In 2022, the cryptocurrency market is experiencing a prolonged correction. In the first 6 months, the industry’s capitalization fell 2.5 times (from $2.16 trillion in January to $882 billion in July). Bitcoin has lost 58% of its value and is trading at $19.74 thousand. Cryptozyme started unexpectedly and took investors by surprise. Major players were also unprepared for the rapid reversal of the trend. A wave of bankruptcies among leading companies (Three Arrows Capital, Voyager Digital, Celsius) took place in summer.
Experts predict that crypto exchanges could be next. Most services have experienced a drop in trading volumes, amplified by the decline in digital currencies. In May, Coinbase laid off 18% of employees to cut costs. Poloniex stands out against this background. The exchange is standing firmly on its feet and is even preparing the launch of a new trading system.
Cryptozyme 2022: reasons and peculiarities
The young market of digital coins has already experienced several major corrections. The last such event occurred in 2018-2020. Then Bitcoin lost half of its capitalization. In 2022, the market sagged even deeper. In the first 6 months, the capitalization of BTC has already fallen by 56.2% (from $891.04 billion in January to $377.22 in July), the coin’s exchange rate fell by 58%. Following the flagship, altcoins are getting cheaper. Analysts predict that by the end of 2022, more than half of cryptocurrencies will lose 75-90% of their value.
The prolonged period of low prices of digital currencies is called cryptozyme. In 2018, the market crash was associated with the bursting of the ICO bubble. In 2022, the trigger was external factors:
- Rising inflation in developed countries.
- Tightening of the policy of the US Federal Reserve and other central banks.
In addition to market fundamentals, the situation was exacerbated by internal problems:
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- Stablecoin destabilization. The collapse of TerraUSD and its pegged token LUNA shook the industry. Investors lost confidence in stablecoins.
- Mass liquidation of margin positions. Investors accumulated significant amounts of leverage thanks to the advent of DeFi. Cryptocurrency funds and lending platforms were funded primarily by private investors. They invested for profit. When asset prices plummeted, the trades were forcibly liquidated. Funds, companies and private investors suffered serious losses.
- Bankruptcy of major platforms. Credit network Celsius suspended payments in June. The service attracted private investments at high interest rates and lent money to traders. Part of the profit was used to pay depositors. When the crisis broke out, the company faced liquidity problems. A similar fate befell the Singaporean hedge fund Three Arrows Capital and the brokerage company Voyager Digital. The former was unable to meet BlockFi’s margin requirements, while the latter owed money to Alameda Research.
According to BitInfoCharts, the current cryptozyme has already wiped out nearly 82 thousand Bitcoin millionaires. In November 2021, the service recorded 108.88 thousand wallets with a balance of more than $1 million. By the beginning of July 2022, their number decreased by 75% – to 26.28 thousand.
Poloniex stability in hard times for the market
Some analysts believe that the cryptozyme may drag on until 2025, given the cyclical nature of the market and future halving. However, most expect a recovery in 2023. The current situation is critical for many crypto exchanges. But not for Poloniex. While other platforms are cutting costs, one of the oldest crypto exchanges is preparing the launch of a new trading system and increasing the number of staff.
The exchange’s stable position was revealed by Justin Sun at the July 2022 global staff meeting. According to the CEO, Poloniex has enough investments and resources to continue developing even during market downturns. The service has not been affected by declining rates thanks to the reliability of external and internal operations, as well as a properly chosen risk management strategy.
Unlike many other platforms, Poloniex did not conduct transactions with high leverage. The exchange used its own capital for transactions. This allows San’s team to be optimistic about the future of cryptocurrencies. In July, the developers continue to prepare the launch of a new trading system and other planned products.
The company also intends to double the number of employees by the end of 2022. Justin Sun relies on talented developers, managers and technical staff. The businessman is convinced that such tactics allow Poloniex to remain one of the leading players in the industry.
According to CryptoProGuide.com, in July, the exchange ranks 4th in the ranking of the largest platforms with a turnover of $47.71 million per day. Users have access to 311 coins and 476 trading pairs.
Which exchanges may disappear from the market in 2022
Amid the crypto zeitgeist, investors have started to withdraw funds from trading platforms to offline wallets. According to Glassnode, the balances of leading exchanges have shrunk by 20% since the beginning of 2022. Smaller services may have suffered more. Experts note: the decision of users was influenced, among other things, by staff layoffs by exchanges (Coinbase) and bans on withdrawal of assets (Coinflex, Vauld).
Due to the outflow of funds on the platforms, the volume of transactions decreased. Most exchanges survive on transactional transactions, so the decline in turnover has destabilized them. According to experts, the current cryptozyme has become the toughest in history. Cryptocurrency companies are being severely tested. Many of them may exit the market due to lack of liquidity or the use of high leverage.
Conclusion
According to Glassnode’s June report, the 2022 bear market has become the toughest in cryptocurrency history. The over-leveraged ecosystem came under intense pressure from external economic factors – rising inflation and rising interest rates. Researchers also identified a trend of over-hedging of redeemable collateral.
As a result of the sharp decline in cryptocurrency prices, the credit bubble burst and margin positions were liquidated. Private investors and companies suffered. Some major players went bankrupt. Exchanges lost a significant part of their working capital.
However, Poloniex has maintained stability in a falling and market and is even preparing to expand the structure. According to CEO Justin Sun, the service does not conduct transactions with high leverage, but relies on its own capital. This strategy allows Poloniex to stay afloat in case of any market changes.
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Author: Saifedean Ammous, an expert in cryptocurrency economics.
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