SINGAPORE, 20 DECEMBER (Reuters) - To steal a phrase from Britain's Queen Elizabeth, 2022 will not be remembered fondly in the Bitcoin industry.
Crashes, contagions, and crashes occurred in such rapid succession that by the end of the year, investors were asking about major existential issues.
After all, the largest cryptocurrency, bitcoin, has not kept its head above water for more than a week at a period and is down around three-quarters from its peak of $69,000 in November of last year.
The market value of the 22,000 tokens and coins is now less than a third of what it was in November 2021, when it peaked at $3 trillion, and many of them are comatose, if not dead.
That's been a harsh reality check for an industry that began in 2022 with hopes of widespread mainstream institutional adoption, bitcoin supplanting even gold as the world's inflation hedge, and endorsements from Tesla Inc CEO Elon Musk, as well as a wild celebration of billion-dollar non-fungible tokens.
Not only were cryptocurrencies battered by the Fed's extreme hawkishness, but their decline also precipitated the collapse of a stablecoin dubbed TerraUSD, which created a 'Lehman moment' as funds and brokers such as Celsius and Voyager went bankrupt.
Some saw the failure of Sam Bankman-FTX Fried's exchange last month as the final nail in the crypto coffin.
WHY DOES IT MATTER?
Unlike in 2017, when bitcoin collapsed catastrophically, much fewer crypto enthusiasts are forecasting a rebound this time.
Rather, 2022 has become the "I told you so" case for authorities, who have mainly kept a distance from the crypto sector or even prohibited cryptocurrency trading.
The European Central Bank says bitcoin's tiny rally this month is an "artificially produced last gasp before the path to irrelevance".
Indeed, the one saving grace this year has been how mainstream finance has mostly avoided contagion. Excessive lending, irresponsible lending, and the swindling of billions of dollars have occurred mainly within the crypto ecosystem.
At the same time, the notion that decentralized finance and private cryptocurrencies may exist outside the traditional financial system appears delusory.
As retail and institutional investors lose faith in crypto operations, many policymakers and even crypto billionaires have joined US Securities and Exchange Commission Chair Gary Gensler in pushing for regulation.
WHAT HAPPENS IN 2023?
According to UBS strategist James Malcolm, the increasing association between cryptocurrencies and micro-cap U.S. equities demonstrates how bitcoin and other tokens can exist on the periphery, as a narrow, varied assets in investment portfolios.
"It's incorrect to assume that this thing will curl up and die totally because there are components of it that can be useful in other sectors, and there is likely to be a little cryptocurrency market that will continue to exist on the margins of financial markets," he says.
However, implementing the type of regulation that investors require to feel secure working with crypto brokers and exchanges, whether transparency or capital adequacy, might take months, if not years.
"Some asset managers see this as a 10-15 year road to completely mainstream digital assets," Morgan Stanley wrote in a memo summarizing the bank's interactions with the crypto industry.
Meanwhile, the traditional financial world may utilize the crypto slump to lift its game in the coming year, acquiring blockchain platforms and assets, issuing tokenized bonds and equities, and even launching new central bank digital currencies.
As UBS's Malcolm puts it, "it may only go to prove that crypto was designed to be an evolutionary rather than a revolutionary development in financial markets."
Explore Reuters' roundup of the year's most important news stories, as well as the outlook for 2023.