*2023 CRYPTO OUTLOOK: DRAMA, CONTAGION AND HOPE - BTC BITCOIN $BTC
), for crypto asset trading and custody service. In addition, the European Union finalized the crypto asset markets legislation MiCA, which has the potential to guide global crypto regulations. This development, which resonated throughout the market, was seen as an important step in the years-long regulatory debate.
By September, the Ethereum network's Merge, which had been delayed several times, was finally launched. With the transition from proof-of-work to proof-of-stake consensus mechanism, which has been seen as a turning point for the Ethereum ecosystem, the Ethereum network became an environmentally friendly structure, switching from energy-intensive proof-of-work to a much lighter proof-of-stake process, which is said to save 99.9% of energy used by the network. This addressed the longtime concern about crypto's environmental impact, but brought another problem with it. This time, critics began to raise the issue of network security and decentralization. While the Merge caused Ethereum to rise in value in early September amidst the hype, the subsequent action showed traders sold the news. Ethereum mining became a thing of the past and miners began to continue their activities as transaction validators by staking Ether in their portfolios. While Ethereum issuance was expected to decline significantly, Ethereum supply started to become deflationary with the burning mechanism. Post-Merge Blockchain data also revealed that verification processes were in the hands of a small number of accounts, raising concerns about the Ethereum network's security and centralization. As a result, Ethereum's price continued to fall along with the rest of the market, failing to see the expected uptick in a market in turmoil post-Merge.Entering the last quarter of the year, the crypto market showed signs of new life. Cryptocurrencies managed to close October on a positive note, albeit at a low rate. However, a November storm would drag the entire industry into a new turmoil.that Alameda Research, the trading firm associated with FTX, had a problematic balance sheet to say the least. FTX founder Sam Bankman-Fried had taken on the role of savior in the sector through financial support and acquisitions during the Q2 round of problems, and maintained its reputation as a growing company. But Alameda's leaked balance sheet showed that a significant part of its assets was in, an illiquid cryptocoin minted by FTX. The perception that the company was trying to cover its liabilities with illiquid assets caused the market to quickly sour on the rising crypto star. The first reaction came from FTX's biggest competitor Binance, with the exchange's CEO, Changpeng Zhao, announcing that they had learned from Terra and would divest their FTT holdings. This development triggered the acceleration of FTT sales in the market. At the same time, as mass fund exit requests from FTX started to increase, the exchange had to suspend withdrawal requests. As it would later be revealed, Alameda had taken FTX customer funds for their own use for some time. Following the suspension of withdrawals, FTX and Binance signed a memorandum of understanding for Binance to purchase FTX. Binance then pulled out of the deal during the due diligence process. The back and forth only accelerated FTX's fall as the brokerage lost its last chance to get out of the crisis. Thus, the world's second largest crypto exchange was forced to declare bankruptcy in as little as a week. A day after the bankruptcy announcement, FTX continued to make headlines with a suspicious hacking incident. Throughout the month of November, several cover-ups involving FTX and Alameda Research came to light. It became clear that Alameda had been struggling since May and that FTX had been using client assets to fund Alameda. In December, U.S. authorities announced charges - including defrauding exchange customers, securities fraud, money laundering, and campaign finance fraud - against Bankman-Fried, and he was arrested on December 13 in the Bahamas. FTX's rapid collapse caused panic among crypto investors, and crypto asset withdrawals from centralized exchanges have skyrocketed since November. Crypto exchanges began to publish their assets one by one, adopting the proof-of-reserves principle in an effort to regain user trust. However, the sudden termination of cooperation with crypto companies by the auditing firms that determine the reserves of the exchanges has emerged as a new negative. Amid all this chaos, Bitcoin took another significant hit in the last quarter of the year and reached the lows of 2022 with the rest of the market. With the outbreak of the FTX crisis, Bitcoin fell as low as $15,000 and has been flat at $16,000 since November.The impact of many negative events throughout the year is likely to continue into the new year. Many market commentators expect the domino effect to continue due to the interconnectedness of crypto companies. Countries that have so far been slow to regulate crypto may take concrete steps to control the market in 2023, especially as individual investors have also suffered serious losses from 2022's various incidents. The threat of contagion from the cryptocurrency sector to traditional finance has also increasingly been discussed as a reason to increase regulation. So, 2023 may be referred to as a year of regulation for crypto markets. On the other hand, there may be important developments in the field of central bank digital currencies , which countries have been working on for several years. Countries have already expressed their intention to compete with the crypto sector using the same technology. Thus, we may see a new front opened against cryptocurrencies with CBDCs. It's worth noting that even though the negativity caused institutional investors to exit the market in large amounts in 2022, many financial giants decided to expand their services into the crypto space throughout the year and established various strategic partnerships in this direction. The movement of these companies in the coming year may create the means for institutional money to return to the crypto space, depending on more favorable macroeconomic conditions. What should not be overlooked is that the troubling events of 2022 are likely to continue in 2023. The crypto industry may continue to be under pressure in 2023 due to liquidity shortages and the fear of contagion.
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