2022 was a tough year in a lot of ways, but nowhere was it on display quite so publicly as on the world stage of crypto, writes Kraken CEO Jonathon Miller.

If 2021 was a breakout year for cryptocurrency, then 2022 was almost certainly the biggest test that crypto has faced. There have been significant technological breakthroughs, including Ethereum’s Merge, as well as high-profile collapses.

The year end is often a time of reflection, so as we head straight into 2023 we can predict what may come in the future based on where we have been. For that reason, here are a few of the most significant moments from 2022 and why these will matter for the next 12 months ahead:

  1. That FTX fiasco

The biggest industry story of the year came in the final quarter of 2022, as Sam Bankman-Fried’s FTX collapsed due to alleged mismanagement of client funds and a heavy reliance on FTX’s native token FTT (among myriad other factors).

This insolvency, which seems to have derived from previous collapses of Terra Luna and 3AC, has undoubtedly shaken the confidence of industry stakeholders and will have a lasting impact on the length of recovery. But the fall of FTX also highlighted the importance of trust, security and transparency as core principles for a decentralised crypto ecosystem.

If I’ve learnt any lesson from this collapse it is that the crypto ecosystem is only as strong as its weakest link. We, as an industry, must become better during 2023 at spotting bad actors early before they’re able to infiltrate the ecosystem and exploit those within it. 

  1. Crypto Winter’s arrival

Despite the post-pandemic economic slowdown impacting each economy differently, what is consistent across the board is that many investors are allocating away from risk-on assets, such as crypto, as economic uncertainty and higher inflation continues.

This is having a compounded impact on the crypto industry, especially the more speculative of assets, which is navigating its first crypto winter during a major economic decline. This will prove to be an important test of the resilience and commitment of existing crypto pioneers to continue adopting the technology.

While 2022 was the first crypto winter many would have experienced, it was far from the first crypto winter. Key currencies have since stabilised and blockchain technology continued to prove its use cases this year. Cryptocurrency is part of our future, whether ASX old heads would like to believe it or not.

  1. NFTs came of age

What started with profile pictures on social media evolved during 2022 and NFTs became a widely known phenomena on the global stage. According to an NFT Club survey in May this year, Australia ranked #2 on a global list of Google search terms, with 8,198 NFT searches per 100,000 people.

While the days of Bored Apes selling for over a million dollars may be behind us for now, this isn’t necessarily a bad thing. NFTs are more than just PFPs, and I’m pleased to see many brands, particularly in the world of sport including Cricket Australia, the AFL and the Australian Open, embracing the new opportunity that NFT’s technology provides them to connect with their customers by providing unique experiences.

This year NFTs were proven as more than just something for celebrities to attach their names to – providing new revenue streams for emerging artists including those in Australia. Deadfellaz for instance is an Australian collection that traded over $9 million AUD within its first month, with royalties for both primary and secondary NFT sales averaging between 2.5% and 10% of the purchase price.

We also saw new use cases emerge in 2023, like solving fake ticketing problems in sports and events, allowing musicians to tokenize their songs and albums, and NFT-based play-to-earn gaming. The future of NFTs in the coming years is exciting and yet to be written.

  1. Ethereum goes full proof-of-stake (aka The Merge)

After a long run-in, Ethereum – the world’s second largest crypto by market cap – completed its Merge from proof-of-work (PoW) to proof-of-stake (PoS).

In the long lead up to the Merge, there was a lot of hype and misinformation about whether the Merge would be delayed, what impact the Merge would have for the Ethereum community and whether it would address some of the user pain points of late, including high gas fees. In the end, the complex engineering task, which has been compared to the analogy of changing the engine of an aeroplane mid-flight successfully, manifested smoothly and demonstrated the maturity of ETH and its devs.

The upsides to the Merge are significant leading into 2023. Ethereum is now 99.95% more energy efficient, addressing one of the most common criticisms against crypto assets to date, and proving that remarkable innovation in the sector is possible even at the early stages of crypto adoption.

  1. Token-mapping audit and regulation

When Labor won the 2022 Federal Election many in the blockchain and crypto industry wondered what sorts of implications that may have, after the previous Liberal Government had on several occasions identified the opportunity in Australia for a regulated and thriving industry.

It was perhaps unfortunate that the collapse of FTX coincided with the first meaningful commitment from the new Labor Government around regulation, but importantly, a spokesperson for Treasurer Jim Chalmers said the Treasury is planning regulations to improve investor protection next year.

Now it’s about getting the right balance and ensuring that any efforts to protect consumers do not inadvertently stifle innovation in the sector over the longer term. The government’s “token-mapping” audit of the industry will be vital to these efforts, as will consultation with key stakeholders.

With sensible regulation, we’ll continue to see a particularly strong Aussie blockchain business sector punch above its weight in 2023.While 2022 was a year of price predictions and crypto being treated as a speculative asset, 2023 will see a renewed focus on the industry recovering and building towards a future where crypto assets deliver on the promises of real world utility for people.

 

This article was developed in collaboration with Kraken, a Stockhead advertiser at the time of publishing.

 

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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