Before 2022, I had about three people a week ask me if they should invest in crypto.
In 2022, it’s been zero.
Instead, the question has become “What is crypto?”
FOMO has turned into morbid curiosity as people watch the markets in freefall, wondering what happened to this seemingly bulletproof investment that their old college roommate raved about.
So what did happen? And with more than 60% of the crypto market wiped out, what’s next? Where is crypto going in 2023 and beyond?
Will it skyrocket again? Stabilize? Or finally die off like many are saying?
What happened to Bitcoin in 2022?
After a truly insane run in 2021, with Bitcoin prices up 1,200% and Ethereum prices up 4,500% from their pre-pandemic levels, the crypto market crashed hard.
And not like slipped-on-a-banana hard, but like the-snowboarder-didn’t-land-the-jump hard (trust me, I’ve been there).
At its lowest point in 2022, Bitcoin was down an eye-watering 79% from its pandemic-era peak. Ethereum values are super suppressed, too, as are DOGE and Cardano.
All told, over 60% — or $2 trillion — was wiped off the crypto market in a matter of weeks.
So what the (bleep) happened?
Typically when a market crashes this hard, it’s because a large number of investors got spooked and sold. Then, when prices dipped sharply, more investors got spooked and sold. Rinse, repeat.
So what sent the first wave of investors running for the exit?
My theory is that some large-cap investors saw the writing on the wall and got out while prices were above $60,000. Institutional investors tend to abandon risky, speculative assets anyhow when interest rates rise and the economy slows down. They’d rather stuff their money in bonds and wait for things to blow over before taking big risks.
But in addition to a few big investors heading for the exits, many other factors accelerated the bleeding, including:
- Russia’s war on Ukraine
- Rumors of Russia banning Bitcoin
- El Salvador’s catastrophic Bitcoin rollout
- The devastating failure of Terra Luna, a “stablecoin” that lost 99.97% of its value overnight
- Rising awareness of crypto’s devastating climate impact
In the end, crypto prices fell about as exponentially as they rose during the pandemic. Some investors remain unperturbed, even optimistic. They say this is the perfect time to “buy the dip” and invest while it’s cheap.
The future of crypto: 3 possible scenarios
In the end, there are only three ways crypto can go: up, down, or just chill right where it is.
1. To the moon: Why crypto could recover
First up is the “to the moon” scenario. What are some reasons to think the crypto market could recover from the ongoing Crypto Winter — and perhaps even thrive?
The U.S.’s “blessing” could increase global acceptance
On March 9, 2022, U.S. President Biden issued a lengthy executive order called “Executive Order on Ensuring Responsible Development of Digital Assets.”
To spare you from reading all 6,000 words, here’s a summary: Biden wants every branch of the federal government to research and understand crypto so they can start regulating it ASAP. He wants to mitigate crypto-related crime, support crypto development, and overall make the digital asset space more safe, friendly, and welcoming to the American investor.
Many crypto folks seethe at the thought of regulation, but if you ask me, taming the Wild West isn’t such a bad thing. Like taming the real Wild West, it could bring safety, prosperity, and new investors — all of which can drive prices upwards.
Biden also wants the U.S. to be seen as a “thought leader” in the digital asset space. In other words, he wants the U.S. to show the rest of the world how coexisting with crypto can be done right, and that outright bans a la China and India are a missed opportunity.
If Biden’s cabinet can pull it off, it could mean that global acceptance could skyrocket — and that countries seeking a ban could reverse course and follow the U.S.’s playbook.
Blockchain tech has demonstrated its resilience and maturity
Dollars wouldn’t exist without banks, and Bitcoin wouldn’t exist without the blockchain.
Blockchain was designed to replace third parties like banks or PayPal that currently have to lord over every single online transaction. Think about it: you cannot exchange value with another person online without a bank or other financial institution involved. And even if that third party doesn’t charge a fee, they can inject outside influence and/or slow the whole process down. Worst of all, having thousands of online banks each with its own ledger means payment tracing is nearly impossible.
Read more: What is the future of cash?
The blockchain was meant to solve all these problems — a safer and faster system free of corruption. Nakamoto even built in anti-theft measures; if you can muster enough computing power to steal Bitcoin, why not mine it (which also controls inflation)?
So far, Nakamoto’s genius design has paid off. Bitcoin works. Blockchain works. Sure, the pair may suck up a ton of power, but the system works. Based on Nakamoto’s original tech, cryptos are scaling — aside from power consumption, there’s no major tech holding them back. Exchanges have been hacked, but many point to the failings in their own security software — not a failure of the blockchain.
In short, the fact that blockchain has proof-of-concept may be enough to shoot bitcoins to the moon, and some altcoins with it.
