Monday, May 20, 2024

The 2020s saw a meteoric rise in the cryptocurrency market, as projects around the world sought to capitalize on the growing interest in digital assets. However, despite the seemingly unstoppable growth of this new asset class, 2022 saw a sharp decline in the value of many high-profile cryptocurrencies. In what has been coined as “Crypto Winter”, several projects crumbled under the pressure of the bear market, resulting in billions of dollars being wiped out and trust being severely eroded. In this article, we will examine five high-profile cryptocurrency implosions that occurred during 2022’s crypto winter and what lessons we can take away from these cautionary tales.

Don’t Be Caught in the Crypto Winter

Cryptocurrency has seen massive growth over the past decade, but just like any other asset class, it has seen its fair share of drops and hurdles in the market. The crypto winter of 2022 was no exception – between May 5, 2013, and February 2022, eight of the top ten coins have fallen from grace and been forgotten by the majority of investors. This includes Freicoin (FRC), Terracoin (TRC), Devcoin (DVC), and Mincoin (MNC).

The crypto winter of 2022 saw several high-profile crypto projects implode due to mismanagement, a lack of interest from investors, or outright criminal activity. It was a difficult period for many who had invested significant amounts into these projects, as millions of dollars were lost in value across all five of these projects. The following is a summary of these project failures and how they impacted the wider cryptocurrency space:

First up is Celsius (CEL). Founded in 2017, Celsius quickly rose in popularity due to its innovative lending model that allowed customers to receive interest on deposits and borrow money without selling their holdings. However, due to mismanagement and accusations of fraud, the company collapsed in late 2021. The scandal caused CEL’s price to plummet by nearly 60%, wiping out billions of dollars in value.

Next is Terra (LUNA). Being an early innovator in the blockchain space, Terra made headlines with its stablecoin platform in 2018. However, due to regulatory issues and competition from other projects like USDT and USDC, Terra’s value soon plummeted and eventually died out completely in mid-2022. Investors lost millions in value as LUNA’s price fell over 95%.

HUSD is another example of a project that failed during this time period. HUSD was a decentralized exchange token backed by the Huobi exchange. Its goal was to decrease liquidity issues faced by traders looking to move large sums of money between wallets quickly and cheaply. However, due to intense competition from other exchanges such as Binance, Huobi failed to make any meaningful impact in this area and eventually shut down in late 2021. HUSD’s price dropped by almost 50%, erasing billions of dollars in investor capital.

Voyager (VGX) was another project that faced immense challenges during the crypto winter. After launching its trading platform in 2021, Voyager faced multiple issues within its platform and customer experience which led to a sharp decline in usage. The price of VGX eventually plummeted 97%, effectively wiping out the value of all investments made into the project.

Lastly, FTX Token (FTT) was one of the most high-profile cases during this time period. Launched as a protocol governance token for the FTX exchange back in 2020, FTT had reached an all-time high towards the end of 2021 before crashing suddenly late that same year due to regulatory issues surrounding its parent company FTX Exchange Group Ltd., causing FTT’s price to drop almost 80% overnight. This incident serves as a stark reminder that investing comes with inherent risks regardless of market conditions.

Overall, while cryptocurrency provides fantastic opportunities for innovation and disruption; it also carries substantial risks – particularly if you’re investing without proper research or guidance. These five examples are just some of the high-profile cases that crumbled during 2022’s crypto winter – but it serves to remind us all of the harsh realities behind investing in digital assets.


The Fall of Celsius

2020 was a great year for cryptocurrencies, and early in the new year, Celsius (CEL) seemed to follow the bullish trend. On Jan. 1, 2022, CEL was trading at $4.26 per coin and was ranked as the 93rd largest cryptocurrency by market capitalization. Unfortunately, just two months later, on March 13, 2022, Celsius shocked its users when it announced that it would pause all operations and halt withdrawals.

The news of Celsius’s closure sent shockwaves through the crypto industry as investors’ confidence in the security of their investments was shaken due to the unexpected nature of the announcement. To make matters worse, 30 days later, on April 13th of that year, Celsius filed for bankruptcy protection with a federal court in New York City. The company blamed the decline in crypto prices and its own fees for its failure to remain a viable business.

Since then, CEL has become increasingly volatile and currently trades at $0.48 per unit — nearly 90% less than its initial price. Even more concerning is that approximately 38% of the entire supply of CEL is locked in the bankrupt company’s wallets and 100 CEL wallets hold 98.90% of the entire supply. This means that no one can access these funds unless a court approves their release and thus makes it extremely difficult for CEL holders to ever recoup any losses incurred due to this implosion.

The collapse of Celsius serves as a stark reminder of how quickly fortunes can shift in the world of cryptocurrency mining and investing. Market fluctuations can cause great wealth but also tremendous losses if investors do not approach these assets with caution and practice responsible risk management techniques. As such, it is important to do research on any asset before investing in it to ensure you have a better understanding of its potential returns and risk factors.


The Rise and Fall of LUNA

On Jan. 1, 2022, Terra (LUNA) was the ninth-largest cryptocurrency with a market cap of $31.86 billion, making it one of the highest-profile crypto assets to suffer from the Crypto Winter. Aiming to provide financial stability and access to new economies, Terra sought to launch a basket of stablecoins backed by various nations’ currencies. However, the project’s plan fell through when the U.S. Securities and Exchange Commission (SEC) charged Do Kwon, the head of Terraform Labs, for failing to register his token offering with the SEC.

