Many news segments and their buzzwords dominated 2022: inflation, war, energy and currency crises, the FTX meltdown, and one bitcoin now being priced less than the cost of mining one. With this in mind, let’s briefly examine how crypto and Forex have bounced off each other in 2022. Both domains, the cryptocurrency and Foreign Exchange markets, have grown more and more intertwined in recent years. Their bond is not trivial: Forex alone has a daily trading volume of 6.6 trillion USD - with an absolute worth of 2.41 quadrillion USD. On the other hand, the still young cryptocurrency market usually has a daily trading volume of 45 billion USD, of which 95% is comprised of stablecoins.
Stablecoins are digital currencies tethered to conventional fiat currencies like the USD or the EUR. Hybrid currency trading pairs like BTCUSD (bitcoin and the U.S. dollar) or ETHUSD (Ethereum and the U.S. dollar) have become extremely popular on cryptocurrency exchanges and Forex brokerages services alike.
With the most recent collapse of the FTX crypto exchange, a profound chain of flaws has been uncovered, putting many traders and investors either on halt or at least on high alert. Although some mass media outlets play the whole incident off as proof of bitcoin’s and blockchain technology’s inherent systemic weakness, the causes for this fraud need to be classified as human malice, greed and maybe some error on the part of some lower participants.
Remember, remember the start of November: the fall of FTX
On 2 November 2022, a Coindesk article initiated mainstream interest towards FTX’s shady financial situation. What eventually unravelled in the days that followed was a very unsteady, highly suspicious, and most probably fraudulent business structure that was rotten at the core—with co-founders implicated in the magnificently huge loss and disappearance of funds.
The investigation into the FTX fallout is ongoing, so jumping to conclusions or final verdicts at this point is premature. But the fact remains that all retail clients numbering over one million people participating in FTX’s services have lost their funds. The overall sum is over 1 billion USD—with individual cases trying to retrieve way over 100,000 USD. Generational family savings and pension funds have been obliterated.
As of this writing, around 30 billionaires have claimed to have lost considerate investments because of it, which makes one wonder who the insiders were—withdrawing in time—if even billionaires were in the dark about what fate would soon befall their capital. This whole case and the insights from the ongoing investigations will drag well into 2023, if not further..
USD and 2022’s FED rate hike marathon
Since 17 March, the U.S. Federal Reserve has been upping the interest rate every 4 to 6 weeks—starting small with just 25 basis points, going from 0.25% to 0.50%. Throughout the summer and up to November, the rate went to a whopping 4.00%. The last four rate hikes were each by 75 basis points, showing a very tight and urgent monetary policy from the FED. The USD did appreciate in the process, but economic growth has been slowing down because of it, as well. Yet, the internationally common disease of inflation has not been cured. Although, Europe is struggling from rising prices much more than the U.S.—especially in the energy sector. But curbing the pace of price increases had much less success than expected.
However, bitcoin and the entire crypto market—much like the stock market—have declined for all of 2022. Almost as if the dynamics of fiat currency inflation and stock and crypto market depreciation had a stringent correlation to endure. The systemic interdependency of both domains—the Foreign Exchange and the cryptocurrency market—were at their most intimate in 2022: a historical bear market run, if there ever was one. The question remains, will a coming bull market in the world economy make both domains move together, or will one triumph over the other?
Bitcoin losing 70% since December 2021
The world’s first cryptocurrency already began its current course of decline at the start of December 2021, when it came down to 56,900 USD (from the all-time high of 67,500 USD on 9 November 2021)—a drop of almost 16%. What followed afterwards was an often steady, sometimes steep downward trend to 16,840 USD on 30 November 2022—an overall decline of another 70%. This narrative is a sobering wake-up call for the retail and mainstream sentiment compared to the hysterical and enthusiastic ‘year of the bull’ in 2021. Some even argue that this is another blow to blockchain’s credibility overall. From bitcoin’s inception, the chart of asset appreciation is still loud and clear: BTC remains a historically liable and legitimate long-term hedge against inflation. In absolute terms, the USD wins over bitcoin in currency appreciation for this particular year—despite the inflation frenzy. Experienced Forex traders and investors took advantage of this now apparent 2022 trend and gave USD the benefit of the doubt over bitcoin.
At the same time, let’s keep the most recent Goldman Sachs comments on the U.S. dollar’s coming peak in mind: their forecasts say that this peak is only a few quarters away, after which a recession could follow. A significant re-evaluation of asset values against the U.S. dollar will occur during this time.
Despite the bleak present - finance’s future is bright
The stormy waters of present financial and economic crises worldwide will eventually pass. The cyclical nature of the thing guarantees it. After night comes a day, and the bull follows the bear. A new synthesis in the world order will bring a new era of financial opportunities. One such opportunity is the bitcoin halving predicted for April 2024, which experts believe will give the popular crypto asset a significant drive to growth around mid-2023. If this turns out to be factual, people will look at the current period as a ‘buy-the-dip’ time window.
In further retrospect, looking at 2022’s hefty bitcoin fluctuations causing damage even on the state level—like with El Salvador—high-profile voices have started to advocate for more regulation rather than direct state opposition. There is a take among certain expert schools that see the possibility of more regulation as a constructive trend. More regulation could help dispel investor fear in the future—removing associations with the tech and blockchain sector as a bursting bubble, and that growth is also possible based on coming state-organised guarantees and control.
Another strong indicator is - in great spite of the FTX fallout - that the entire month of November has seen a tremendous top-up of bitcoin reserves by centralised crypto exchanges. So the game is far from over—quite the opposite.