Emerging markets are getting in on the action
When it comes to crypto exchanges, Coinbase tends to suck up most of the press and attention. I’m not saying they don’t deserve it; after all, Coinbase was instrumental in getting Fortune 500s to accept crypto and was also the first crypto platform to be “knighted” with an IPO.
But Luno deserves some love, too.
That’s because Luno brought crypto to emerging markets. From Africa to South America, the crypto trade in developing areas of the world is thriving, and analysts say it’s for two main reasons.
The first is obvious: crypto offers a way to multiply money where others don’t exist. Traders in Guatemala or Mozambique may lack access, education, or simply the opportunities to invest in stocks or real estate. Crypto offers a way to protect their savings from inflation and corruption, requiring little investing knowledge.
Second, crypto offers a way for migrant workers to transfer money back home while saving on remittance fees. According to a report by the World Bank, expats sent $48 billion back to sub-Saharan Africa in 2019 alone, paying an average 9% in remittance fees each time.
That’s over $4.3 billion in fees squeezed out of a population already living away from their families on a tight budget.
By contrast, if everyone had transferred funds back to their families via Luno, they could’ve paid as little as 1.5%, saving $3.6 billion in the process.
Granted, transferring funds internationally via crypto still comes with risks:
- It could be stolen
- The crypto could lose value while in transit
- The destination country could ban, regulate, or tax it
But for now, crypto seems to be serving a valuable purpose for the international community — which could lead to a global resurgence as expats pick their remittance-killing coins of choice.
2. Cruise control: Why crypto could stabilize
Some say that crypto will recover, others that it’s dead in the water. Is it more likely to fall somewhere in between and simply chill out for a while?
Here are some reasons to think that crypto could finally stabilize at +/- 10% of current values.
Increased tax accountability could greatly slow down trading
People underestimate the IRS.
They were the first federal agency to arrest Al Capone, and in 2014, they also became the first agency to step in and regulate the crypto industry.
Yep, a full eight years before Biden’s executive order calling for more oversight — and a year before Ethereum even existed — the IRS looked at crypto in its larval stage and went, “We gotta keep an eye on this s***.”
Trouble is, even though the IRS made crypto gains taxable in 2014, nobody listened. It took the IRS six more years to develop a system for tracking down crypto tax dodgers, but now they have it. And because the blockchain is transparent by design, illicit crypto traders have nowhere to hide.
And it’s not just the fact that crypto gains are taxed at the regular capital gains tax rate that will slow down trading; it’s the fact that properly reporting your crypto activity to the IRS can be a huge, huge pain in the rear
Now that every single trade is both reportable and taxable by up to 37%, crypto traders may ease onto the brakes and HODL for longer, helping to stabilize prices and perhaps even turn crypto into a bona fide, middle term investment (as opposed to a short-term feeding frenzy).
The Central Bank Digital Currencies (CBDCs) could dilute the market
A Central Bank Digital Currency (CBDC) is what happens when a nation’s central bank looks at crypto and goes hmm… let’s make our own.
China led by example when they banned Bitcoin in 2013 and started rolling out the digital yuan just one year later
Since then, countries like Canada, France, The Bahamas, and more have followed suit with their own state-sponsored cryptos — and dozens more are in the testing stage.
The publicly stated goal of CBDCs is to make transactions safer, cheaper, and easier for citizens. The proliferation of CBDCs could reduce crime, improve cross-border commerce, and overall improve the health of the host nation’s economy.
But it’s not a stretch to imagine that some of the countries on that map are using CBDCs to snuff out — or, at the very least, dilute — the usage of traditional cryptos like Bitcoin and Ethereum.
Furthermore, CBDC development could very well be a precursor to an outright crypto ban. The U.S., Canada, and The Bahamas are about the only countries trying to build a system where crypto and CBDCs can happily coexist. For China, India, Bangladesh, and likely Iran, their CBDC was more like a nail in the coffin.
All that being said, I don’t think CBDCs will kill crypto. In crypto-friendly countries they could actually raise cryptocurrency values by inviting a fresh wave of investors to the digital asset class.
In the end, I think CBDCs will be like a cop standing on the porch of a house party. They won’t end things right away, but they’ll certainly slow things down.
3. Crash and burn: Why crypto could die off
To borrow a quote from Elrond, crypto’s list of allies grows thin. Especially Bitcoin’s, and historical data shows that the rest of the crypto market tends to follow where Bitcoin goes.
Here’s why Bitcoin could crash and burn — and bring a whole lot of the crypto market down with it.
Crypto crime is still running rampant
Your stocks may be down this year, but at least they haven’t been stolen.
Unfortunately for crypto investors, having their assets stolen is a very real possibility. A report by Chainalysis found that in 2021 alone, $3.2 billion worth of crypto was stolen from investors — a 516% rise in crime from the year before.
Meanwhile, the U.S. still hasn’t decided which agency will step in and regulate the industry — the Commodity Futures Trading Commission (CFTC) or the Securities and Exchange Commission (SEC). That means true fraud protection, like we have with stocks and real estate, could be years and years away.
