In 2022, it can be said to be a period of reversal for crypto after 2021 being the best year for this digital asset. In 2021, Bitcoin and Ethereum for the first time recorded highs in their history twice in just a year, namely in May 2021 and November 2021. However, entering 2022, the movement of Bitcoin, Ethereum and other cryptocurrencies will begin to sluggish after the United States (US) central bank, the Federal Reserve (The Fed) indicated that they would change their easy money policy to hard money.
The Fed, which had previously been dovish during the Covid-19 pandemic, began to be hawkish in 2022. This is the Fed’s intention to fight inflation which starts to rise in 2022. At the beginning of 2022, crypto actually formed a bearish trend, even though at that time the correction was not too severe. Then in February 2022, there was a conflict between Russia and Ukraine which made crypto worse, because crypto assets tend to be easily affected by global conditions.
On February 20, 2022, it became the starting point for the heat of the two countries. The reason is that Russia does not accept Ukraine joining NATO. As a result, crypto is increasingly languishing with the heat of the situation in Russia-Ukraine. With the increasingly languishing crypto, many people are starting to worry that the existence of crypto is starting to fade. They started carrying out the action of releasing crypto as a form of concern from the increasing heat of Russian-Ukrainian geopolitics at that time.
A few months later, last May to be precise, the act of letting go of crypto investors began to take their toll, where one of the crypto developers, namely Terraform Labs, was faced with a difficult condition, where two digital coins (tokens) he made, namely TerraUSD (UST) and Terra Luna (LUNA) simultaneously collapsed from its high to an all-time low. As a result, the fall of UST and LUNA also made crypto assets languish even more and this is where the crypto ‘down’ began.
After the fall of LUNA and UST, many crypto companies have started to be affected, especially companies that have exposure to these two tokens.About one month after the LUNA and UST incidents, several large crypto companies were hit by a financial crisis that threatened to go bankrupt. The companies are Celsius Networks and Three Arrows Capital (3AC). Both are crypto companies with different types of businesses, but they also serve the same business, namely crypto lending.
Celsius is a crypto landing company based in New Jersey, United States (US). Celsius made a splash in the crypto world after it froze withdrawals and transfers between investor accounts on the grounds of stabilizing liquidity. Meanwhile, 3AC (Three Arrows Capital) is one of the largest crypto hedge fund companies in the world. 3AC is headquartered in Singapore. The crisis that hit Celsius and 3AC has affected many crypto companies, such as Voyager Digital, BlockFi, FTX, and others.
A few days after Celsius and 3AC experienced a liquidity crisis, the two of them finally officially filed for Chapter 11 bankruptcy in the US. Then, a few months after the events of Celsius and 3AC, the ordeal in crypto was not over, in early to mid-November 2022, the second largest crypto exchange in the world, namely FTX, did not escape the financial crisis.
The beginning of the liquidity crisis that created a stir among investors came from a crypto news site, CoinDesk, on November 2, reporting a leak of Alameda Research’s balance sheet, an FTX-affiliated company that heavily relies on the FTX utility token, namely FTX Token (FTT). Alameda not only has a lot of FTT on its balance sheet, but has used the FTT as loan collateral. However, FTX management denied this.
As a result, the FTX crisis has forced the second largest crypto exchange in the world to go bankrupt, where FTX management has filed for Chapter 11 bankruptcy in December 2022. Crypto assets use a decentralized system, in which there is no central authority that has excess power that can affect prices, so that everyone can become market movers or crypto movers.
In blockchain, actually being developed for a digital storage system itself is a chain of sequential blocks which are then assembled and distributed together. Each block consists of a ledger and 3 elements, namely data, hash and hash of the previous block. While the type of data that exists in blockchain technology is adjusted to its purpose, for example transaction details which include the number of coins, the sender, and the recipient.
However, like a system, of course it has weaknesses, where crypto is also not spared from being the target of crimes such as theft, hacking, or others. In fact, the weakness of this system can be exploited by irresponsible crypto developers, where the developer can use investor funds to simply enrich himself, not for the common good. This has already happened in Terra and FTX.
As a result, the fall of Terra and FTX made the prestige of crypto in the world tend to decline. In Indonesia, the Commodity Futures Trading Regulatory Agency (Bappebti) noted that the total registered customers of crypto assets rose from 11.2 million in 2021 to 16.55 million in 2022. However, the transaction value of crypto assets in 2022 will decrease. From January to November 2022, the transaction value of crypto assets reached IDR 296.66 trillion. This figure is down from IDR 859.4 trillion in 2021.
“This means there is a decline of more than 50 percent,” said Head of CoFTRA, Didid Noordiatmoko. This is of course inversely proportional to the transaction value in RI stocks in 2022. Based on data from the Indonesia Stock Exchange (IDX), the Average Daily Transaction Value (RNTH) is recorded at IDR 14.7 trillion, up 10% compared to the position at the end of last year, namely IDR 13.4 trillion. In addition to the transaction value, the popularity of crypto assets has also decreased. In fact, he predicts that in 2023 there will be an extraordinary crypto winter. Didi refers to data from the Statista Global Consumer Survey.
Based on the survey, the number of residents of the United States (US) who have invested in crypto assets is 18%, but the total population who plans to continue investing is only 15%. Whereas previously in 2020, the popularity of crypto asset owners rose, from 8% to 11%. The case of Terra’s fall to the failure of FTX has led many to believe that crypto assets have a much higher level of risk compared to other types of investment, so they must be regulated by regulators to ensure the safety of customer funds.
Although there are many who want crypto to be monitored, for those who are ‘hardliners’ of crypto, they do not agree that crypto needs to be monitored. This is because they fear that the authorities may later intervene in the crypto itself. Apart from this debate, in fact many parties, especially institutional investors who want to invest in crypto, think that crypto also needs a custodial institution. It is known that many institutional investors are quite interested in investing in the crypto business.
However, they are still forced to hold back because a number of infrastructures in their industry are deemed inadequate, so they do not meet the principle of prudentiality in an investment activity. One of them is the absence of a custodial function in crypto investing activities. For information only, a custodian or custodian bank is an institution that is responsible for securing the financial assets of a company or individual.
This custodian will act as a collective safekeeping place for company assets such as stocks, bonds, and others.Therefore, custodians also need to exist in crypto in order to create security in trading crypto assets. So investors don’t worry if their crypto portfolio will be lost due to hacking or other crimes, because some of them are already stored in custodians.
In Indonesia, CoFTRA continues to speed up the formation of crypto exchanges, custodial institutions and clearing institutions which are believed to strengthen the digital asset ecosystem in the country. The plan to form three new entities that will house businesses in the digital asset sector is intended to provide comfort and security for investors when transacting digital assets.
