Stepping into 2023, it’s time to pause and reflect on the accomplishments and struggles the global crypto community witnessed over the last 365 days. From the beginning of 2022, no investment strategy could help recover the falling portfolios across traditional and crypto markets. In January 2022, the market had already started to collapse, with investments made at 2021 all-time high prices resulting in immediate losses. 

For many, especially the new entrants, falling crypto prices were perceived as an end game. However, the community’s resilience against global economic turmoil, orchestrated attacks, scams and an unforgiving bear market went largely unnoticed.

Amid falling prices, 2022 also inherited the 2021 hype around nonfungible tokens (NFTs), the metaverse and all-time highs for Bitcoin (BTC) and other cryptocurrencies.

Economies worldwide suffered massive inflation as the most influential fiat currencies succumbed to ongoing geopolitical pressures. The fall of investor confidence in traditional markets seeped into crypto, with collapsing ecosystems only aiding the sour sentiments.

A year full of disruption

Amid poor market performance, the crypto community focused on strengthening its core. This meant releasing blockchain upgrades and introducing faster, cheaper, more secure features and capabilities, all driven by the consensus of the respective communities. As a result, 2022 was a milestone year for leading crypto ecosystems.

Bitcoin’s layer-2 Lightning Network protocol received improved privacy and efficiency thanks to a November 2021 upgrade called Taproot. The upgrade also helped lower the database sizes, an essential factor in slowing down the growing size of the Bitcoin ledger.

By May 2022, Bitcoin was already halfway to the next halving, which is an event that reduces the mining rewards by half. The reward for confirming Bitcoin transactions gets slashed by half for every 210,000 blocks. The last Bitcoin halving event occurred on May 11, 2020, when it traded at the $9,200 mark.

The total supply of Bitcoin is limited to 21 million by design. Therefore, a halving event further reduces the amount of BTC released into the market. A resultant scarcity due to the halving event has historically worked in favor of Bitcoin price.

Adhering to industry experts’ expectations, Bitcoin rallied for several months to reach its all-time high in November 2021. It retained its value well above $15,000 until the end of 2022, confirmed by data from Cointelegraph Markets Pro.

Bitcoin price during the last halving event. Source: CoinMarketCap

The Ethereum community welcomed the highly anticipated Merge upgrade, which saw the Ethereum blockchain’s transition from proof-of-work to a proof-of-stake consensus mechanism. The upgrade’s most significant impact was a drastic energy consumption reduction. The wider crypto community counts on this lower energy usage to reignite the interest in Ether-powered sub-ecosystems, such as NFTs.

Crypto resilience vs. traditional markets

History proves that two factors play a crucial role in crypto market performance: the price of Bitcoin and investor sentiment. Both factors dipped throughout the year.

Timeline of crypto events against market capitalization. Source: CoinGecko

The crypto ecosystem was plagued with a series of attacks, unprecedented sanctions and bankruptcy filings, adding to the impact of global economic turmoil on the market. In addition to poor price performance, some of the deepest scars for investors in 2022 include the fall of FTX, Three Arrows Capital, Voyager, BlockFi and the Terra ecosystem, with many investors losing access to their funds.

Amid this commotion, entrepreneurs once loved by the masses ended up breaking the trust of millions — namely, former FTX CEO Sam Bankman-Fried and Terra co-founder and CEO Do Kwon.

Despite the added hurdles, the Bitcoin and crypto ecosystem not only survived but also displayed resilience. Traditional store-of-value investments such as gold faired better. Between January and December 2022, gold investors realized a net loss of 0.3%.

Major company stocks also performed poorly this year, including Apple (-25%), Microsoft (-29%), Google (-38%), Amazon (-49%), Netflix (-51%), Meta (-65%) and Tesla (-65%).

2022 performance of traditional stocks. Source: LinkedIn

Bitcoin started strong with a $47,680 price point in January 2022. Still, dwindling investor sentiment driven by rising inflation, energy prices and market uncertainties managed to bring the prices down over 60% by December.

Setting the stage for a stronger foundation

Time after time, bear markets have taken the responsibility of weeding out bad actors and offering a chance for promising crypto projects to display their true value to investors beyond the price point.

The noise around price fluctuations could not stop the Bitcoin network from strengthening its core against 51% attacks. Thanks to the widespread mining community, hash rate and network difficulty — two important computational power-based security metrics — Bitcoiners felt reassured that the network was secured. The Bitcoin network consistently recorded new hash rate all-time highs throughout the year, ending in the 250-300 exahashes per second range.

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Other prominent players in the crypto ecosystem also released feature upgrades as they geared up for 2023. Polygon, a layer-2 scaling solution that runs alongside the Ethereum blockchain, launched a zero-knowledge Ethereum Virtual Machine rollup, or zkEVM, to reduce Web3 transaction costs. Decentralized finance (DeFi) aggregator 1inch Network launched the Fusion upgrade to deliver cost-efficient, secure, profitable swaps for crypto investors.

El Salvador’s legalization of Bitcoin did not go unnoticed, especially considering that the country’s Bitcoin procurement from 2021 shared the same fate as other crypto investors. Regardless of losses, Salvadoran President Nayib Bukele doubled down on BTC as the government announced its intention to purchase the cryptocurrency daily from Nov. 17.

One of the immediate impacts of this move was a reduction in El Salvador’s average buying price. A planned purchase of Bitcoin dips combined with a subsequent market recovery makes the country well-positioned to offset the unrealized losses.

In countries with high inflation, Bitcoin helped numerous individuals shield their wealth from the declining purchasing power of their fiat currencies.

Expect a return of the hype

While 2023 will not be fortunate enough to witness the upcoming Bitcoin halving, it may play a crucial role in the crypto ecosystem’s comeback. With aggressive blockchain upgrades, updated business strategies and investors’ attentiveness back on the menu, the ecosystem is now gearing up for the next wave of disruption.

For investors, 2023 will hopefully be a year of recovery from losses and broken trust toward self-custody and informed investments. “Making it” in crypto is no longer just about becoming an overnight millionaire; it is about creating, supporting and preaching a fresh approach to the future of money.