The Rise and Collapse of Crypto Companies in 2022

The market of cryptocurrency has been hammered the previous year with bitcoin and many other digital currencies losing two-thirds of their value as their rising interest rates, a deep correction in the stock market in general, and tech stocks In particular and as well as liquidity crisis and other challenges worsened the situation.

The year 2022 has been a roller-coaster year for the cryptocurrency market. The world economy is beginning to realise the consequences. The year revealed that crypto investors were easily terrified by negative news, kicking off panic similar to a bank run. But as consumers rushed to withdraw their funds, bigger issues began to appear, like lack of liquidity and the absence of substantial collateral altogether. The crypto markets now have a long and potentially insuperable journey to rebuild investor trust.

The price of bitcoin fell 65% from the very start of the year, the cryptocurrency faced a total collapse in value, and crypto exchange FTX went from buying Super Bowl ads to crash landing into bankruptcy.

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Trends or factors contributed to the collapse of the crypto market in 2022

One of the main factors that can contribute to the rise of crypto companies is the overall market sentiment toward cryptocurrencies. When there is a lot of hype and excitement around the potential of crypto, investors may pour large amounts of capital into various crypto projects, leading to a surge in valuations for crypto companies. Additionally, the development of new technologies or innovative solutions that address existing problems in the crypto space can also contribute to the success of individual companies.

On the other hand, the collapse of crypto companies can be caused by a variety of factors, including regulatory crackdowns, cybersecurity breaches, and market downturns. Regulatory actions by governments and financial authorities can significantly impact the value and viability of crypto companies, particularly if they introduce harsh restrictions or outright bans on the use or trading of cryptocurrencies. Cybersecurity breaches, such as hacks and thefts, can also severely damage the reputation and value of crypto companies, leading to market sell-offs and investor panic. Finally, broader market trends such as economic downturns or changes in investor sentiment can also have a significant impact on the value of crypto assets and companies.

It's important to note that the crypto market is highly volatile and can experience significant fluctuations in a short period of time. It's difficult to predict with certainty which companies will rise or fall in the future, but by paying attention to broader market trends and staying informed about regulatory developments and potential security risks, investors can make more informed decisions about their investments.

Here is a list of major crypto companies that faced bankruptcy in 2022

1)  FTX

2)  BLOCKS

3)  THREE ARROWS CAPITAL

4)  VOYAGER DIGITAL

5)  CELSIUS NETWORK

FTX:- FTX’s collapse was the biggest and most striking crypto downfall in 2022 thus far. The Bahamas-based trade started the year with a $32 billion assessment and recruited many celebrities. FTX who said it had more than a million users, established itself as a “White Knight” that could save other crypto firms and market turmoil earlier this year.

But by November, FTX went bankrupt after a week in which a possible coalition with rival crypto exchange Binance failed, FTX founder Sam-Bankman-Fried dealt with allegations that he had funneled customer deposits to FTX’s affiliated merchandising firm Alameda Research, and the exchange faced withdrawals of about $6 billion in just 72 hours.

John Ray, the new CEO put into overseeing FTX’s bankruptcy, said he had never seen “such a complete collapse of corporate controls”.

Until July of the same year, FTX appeared to be on a roll. It proposed to buy bankrupt crypto lender voyager Digital and even got the consent to operate its swapping in Dubai.

But in August, a US bank suggested FTX stop “false and misleading” declarations that it made about whether funds at the company were secured by the government. FTX’s problems worsened in early November and then rapidly got uncontrollable. Earlier this month, crypto news website Coin Desk disclosed a leaked balance sheet that showed Alameda Research

SBF’s crypto trading firm was dependent on FTX’s local token, FTT. A few days later, Binance CEO Changpeng Zhao said his organization would dissolve its FTT holdings due to “recent disclosures.”

In the starting SBF sought to defend FTX, saying that the swapping was doing fine. But then the value of FTT jumped 72% on November 8 as customers panicked to withdraw their funds.

BLOCKFI:- Crypto granter Block Fi was the first crypto company to follow FTX into bankruptcy. Block Fi had many agreements with FTX, and it had counted on a $400 million FTX credit amenity to remain floating after completing crypto lenders Voyager Digital Ltd and Celsius Network went bankrupt as a result of market turmoil earlier in 2022.

Block Fi has earlier said that it had 450000 users and intends to ask a bankruptcy judge to allow some of them to withdraw funds.

THREE ARROWS CAPITAL:- The crypto hedge fund named THREE ARROWS CAPITAL (3AC) was the first main crypto firm to go bankrupt in 2022, brought down by the fall down of cryptocurrencies Luna and Terra USD in May.

Singapore-based 3AC, which was claimed to have $10 billion in cryptocurrency earlier in the British Virgin Islands in June. The professionals overseeing 3AC’s dissolution said that its founders ran away overseas and are not cooperating with efforts to recover assets for the investors. 

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VOYAGER DIGITAL:- Voyager, a New Jersey-based crypto granter, in July filed for bankruptcy in the United States after 3AC revert on a crypto loan of w1.4 billion in crypto to FTX. The presented trade fell through following FTX’s collapse and the voyager reopened conversations with other potential buyers.

CELSIUS NETWORK:- Another crypto lender brought down by the Terra and Luna downfall, Celsius Network began its U.S bankruptcy case in July on a rocky foothold than Voyager. Since then, Celsius has been enmeshed in disputes over treachery investigations, contrasting treatment of customer accounts, and customer privacy.

Celsius’ bankruptcy judge has assigned an examiner to investigate whether Celsius operated as a Ponzi scheme and to mainly review the company’s finances. Celsius has said it welcomed an unconstrained review, but it conveyed concern about superimposed investigations undertaken by its creditors, state securities regulators, and the bankruptcy invigilator. 

The major reason for the market deflation is the collapse of one of the huge worldwide cryptocurrency exchanges with FTX. Its bankruptcy and its spat with Binance, have not only activated a huge sell-off in the market but have also lessened dissolution from the crypto market. Within a few days, the cryptocurrency swapping went from a company with an apex valuation of $32 billion to filing for bankruptcy. The liquidity crisis had customers demanding withdrawals and Binance dumped the non-binding assets bond they had with FTX. 

FTX’s sudden and disastrous collapse sent reverberations throughout the entire cryptocurrency industry. The filing reveals that several issues were there at FTX, including the possibility that the company has not even verified the number of users on its platform and it doesn’t possess exact data of bank accounts and witnesses which is quite bad.

Former employees describe similar issues noting that the firm had bad record keeping, “that left its profits and losses unclear. It crashed due to a lack of liquidity and mismanagement of funds followed by a large volume of withdrawals from rattled investors. There are many stories about the downfall of cryptocurrency exchange. 

FTX filed for bankruptcy on November 11.2022 after an escalation of customer withdrawals earlier in the month. Then CEO of the company Sam-Bankman Fried admitted that the company didn’t have sufficient assets in reserve to meet customer demands. FTX was facing an insufficiency of  $8 billion from withdrawal requests and needed emergency funding.

Conclusion:

The collapse of crypto exchanges can be attributed to a combination of factors, including inadequate security measures, lack of regulatory oversight, and internal mismanagement. Many exchanges failed to implement robust security protocols to protect their users' funds, leaving them vulnerable to hacking and theft. 

Additionally, the absence of clear regulations and standards for crypto exchanges allowed some operators to engage in fraudulent or unethical practices. Finally, some exchanges were plagued by internal mismanagement, including poor financial management and inadequate staffing, which ultimately led to their downfall. To prevent future collapses, it is crucial for exchanges to prioritize security, adhere to regulatory standards, and maintain effective management practices.