The year in one word: crypto winter

(noun) a time of lower or falling cryptocurrency prices alternating with bull markets

The crypto world calls it "winter". Others might call it a meltdown. Whatever you prefer, 2022 was the year of the cryptocata. A nominal value of more than $ 2 trillion has resolved in air because the entire market capitalization of crypto tokens has broken down by 70 percent since its high in November 2021. The time of the downturn indicates what many see as the cause: the Federal Reserve.

It only took about six months since Fed chairwoman Jay Powell raised interest rates and thus offset the current of cheap money that inspires the global economy and heated speculation in the covid era until Krypto reached a full-grown crisis. By May, the drop in Bitcoin and other currencies had burdened crypto business models until tearing and uncovered fraud and mismanagement.

The first big crack occurred when StableCoin Terra and Linked token luna collapsed almost overnight, which was described as "the greatest destruction of assets in this period". . . Crypto's story ”. This record would be tested soon. The hedge fund Three Arrows, the lenders Celsius, Voyager Digital and Blockfi and above all the FTX empire by Sam Bankman-Fried have now registered all bankruptcy.

But for crypto believers, these events are part of a natural renewal cycle. Bull markets attract gambling players and fraudsters. Crypto-winter thin out the herd. Experienced cryptonauts will delight with stories about how they experienced in the earlier crypto boom from 2017 and survived the onset of cold, which lasted until the thaw of 2020. In the crypto cult, the winnings of the next boom period are sown during the fallow time.

But for critics, this year's crash and billion dollar losses for everyday investors have disclosed the mistakes in the lawless, self -governing cryptosphere. The question is whether an appearance of crypto's vision for decentralized finances will survive the change of seasons.

joshua.oliver@ft.com