The Friday Focus - Issue 66
2022 in review
The Christmas season has been quiet, and we take the opportunity to change things up by summarizing 2022 quarter by quarter, showcasing the most defining headlines from the last year.
Earlier today, we published our 2022 year-in-review report. The report is filled with charts and information from the year that has passed and includes predictions for the year to come. In general, we believe 2023 to be quiet compared to the previous three years. Press this link to read our full 2022 year-in-review report!
Q1 2022 - Macro, war, exploits and Luna
The year started calmly. FTX established a $2bn venture firm, raised $400m at a $32bn valuation in January, and later announced expansion plans into Europe. Meanwhile, hacks and bridge exploits ravaged the market, forcing Jump Trading to backstop Wormhole’s $320m exploit while Axie’s Ronin bridge suffered a $625m exploit performed by North Korean hackers. Absurdity tends to go hand in hand with crypto, and when US officials seized $3.6bn from the 2016 Bitfinex hack, the mastermind couple behind the infamous hack turned out to be Illya “Dutch” Lichtenstein and self-defined “surrealist artist and shameless rapper” Heather “Razzlekahn” Morgan.
By the end of the quarter, two tendencies that would define the remainder of the year evolved. The Federal Reserve approved its first interest rate hike in three years, and the Luna Foundation Guard raised $1bn to form a BTC reserve for its algorithmic stablecoin UST. By the end of Q1, LFGs BTC reserves reached 27,785 BTC.
Q2 2022
The second quarter started with a slow April, concluding with the Luna Foundation Guard amassing more than 80,000 BTC after an OTC Swap led by Genesis, with BTC sold by 3AC by May 5. Days later, on May 10, UST’s peg started to crumble, and by May 11, LUNA had collapsed by 90%. In the following days, the collapse intensified, and by May 16, LFG had sold off all its 80,000 BTC. Contagion was born, ravaging the market to the bitter end of the year.
By June, Celsius paused withdrawals, 3AC faced insolvency, and FTX was in talks to acquire distressed lender BlockFi.
This chain of events naturally reaped havoc in the crypto market. The Federal Reserve made conditions even worse by making its largest interest rate hike in two decades in May, only to top the hike in June by rolling out its biggest hike since 1994. Amidst the turmoil, Tesla sold 75% of its BTC holdings.
The quarter ended with BTC seeing its worst quarterly return since 2011.
Q3 2022
The fallout from Q2 impacted Q3. FTX provided a $400m credit facility with BlockFi, and Celsius filed for Chapter 11 bankruptcy. Meanwhile, a massive 1,157-page liquidation recognition in detail illustrated the creditor claims amounting to $3.6bn from Three Arrows Capital, who had borrowed from just about every institutional lender in the space while also cooking their books.
A sense of enthusiasm revisited the crypto market in the third quarter as Ethereum activated The Merge from Proof of Work to Proof of Stake, pushing ETH to new yearly highs vs. BTC. A massive institutional development took place at the same time as Schwab, Citadel and Fidelity announced the start of its crypto exchange EDX Markets.
Q4 2022
The jolly days did not last for long.
In November, FTX collapsed days after Coindesk announced a huge asset concentration from Alemeda in FTT. CZ later announced his intentions to sell Binance’s FTT holdings, Caroline offered to buy the FTT at $22, and FTX experienced a bank run. On November 8, FTX halted withdrawals, and Binance signed an LOI to acquire FTX potentially. After a good hard 24 hours of due diligence, Binance realized the gravity of FTX’s massive holes and backed out of the deal. FTX’s whole was reportedly at least $8bn deep. BlockFi, who had received a credit facility from FTX, filed for Chapter 11 bankruptcy.
Sam Bankman-Fried was later arrested in the Bahamas and has since been extradited to the US.
The FTX debacle harmed crypto credit markets further. DCG immediately gave Genesis a $140m equity infusion, but the situation remained dire, and Genesis sought an emergency loan of $1bn and halted withdrawals. Genesis’s creditor group’s loans reportedly amount to at least $1.8bn. A key component in Genesis’ troubles is related to GBTC and its close-ended structure, and Grayscale is fighting to convert its fund into an ETF or, in the worst case, push towards a tender offering.
That was it. See you all next year!
Happy New Year - may 2023 offer fewer unpleasant surprises than 2022.
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