Frost or thaw? With what we celebrate the fifteenth anniversary of Bitcoin

Today marks 14 years since the world’s first cryptocurrency transaction. Bitcoin “wound on the blockchain” for another year. What events of the turbulent 2022 will affect the future of the first cryptocurrency?

On the evening of January 3, fourteen years have passed since the creation of the genesis block (“zero block”) in the Bitcoin blockchain. And on January 12, 2009, Satoshi Nakamoto sent the first ever transaction to cryptographer Hal Finney.

Back in 2009, it was hard to imagine that cryptocurrencies would so quickly gain worldwide fame and be discussed as a serious factor influencing the global economy. Although they will not become a generally accepted means of payment.

The past year is often called the most difficult and even the most terrible in the history of the crypto industry. From a business point of view, we can agree with this. Political tensions and sanctions, the ruin of many large projects and massive layoffs in the survivors, attacks by regulators, a four-fold collapse in the price of bitcoin and the flight of traders from exchanges – all this makes it difficult for companies to work, especially in such a risky market as cryptocurrency.

But if you look at history, then the “crypto winter of 2022” for bitcoin has not become colder than the previous ones, although it is too early to talk about its end. For example, the first crypto winter after the peaks of autumn 2013 lasted more than two years, and the fall in the price of bitcoin was more than eightfold. The second cryptowinter was similar to the current one. After peaking at $20,000 in December 2017, Bitcoin crashed more than six times to $3,000 in December 2018. And since February 2019, a steady growth has begun. It was during this period that the term “crypto winter” became widespread in the information environment.

The third crypto winter began with a peak of $69,000 on December 10, 2021, and an annual low of $15,500 on November 10, 2022. That is, the overall fall was less than fivefold, which is much better than past crises.

Since November, bitcoin has been trading in a narrow corridor, from which it can go both up and down. It is still too early for cryptowinter to come to an end, but more and more people are waiting for the arrival of spring, since even strong negative factors cannot act forever in the absence of new ones.

Echoes of the collapse of Terra and FTX

The strongest blows for bitcoin, as well as the entire market, in 2022 were the two largest bankruptcies in the entire existence of cryptocurrencies: the Terra platform in early May and the FTX exchange exactly six months later, in November.

Each of these collapses resulted in billions of dollars in direct losses, but reputational damage was more severe. By the end of the year, the confidence of corporate and institutional investors in cryptocurrencies had taken a big hit, and its recovery will be long. No wonder one of the main crypto-skeptics, the long-term head of JP Morgan bank Jamie Dimon, calls on governments to compensate for the losses of cryptocurrency investors.

Behind good intentions, the next step is clearly visible: in order to reduce the volume of compensation payments, governments will be forced to regulate cryptocurrencies even more. And according to a recent Bloomberg report, U.S. regulators have launched an investigation into the activities of the previously untouchable Digital Currency Group, suspecting it of a secondary connection to FTX through Genesis Capital.

Interestingly, on the Bitcoin chart, the fall of Terra, which had $1.6 billion in BTC reserves at May prices, turned out to be much stronger than the November crash of FTX, which was several times larger in both direct and indirect losses. For the first time, in addition to the collapse of the project itself, a large-scale wave of bankruptcies and write-offs began.

In a month and a half, from early May to mid-June, bitcoin collapsed from $40,000 to $18,000, by 55%. And for the “black week” of November – from $21,000 to $15,500, that is, by only 28%. This is explained very simply: by November, the market was already crushed by a mass of negative factors, and the addition of one more did not cause the same effect as in the relatively prosperous May. The collapse of Terra did not happen instantly, and the most cautious players were gradually getting out of positions. The collapse of FTX was completely unexpected for the entire market, so the reaction was quick, but also relatively weaker.

Flight from the exchanges and the danger to funds

During and after the FTX bankruptcy, traders began withdrawing bitcoin from centralized exchanges, while trading on the DEX rose slightly. Most cryptocurrency holders have decided to ride out the storm in their personal wallets. And when the attacks of regulators and journalists on Binance began, the withdrawal of bitcoins from the largest exchange took on the character of a stampede, fortunately, of a short duration. However, more than $3 billion worth of cryptocurrencies have left Binance’s balance sheets, with most of it being bitcoin.

Overall, around 550,000 BTC had been withdrawn from centralized exchanges by the end of December, according to Glassnode. Moreover, Coinbase, the least affected by the crisis, lost more than 200,000 BTC, 90,000 BTC left Binance, and traders managed to take about 70,000 BTC from FTX before the withdrawal was blocked. The other 190,000 BTC were withdrawn from other exchanges. Most of them are still motionless.

At the end of December, there was a breather for Binance, as the rhetoric of regulators focused on tightening regulation of cryptocurrencies in general. And according to Arcane Research analysts, by the end of the year, Binance even increased its influence in the cryptocurrency market, becoming a de facto monopolist. Now the exchange is trying by all means to strengthen its positions and compensate for the consequences of the negative that has fallen on it. To do this, for example, it enters into various associations and even tries to buy out large companies that suffered from the collapse of FTX.

