The five scariest stories in crypto in 2022

by · October 31, 2022

After over 13 years of ups and downs, this year stands out as having the most turbulent bear market in crypto history. Due to a mix of factors – which include regulatory approvals around the world and improved credibility among projects that survived the bear market – the crypto world marked many milestones this year.

However, certain events in 2022 can give goosebumps to the toughest diamond hands out there. Also, it was impressive to see crypto projects, which in many cases help each other, bounce back through a time of uncertainty.

Recognizing the scariest events this Halloween, we showcase the scariest events that rocked the crypto ecosystem, leaving a significant impact on investors, businesses, entrepreneurs, miners and developers.

The key driver of the following list is widely attributed to the highly volatile time frame and geopolitical uncertainties, which caused the price to fall across all sectors.

The extended crypto crash: Fear of the bears

The year 2022 inherited a turbulent crypto market, which slowly began to crash in November 2021. As a result, there was immense fear and uncertainty in the crypto ecosystem from the very beginning of the year.

The bear market ate up more than $1 trillion from the crypto market – reducing its total market cap from over $2.5 trillion to under $1 trillion in a matter of months.

The 2022 crypto crash spooked investors as it drained profits from all sub-ecosystems, including Bitcoin (BTC), cryptocurrencies, non-fungible tokens (NFT), and decentralized finance (DeFi), among others.

The loss was felt both ways. While the drop in prices saw investors lose some of their savings, businesses struggled to stay open amid massive sales and a lack of investment.

The scary instability of algorithmic stablecoins

The collapse of the Terra ecosystem is considered to be the biggest financial disaster ever witnessed in crypto by a single entity, and rightly so. The two internal offerings from Terra Labs destabilized and almost immediately lost market value.

In the early days of the crash, Terra co-founder Do Kwon was found publicly discussing ways to help investors recoup losses. Binance CEO Changpeng Zhao suggested burning LUNC tokens to reduce the token’s total supply and improve price performance.

Shortly thereafter, as regulatory scrutiny began to build against Terra’s operations, Kwon decided to go incognito, with his exact whereabouts unknown.

Numerous entities – including disgruntled investors, South Korean authorities and a Singaporean lawsuit – are still in pursuit of Kwon, despite his comments to the contrary.

However, Kwon claims that he is not “on the run” and plans to come out with the truth in the near future. The entire incident highlighted the risks associated with the peg mechanisms of algorithmic stablecoins.

Similarly, stablecoin Acala USD (aUSD) lost its peg in August 2022 after a protocol exploit caused an erroneous minting of 3.022 billion USD. A subsequent decision to burn the tainted tokens was made to recover their dollar value. Given the many other examples of stablecoin crashes, draft legislation in the US House of Representatives called for criminalizing the creation or issuance of “endogenously secured stablecoins.”

Sweeping layoffs and downsizing

The burden of the loss was also shared by some crypto companies’ former employees. Prominent players including Robinhood, Bitpanda and OpenSea announced massive layoffs, due to reasons that go back to surviving the bear market.

On the other hand, crypto exchanges such as FTX and Binance showed resistance to price volatility and continued their hiring spree to support the ongoing expansion drive.

Crypto organizations that chose to lay off employees did so to cut operating costs and liquidate loss-making components.

Recently, it was found that over 700 tech startups have experienced layoffs this year, affecting at least 93,519 employees globally. However, the tech community – from both crypto and non-crypto sectors – has been found migrating to Web3.

Crypto Hack: Humans Are The Real Monsters

One of the more visible problems engulfing crypto, such as hacks and fraud, just got bigger in 2022. Hackers drained crypto projects of millions of dollars by exploiting vulnerabilities found in poorly researched crypto projects.

A strategy widely chosen by the hacked projects this year was to offer the hacker a pink slip to return part of the loot. In the case of Transit Swap, a decentralized exchange aggregator, the hacker agreed to return about 70% (about $16.2 million) of the stolen $23 million fund.

While some hackers chose to return a portion of the funds in exchange for immunity from prosecution, other projects such as Kyber Network and Rari Fuze have been unsuccessful in pursuing their respective hackers to return the stolen funds.

This year also witnessed an increase in the number of phishing attempts, where hackers managed to gain access to the social media accounts of prominent figures, such as the South Korean government’s YouTube channel, Indian Prime Minister Narendra Modi’s Twitter account and PwC Venezuela’s Twitter account of shill fake giveaways to millions of followers.

Governments around the world consistently issued warnings against phishing attempts involving fraudulent apps and websites posing as prominent crypto exchanges such as Binance.

Delayed Resurrection: NFTs, Web3, and the Metaverse

Conversations around nonfungible tokens (NFTs), Web3 and the metaverse took the crypto ecosystem by storm, promising virtual use cases that extend into the real world. Celebrities, actors, musicians and artists catalyzed adoption by using the emerging technologies as tools to reconnect with fans or simply inflate their own wealth.

The NFT hype was officially declared dead in July 2022 when daily sales hit annual lows as investors who suffered recent losses refrained from stepping on the seemingly sinking ship.

Despite noisy statistics, the NFT ecosystem saw support from some of the biggest celebrities, which include musicians Snoop Dogg and Eminem, tennis legend Maria Sharapova and professional fighters Connor McGregor and Floyd Mayweather.

The waning interest in NFTs translated into a lack of investment in newer projects that build use cases around Web3 and the metaverse. Meta, arguably the biggest contender in the metaverse, plans to pump $10 billion every year into its project. However, an unclear roadmap and uncertain revenue streams hinder the ecosystem from achieving mainstream acceptance.

Fear aside, the biggest lesson that the scariest events in crypto showcase is the need to do independent research before making any investments. Past mistakes—such as investing in an unsupervised project, trusting unknown sources, and sharing private information online—will come back to haunt you.

This Halloween, Cointelegraph wishes you pumpkin spice and everything nice. Visit Cointelegraph to stay updated with the most important developments in crypto.