The cryptocurrency market entered a new bear market in 2022 and multiple things happened this year. Two things have marked this year: the fall of the Terra (LUNA) ecosystem, and the implosion of the FTX cryptocurrency exchange alongside the FTT digital currency. Let’s get into the details of what has happened this year.
Terra (LUNA) Fall
The Terra ecosystem with the LUNA virtual currency experienced a very difficult situation in 2022 when the Terra USD (UST) stablecoin lost its peg and its price collapsed. In the crypto market, there are multiple stablecoins. These digital currencies tend to have a stable value compared to Bitcoin (BTC) or other virtual currencies.
Most stablecoins such as Tether (USDT) or USD Coin (USDC), are backed by USD held in different accounts and assets that could be liquidated in order to redeem users’ funds. However, other stablecoins such as UST keep their price stable algorithmically.
In this particular case, UST’s value was kept thanks to the LUNA virtual currency. Users that wanted to create UST had to burn LUNA. In this way, the larger the demand for UST, the larger higher the price of LUNA. However, if an investor wanted to redeem their UST tokens, they had to exchange them for LUNA and then sold to the market.
When LUNA crashed due to market conditions and when UST lost its peg due to users’ fears, both tokens crashed. Those who wanted to redeem the tokens had to sell them for worthless LUNA coins below parity. Therefore, the LUNA ecosystem harmed thousands of investors from all over the world that held their savings and funds with UST.
FTX Exchange Implosion
The FTX implosion was another issue that affected most investors in the cryptocurrency industry. FTX was one of the largest exchanges in the world after Binance. Indeed, FTX was able to create a large ecosystem of investors that traded digital currencies and derivatives through one of the most innovative platforms in the market.
But many issues affected FTX and its reliability. The company was affected by solvency concerns linked to AlamedaResearch and the way in which assets were managed by this company.
Alameda held a large number of FTT tokens that were used as collateral for loans. When these FTT tokens lost value with the bear market, the Binance exchange claimed that FTX had solvency issues that could affect the market. Due to this reason, market participants sold their FTT tokens and the digital asset plummeted, losing over 90% of its value.
What to Expect in 2023?
After what happened in 2022, the bear market and the situations that affected the trust of investors, things have to change in 2023. One of the things that we should pay attention to is the halving event for Litecoin (LTC). Additionally, Bitcoin is getting closer to a new halving event in 2024.
The market should also start recovering, but this is something that cannot be predicted. Many things can happen in the crypto space, and we do not know whether there will be new black swan events that could push the price of virtual currencies lower.