Meanwhile, the major exchanges are now getting hacked on a monthly basis for sums well into the tens, sometimes hundreds of millions. And sure, some of these exchanges are insured — but refunding crypto is notoriously difficult. Heck, Mt. Gox was hacked in 2014 and the significant majority of investors have yet to see a single Bitcoin returned.
All it could take is one more large-scale hack for investors to throw their hands up and say, “I’m done, give me some Treasury-backed bonds.”
Bitcoin is worse for the environment than beef production
From Tesla to Wikipedia, more and more organizations have broken up with Bitcoin due to the devastating impact that Bitcoin mining has on our environment.
Due to the immense power demands of the computer farms powering Bitcoin, the OG crypto now creates more climate damage than all the SUVs and mid-sized sedans in the world combined. It’s also worse for the environment than global beef production — basically the benchmark for ozone-burning industries.
And when you consider that 194 countries signed the Paris Agreement vowing to shrink greenhouse gas emissions, it’s hard to see a future where Bitcoin mines can continue operating with impunity — even in countries where crypto remains legal.
In addition to rising crime and environmental concerns, crypto faces threats from regulators, the tech giants trying to control and replace it, and investors themselves losing faith and causing prices to fall further.
So can it survive all this?
To find out, let’s take a look at the pillars holding up Bitcoin and the rest of the crypto cabal. Is Bitcoin resting on bedrock? Or rotting wood?
Best altcoins to consider going into 2023
Ethereum 2.0, aka “the merge”
If Bitcoin was a pickup truck — simple and unrefined — Ethereum was like an Audi. It was faster, fancier, and loaded with more technology.
But in the end, both the truck and the Audi were gas guzzlers.
So on September 15, 2022, the team behind Ethereum successfully converted the crypto from proof-of-work to proof-of-stake — an event they called “the merge.” Ethereum now uses 99.95% less energy and has bought itself a ticket to the next generation of crypto.
Cardano touts itself as a third-generation cryptocurrency (Bitcoin > Ethereum > Cardano) and to its credit, it does have some pretty slick features built in.
Naturally, transaction speeds are lightning fast and it supports all the best blockchain goodies — dApps, smart contracts, NFTs, and more. It’s also four million times as energy efficient as Bitcoin and was peer-reviewed by a team of global experts before launch.
But perhaps its coolest feature is the treasury. Cardano transactions have a tiny “tax” built in that goes towards system maintenance. This way, the team can ensure Cardano keeps evolving with community input, both in terms of feedback and financing.
Tether is the closest thing we have to a digital dollar. It’s pegged to the U.S. dollar so it’s always worth precisely $1.00, and while that may sound boring to investors, it’s actually mega helpful.
For instance, converting your crypto to Tether instead of withdrawing it can save you huge on taxes. And Tether is also easier to send to family in other countries without triggering remittance fees.
It’ll be interesting to see how central bank digital currencies (CBDCs) react to Tether given they basically serve the same purpose. But in the meantime, Tether’s a super useful tool for any crypto trader to have in their toolbelt.
Read more: 8 alternatives to Bitcoin
A quick history of cryptocurrencies
1983 – 2008: Exploration begins
Cryptographers and programmers have been exploring the idea of digital currency since Star Wars: Return of the Jedi was in theaters.
In 1983, American cryptographer David Chuam conceived of an untraceable virtual currency called “ecash,” later called “Digicash.”
In 1998, 10 years before Satoshi Nakamoto published his white paper on Bitcoin, a Chinese computer scientist called Wei Dai published “b-money, an anonymous, distributed electronic cash system.” In it, he outlined the basic principles that most cryptocurrencies use today — his early influence on crypto was so profound that the creators of Ethereum based their unit of measurement after him: the “wei.”
As early pioneers like Chaum and Wei set the groundwork for a virtual currency, Satoshi Nakamoto gave the concept wings in 2008.
2009: Satoshi Nakamoto launches Bitcoin
Bitcoin’s official birthday was January 3, 2009. That’s when the mysterious Satoshi Nakamoto used Bitcoin software v0.1 to generate the first “block” (aka the genesis block) and mine the first “coin.”
To commemorate the moment and to make a dig at traditional banks, Nakamoto included the day’s headline in his compiled code file:
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
Nakamoto continued developing both Bitcoin and the blockchain with a team of skilled developers until mid-2010 when he handed off the project to Gavin Andresen and simply vanished. But even by then, Bitcoin and the blockchain were fully functional. Nakamoto’s proof-of-concept was live and running, and other devs started to take notice.
2011-2015: The altcoins arrive
Bitcoin served as a proof-of-concept for cryptocurrencies, so alternatives quickly followed suit. Any alternative crypto to Bitcoin was given the moniker “altcoin.”