But this growth also has negative effects. Binance is becoming too big to fail for the cryptocurrency market, but at the same time, the main goal for everyone interested in weakening cryptocurrencies. Indirect factors say that the power of Binance should not be overestimated. For example, the capitalization of BUSD, after a sharp collapse on December 14, decreased by another $2 billion and now stands at about $16.4 billion. This means that the exchange continues to spend its reserves, while USDT and USDC do not show a downward trend in capitalization.

Another touch of 2022 is the “deglobalization of cryptocurrency exchanges.” Even such a major player as Coinbase is forced to cut staff and leave the promising Japanese market. And Huobi, one of the largest players in the Asian market, is losing its Korean division.

Financial problems may surface for the largest cryptocurrency fund GBTC, which holds more than 3% of the global supply of bitcoin. Without taking into account the potential difficulties for the parent company Grayscale, as yet unknown to the public, there is no reason to close the fund and dissolve the assets. Moreover, the large investment company Valkyrie has shown interest in acquiring it. However, 2022 has already taught us that surprises happen quite unexpectedly.

Heaven and Hell: El Salvador vs. Italy

In 2022, Bitcoin gained a foothold in El Salvador. This tiny Latin American country is almost invisible in the world economy and politics. However, in the fall of 2021, it thundered all over the world, recognizing bitcoin, along with the US dollar, the state currency, mandatory for adoption by all organizations in the country.

Despite forecasts of the collapse of the economy and the collapse of the “dictatorial regime of Bukele”, bitcoin has been the state currency of El Salvador for the second year, although it has not gained mass popularity among the population.

So far, no country has followed the example of El Salvador. However, neighboring Costa Rica, which never became a full-fledged US state, is also thinking about benefits for cryptocurrency investors. Paraguay is also showing interest in the full legalization of bitcoin.

European countries, instead of stormy enthusiasm, approach the income from cryptocurrencies in a more utilitarian way. Although in most EU countries cryptocurrencies can be freely paid with the mutual consent of the seller and the buyer, the general principles of regulation and taxation have not yet been adopted. Therefore, individual countries show imagination, in accordance with their own economic situation.

In regulatory innovations for crypto traders, Italy and Portugal are particularly aggressive in their policies, the most affected by the “European unity” in sanctions. To replenish the deficit budget for 2023, Italy set a tax on income from cryptocurrency operations at once by 26%. Portugal planned a rate of 28%, but in fact this country has more complex circuit taxation.

After all, if so many “respectable experts” consider bitcoin to be a speculative instrument or just a game of chance, why shouldn’t the state also capitalize on it?

lonely mining

After the change of consensus in Ethereum, Bitcoin remained the only PoW cryptocurrency in the top ten in terms of capitalization, with the exception of the Litecoin/Dogecoin bundle. But even their total capitalization does not reach 5% of Bitcoin capitalization.

Although the event does not carry any strategic implications, the status of the only cryptocurrency mined through mining will make bitcoin an even more convenient target for eco-activists. The energy crisis in Europe has relegated the “green agenda” to the background, and yet it will inevitably emerge in the statements of politicians.

What 2023 can bring

With the exception of the possible outbreak of a third world war, less significant factors for the global economy may also affect cryptocurrencies. Less significant, but more than important for the young industry.

In the coming year, the likelihood of a slowdown and even recession in most major economies remains. Despite the flight of corporate investors, which has weakened the integration of cryptocurrencies into traditional markets, bitcoin is unlikely to return to the marginal status of a decade ago. Therefore, it will correlate with stock and derivatives markets. These markets are only trying to return to unsustainable growth. However, all this fits into the outline of the crypto-winter that has not yet ended, and even into the theory of halving. A new hype will have to wait another year or two, and in the near future it is better to count on a protracted drift or even a new wave of decline. But there is always a fallback.

In January, a thaw began in the cryptocurrency market, accompanying a rebound in the stock market. Does this mean that investors are “tired of being afraid”, and the upside game has begun? Quite possible. But it will be possible to talk about a serious movement only after leaving the two-month corridor and overcoming $20,000.

One of the main news that launched the resurgence of interest in bitcoin is the decision of the largest investment fund BlackRock to add some bitcoin to the basket for its richest clients. This means that not all the whales of traditional markets have become disillusioned with cryptocurrencies. Locally, such seemingly insignificant news as the postponement of compensation payments to MtGOX clients to September also helps to push Bitcoin up. The card of this exchange has long been won back, but more than 100,000 BTC will not appear on the market until almost the end of the year.

You can’t build up negativity indefinitely. If the geopolitical confrontation does not escalate, the economy will gradually begin to emerge from the crisis. People will have more free money, and against the backdrop of high inflation, even the most stable fiat currencies before, many will pay attention to bitcoin. Retail investors are unlikely to provide explosive growth, but they will support demand, and the big players will also go for the smell of money. Therefore, the second half of 2023 may usher in a new bullish cycle.