Amidst this regulatory pressure, Terra rebranded and launched a new LUNA coin on April 25th with a focus on building ecosystem tools and DeFi products. The original LUNA token had been trading since August 2019 before rebranding to LUNA 2.0. As a result of the rebrand, the original LUNA became LUNA Classic (LUNC). While the majority of the Terra development community moved on to LUNA 2.0, LUNA Classic (LUNC) still has a small group of dedicated supporters who refuse to switch over and continue to use LUNC as their choice of asset.

Since its launch in August 2019, both LUNA and LUNC have seen their market caps fall from $2 billion+ to less than $400 million by January 2022. Although the losses were not enough to break into the top 20 cryptos for 2021, its sudden fall from grace serves as an example of how quickly sentiment can shift in an ever-changing cryptocurrency market. All in all, it can be concluded that as long as cryptocurrencies remain unregulated and subject to volatile economic conditions, there will always be risk involved for investors attempting to profit from them.


A Volatile Form of Stablecoin

HUSD was pegged to the U.S. dollar until Oct. 27, 2022 and had a market capitalization of over $1 billion on May 23, 2021. However, it has since slumped to just $25.64 million and trades at $0.135 per unit. This marks a steep decline from its peak as traders have shifted their focus away from this stablecoin in the midst of the crypto market downturn.

Surprisingly, despite its relatively low price point, HUSD still has 187,817,004 coins in circulation which are held by 9,448 unique addresses. Much of this is likely due to its stability; the coin remains close to its one-to-one USD value, thus providing investors with an alternative safe haven asset during uncertain times. Unfortunately, this stability has yet to translate into trading volume as only $11,830 worth of HUSD has been exchanged in the past 24 hours – a mere fraction compared to other more prominent cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH).

What’s more, HUSD has failed to garner much investor interest as there are less than five transactions made daily on average. This lack of liquidity further contributes to its weakening position in the crypto litmus test – a clear sign of how far this once-promising stablecoin has fallen in 2020’s Crypto Winter. Overall, HUSD is a prime example of how quickly fortunes can change within the volatile cryptocurrency market and it will be interesting to see if it will ever manage to regain its stature among traders in the future.


100 holders own a 98.6% of Voyager Tokens

Voyager Token (VGX) has experienced a dramatic decline in value since Voyager Digital, the owner of the exchange, announced it had ceased operations and filed for bankruptcy protection. In January 2022, a single VGX token was trading for $2.56, but by June of that same year, it had dropped to startling low of $0.45 — a drastic 82% decrease in value.

Investors are now holding out hope that Voyager Digital’s restructuring plan, which includes relaunching operations and providing new opportunities for traders, will be able to help bolster the prospects of its exchange token. To do this, however, the company must first overcome liquidity issues caused by its inability to secure capital amid the crypto market downturn.

In addition to liquidity issues, another problem facing VGX is that it’s highly concentrated. Only 6,267 unique addresses currently hold the coin and these 100 holders own a stunning 98.6% of all coins in circulation. Naturally, this has prohibited mass market adoption as typically fewer than 150 transactions are made on a daily basis. This means that it’s unlikely that investors who bear witness to the rapid devaluation of their tokens will be able to exit their positions without taking a considerable loss.

VGX’s future success hinges on whether or not Voyager Digital can successfully implement a viable business model and attract capital investors who believe in the project’s potential and are willing to take a risk on its long-term prospects. If they are unable to do so, then voyager token could continue its downward spiral and remain one of the year’s biggest cryptocurrency implosions.

FTX Token (FTT)

FTX Token (FTT) in Free Fall

The FTX Token (FTT) was one of the high profile cryptocurrencies that saw a significant drop in value as FTX imploded during the crypto winter of 2022. On January 1, 2022, FTT was valued at $38.70 per coin and had achieved the 34th largest cryptocurrency rank before its precipitous crash.

The entire supply of FTT is now released from the FTX token contract deployer, so its rank is no longer applicable. With over 12 million FTT tokens burned in October 2020, the circulating supply has now been reduced to 472,377 FTT. That being said, there is still hope for FTT to rebound if FTX restructures part of its business and reopens after being suspended for 6 months due to regulatory compliance issues.

However, it is highly unlikely that FTT will be available on exchanges anytime soon. Now, the majority of FTT’s trading value is concentrated within the top 100 holders which own 99.20% of the entire FTT supply. This leaves very little room for further speculation or increase in prices as institutional investors are likely to hold their investment rather than sell it off given its already low price.

Overall, with liability concerns and other regulatory compliance issues in mind, it seems unlikely that FTX will make a comeback anytime soon. As a result, the future of FFT remains uncertain at best as it continues to get battered by the storm that was 2022’s crypto winter.

The crypto winter of 2022 saw some of the biggest losses in the history of cryptocurrency. The fall of Celsius, LUNA, Stablecoin, Voyager Token (VGX) and FTX Token (FTT) highlighted the volatility and lack of trust of the industry. By understanding the risks involved and taking the necessary steps to protect investments, investors can protect themselves from the losses seen in the crypto winter of 2022.


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