropped 18%. 

How do we evaluate assets now?

Alameda has distorted the value of numerous tokens on its balance sheet, which turned out to be virtually illiquid in the open markets. A more thorough approach to evaluating the value of tokens is needed, and liquidity should be one of the metrics investors will consider in the future to assess risk.  Overall, the top 10 crypto assets attract 80% of total market liquidity.

Macroeconomics affects crypto

This year, the world’s central banks ended nearly a decade of loose monetary policy and raised rates. Risky assets sold off, registering double-digit losses, and the correlation between BTC and U.S. stocks hit a record high in April.