In 2022, the cryptocurrency market faced a significant upheaval, with multiple high-profile collapses that shook investor confidence. This tumultuous year demonstrated how quickly market sentiment could shift, resembling a bank run as investors rushed to secure their assets. As a result, critical issues such as liquidity challenges and the lack of tangible collateral came to light. Here, we take a closer look at the five most notable crypto collapses that defined the year.
5. Voyager Digital’s Bankruptcy
In July, Voyager Digital, a prominent crypto broker and lender, filed for bankruptcy after a customer defaulted on a staggering $650 million loan. Compounding the crisis, the Federal Deposit Insurance Corporation (FDIC) initiated an investigation into Voyager’s claims that customer deposits were insured up to $250,000, which turned out to be inaccurate. The firm’s assets were initially acquired by FTX for $1.42 billion, but following FTX’s own bankruptcy, the bidding process for Voyager’s assets was reopened. Recently, Binance.US announced plans to purchase Voyager for $1.02 billion, only weeks after abandoning an earlier attempt to acquire FTX.
4. Celsius Network Misleading Customers
Also in July, Celsius Network sought Chapter 11 bankruptcy protection after it froze customer accounts due to “extreme market conditions.” Investigations revealed a severe cash crunch and that Celsius had concealed significant losses from investors while failing to comply with disclosure laws. The firm allegedly inflated the value of its digital token, CEL, to improve its balance sheet. A meeting with creditors later disclosed that Celsius had never generated sufficient revenue to sustain the yields promised to its investors, suggesting that these yields were paid using funds from new investors.
3. BlockFi’s Fall from Grace
Once valued at $3 billion, BlockFi faced a series of setbacks in 2022, including a $100 million fine for failing to register its crypto interest account. The situation worsened when crypto hedge fund Three Arrows Capital went bankrupt, leading to significant losses for BlockFi. Initially rescued by FTX through a $250 million deal, the partnership collapsed when FTX itself went under, forcing BlockFi to halt lending and customer withdrawals before ultimately filing for bankruptcy.
2. Tether’s Stability in Question
In May, Tether, the world’s largest stablecoin, lost its peg to the US dollar, trading as low as $0.95 amid widespread panic in the crypto market. This instability was partly triggered by the collapse of TerraUSD and its algorithmic counterpart, Luna, which faced a bank run that caused their values to plummet. As a result, nearly $3 billion in redemption requests flooded in for Tether, destabilizing its value. Fortunately, Tether’s cash reserves allowed it to regain its peg to the dollar.
1. The FTX Collapse
FTX, once viewed as a savior in the crypto landscape, abruptly became a victim of its circumstances. After successfully bailing out several companies, including BlockFi and Voyager Digital, FTX found itself in crisis mode when competitor Binance sold off its FTX tokens. This action spurred a wave of withdrawals, leading to a liquidity crunch that FTX could not overcome. The exchange filed for bankruptcy as investigations revealed troubling practices, including the misuse of customer deposits to support Alameda Research, its affiliated trading firm. At the time of writing, both FTX and its founder, Sam Bankman-Fried, were under scrutiny from regulatory authorities.
These events highlight the volatility and unpredictability of the cryptocurrency market, raising serious questions about investor protections and the sustainability of digital assets in the financial landscape.
