As an asset class, cryptocurrency was riding high heading into 2022. With a combined market cap of over $2 trillion, adoption was growing internationally, and price expectations were robust. Cryptocurrency also had relatively high grassroots ownership, particularly in emerging markets. Crypto’s successes drew attention to its possible geopolitical implications, both negative and positive. Boosters prophesied an imminent end to the inefficiencies of the state-centric international financial system, while detractors warned about the potential for sanctions busting, money laundering and a loss of monetary policy control. Governments in a number of countries began to respond, ordering research, drafting regulations, banning some forms of cryptocurrency and scoping central bank digital currencies as state-led alternatives. Then, as major central banks began aggressively raising rates to combat inflation last spring, signaling the end of an era of easy money, cryptocurrency faced its first bear market. Terra Luna’s collapse in May 2022 was the first major failure, precipitating those of Three Arrows Capital and Celsius five weeks later. The spate of bankruptcies stoked calls for tighter regulation in the United States as well as some other markets. FTX’s implosion in early November, amid allegations of large-scale fraud involving client funds, further shook the industry. To make matters worse for those seeking to mainstream crypto, FTX’s 30-year-old founder, Sam Bankman-Fried, had been a darling of the light touch regulation camp in Washington, squaring off against those who said government action would squash innovation, prior to the collapse of his exchange.
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