Denice R. Preston
The crash of 2022 shook the crypto market to the core, yet investors continue to buy digital currencies. What is the process of working with crypto, and what is the future bring?
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By Jeffrey Mazer
Jeff was a CFO in the past, a financial specialist and lawyer specializing in investment and economic analysis and analysis, as well as legal and regulatory issues related to finance and business. He was Director for Global Liquidity Investment Solutions, Western Regional Manager in Bank of America, and Head of Bankruptcies and Restructurings at Allstate Insurance.
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The market crash in the cryptocurrency sector in 2022 has heightened fears about the future of crypto, even though many investors retain a considerable curiosity for digital investments. Anyone considering investing in this space must ensure they have a suitable knowledge base on the challenges and opportunities of crypto.
The risks are immense: Hype, bubble mentalities, and fraudulent activities have sporadically inflated the value of digital currencies over the decades. The fiduciary’s responsibilities, regulation, and oversight remain absent in this sector. Additionally, the environmental burden of the energy-intensive computing that crypto demands are alarming for consumers and governments.
Despite these worries, the optimism of fans. A growing global blockchain market capitalization surpassed $1 trillion at the time of writing in May 2023. The other thing worth noticing is the non-crypto options of Blockchain technology that underlies the cryptocurrency, which has significant applications in various industries ranging from healthcare to media and managing the supply chains.
In this piece, I review some of the controversies or crises that have plagued the cryptocurrency market in recent years. I also give a more comprehensive description of the characteristics of crypto, its legal and accounting procedures, and what investors must be aware of as they contemplate the volatile market.
Current Issues in the Cryptocurrency Market
Most Americans aren’t convinced of the security and credibility of cryptocurrencies, as per a 2023 Pew Research Foundation study. For those who are crypto-addicts, various reasons could keep them awake at night.
Volatility and the Crypto Crash
Many cryptocurrency tokens are volatile and prone to fraud but even permits that claim to be solid and supported by assets to guarantee their value have sunk.
On May 20, 2022, both the stablecoin digital TerraUSD and the algorithmic stability coin that was a part of it, LUNA, were wiped out, tanking the cryptocurrency market and causing investors to lose over 400 billion. Then, in November of the same year, crypto exchange FTX crashed due to insufficient liquidity, mismanagement of funds, and excessive withdrawals from unnerved investors–depressing the value of its token, FTT, as well as those of numerous other cryptocurrencies, including Bitcoin and Ethereum.
The CoinDesk Market Index is a broad-based index designed to measure the market-capitalization-weighted performance of the digital asset market. The fluctuation of the crypto market over the past five years following crypto’s boom is shown in this.
The other significant exchanges have had their operations affected by the downfall of FTX. BlockFi stopped withdrawals, like Gemini’s third-party lending company, Genesis Global Capital. Crypto.com also halted the leaves from these stabilized coins, USDC and Tether (USDT), the values of which are dependent on USD, which is the US dollar. Coinbase has laid off nearly 1,000 workers due to the aftermath of the crash.
The crash in crypto also shook the NFT market. The most well-known NFTs, such as Bored Ape Yacht Club and CryptoPunks, have seen their prices drop by more than half by the end of August. The collapse was accompanied by the decline in cryptocurrency prices, and other factors, such as well-known scams and market oversaturation, have also played an essential part.
Before these plunges, thee crypto market was previously crashed multiple times in 2021, 2020, 2018, 2013, and earlier, primarily due to speculation from investors or media talk; this shows the inherent instability of crypto; it also demonstrates that technology and currencies are robust.
Criminality and Deception
In 2022 alone, several of the most respected people who are responsible for keeping the digital currency system functioning have been accused of crimes like fraud, for instance, Sam Bankman-Fried of FTX, Do Kwon, the head of Terraform Labs, the parent company behind TerraUSD and LUNA as well as Su Zhu and Kyle Davies of Three Arrows Capital.
In 2022, criminals created 117,000 fake tokens that robbed investors of millions of dollars. Many Initial coin offerings (ICOs) can be suspicious, especially for cryptos with speculative business models, and are frequently criticized for being scams.
The non-regulated, pseudonymous nature of blockchains and Bitcoin transactions can cause a lot of concern when transactions have to be challenged. In the typical centralized transaction, when the item or service is not satisfactory, the transaction may be canceled, and the funds returned to the purchaser. No central authority within the cryptocurrency ecosystem can facilitate remedies against sellers.
Security and Privacy Concerns
Although the cryptocurrency is indeed resistant to hacking, the same cannot be stated for exchanges on which the cryptocurrency trades. Theft and hacking have been a problem for more than a decade. The first significant exchange hack occurred in 2015, in which hackers stole 850,000 Bitcoins from the Tokyo-based Mt. Gox. In November 2022, when FTX declared bankruptcy, hackers took over the platform and snatched 600 million dollars. The month before, hackers grabbed 570 million dollars from Binance. Another attack occurred in 2021 and the beginning of 2022, with more than $1 billion stolen funds.
The software which powers intelligent contracts could also be compromised. As part of one of the ” largest digital heists in history,” hackers stole 613 million of Poly Network in 2021. The financial decentralization (DeFi) platform allowed Peer-to-Peer (P2P) transactions–directly,y exchanging tokens between blockchains. The theft could have resulted from a security flaw inside the intelligent contracts, which automatized currency transfers. The hacker did return the money within a couple of days, saying he was trying to “expose the vulnerability,” this incident revealed the significant dangers these platforms and their customers are exposed to.
Additionally, ransomware attacks are common that allow hackers to infiltrate the users’ accounts, then encrypt their victims’ personal data to block access, and demand payments in cryptocurrency.