In 2011 Charlie Lee founded Litecoin, which used alternative cryptography algorithms to accelerate coin production and transaction speeds over Bitcoin. Namecoin arrived the same year, created by Vincent Durham as a way to help users encrypt their identities, thus protecting online free speech.
In 2013, Billy Markus and Jackson Palmer launched the first satirical crypto, Dogecoin. DOGE mostly existed as a joke, but the memes it spurred helped to ease new investors into crypto. Soon, so many investors were in on the joke that DOGE ironically became a bona fide investment — rising from a launch price of $0.00026 to an all-time high of $0.722 by late 2021.
Finally, the last altcoin worth mentioning is Ethereum, which launched in 2015 and has become the second most popular crypto (and second-largest by market cap) behind Bitcoin. The chief difference is that Ethereum allows users to exchange value and information like computer code, whereas BTC is primarily used for value exchanges only.
In total, over 20,000 cryptocurrencies have flooded the market since 2011. But despite the overwhelming quantity of competitors, nobody has topped Bitcoin for market cap or popularity.
As a result…
2016-2020: Bitcoin’s first bubble bursts
In the span of five years, Bitcoin’s value rose from $1,000 to $60,000 a pop. To illustrate just how crazy that is, imagine if you bought a condo in early 2016 for $200,000. Then, in late 2020, you find out it’s worth $12 million.
Bitcoin’s value exploded way faster than stocks or real estate and it’s not hard to see why. All it takes is eighth-grade economics:
Surging demand + limited supply = skyrocketing prices
Plus, unlike houses or PlayStation 5s, nobody was ever “priced out” of Bitcoin. No matter where you were in the world or how much money you had, you could always buy a tiny bit of Bitcoin.
So people did, and prices kept surging upwards.
That said, it wasn’t a smooth ride from $1,000 to $60,000. From 2017 to 2020 the value of a bitcoin looked like the EKG of a scared chihuahua, with massive peaks and valleys fluctuating between $7,000 and $12,000.
Oftentimes, the price would plummet overnight, causing panic.
The buying frenzy during the 2017 holiday season led to Bitcoin’s first bubble burst, with prices that wouldn’t recover to pre-2018 levels until late 2020. I’m just speculating here, but the root cause seems to be that too many new investors bought in at once, all believing their investment to be bulletproof. Then, when Bitcoin plunged 20%, they got spooked and sold.
But those who held on for dear life (or HODL, as the community likes to say), were soon vindicated during the COVID-19 pandemic.
2020-2022: Crypto’s pandemic boom
COVID-19 created the perfect storm for crypto. Retail traders and fresh investors alike were feeling jaded, anti-establishment, and, in some cases, desperate for an investment opportunity that could refill their depleted savings.
Some turned to GameStop stock, but countless more turned to crypto.
As prices began rising, crypto soon gained a reputation as a hedge against COVID-related chaos. People started pouring money into crypto in early 2020, and in the short term, their bets paid off more than tenfold; Bitcoin alone rose from $4,861 in March 2020 to an all-time high of $67,789.63 in November 2021.
Ethereum performed even better, rising from just $110 a pop to an all-time high of $4,891.70
Sadly for anyone who bought near the peak, prices have not returned since. Not even close. But hey, at least we got dank memes out of it:
2022: The ongoing “Crypto Winter”
That brings us to 2022. As mentioned earlier, countless factors have been dragging prices down, including but not limited to:
- Rising interest rates causing institutional investors to abandon high-risk assets
- Retail traders and new investors getting spooked and selling
- Russia’s war on Ukraine
- El Salvador’s catastrophic Bitcoin rollout
- An increased number of national bans
- The rise of CBDCs
- Rising awareness of crypto’s devastating climate impact
When will it end? Well, if you ask me, crypto has way more working against it than for it. But even when you put aside factors like impending regulations, skyrocketing crypto crime, and more, the simple fact is the big crypto secret is out:
You can make a lot of money on crypto, sure.
But you can also lose a ton, too.
The cat’s out of the bag and it’s too late to put him back in. Now that everyone’s seen just how devastating a crypto investment can be to your bottom line, demand may never rise high enough to bring Bitcoin back to $60,000 or even $30,000.
But Bitcoin’s retirement may not be a bad thing. Given its environmental damage, it might be time for Bitcoin to throw in the towel and let its proof-of-stake successors take over. And perhaps the death of Bitcoin could lead to the altcoins thriving as ex-Bitcoin enthusiasts pour into newer assets.
Who knows. The only constant with crypto, really, is change.
So, should you invest in crypto now?
Well, I wrote a whole feature to answer that loaded question. Check out Should you buy crypto now?
But the short answer is, maybe a little (5% of your portfolio) if you really want to. But you don’t need crypto to get rich, or even financially independent. There are way easier, safer methods.