Remember Terra? Do Kwon’s layer 1 was designed in such a way that its native token, LUNA, worked in tandem with the network’s algorithmic stablecoin, UST. When you minted new UST, you destroyed LUNA tokens (thereby constricting supply), and when you redeemed UST, you created new LUNA (expanding supply).
That system worked wonderfully as long as UST experienced great demand — which it did, for a while, thanks to a 20% yearly interest on the coin supplied by Anchor Protocol. But in May 2022, huge selloffs caused UST to lose its $1 peg; market participants rushed to redeem their UST, creating a massive new amount of LUNA and pushing the token’s price down, which of course led to more UST redemptions, and so on. Over $40 billion in market value was obliterated in 72 hours.
Terra’s collapse shook the crypto industry, which back then was levered to the gills. Crypto hedge fund Three Arrows Capital blew up, while crypto lenders such as Voyager, BlockFi and Celsius went bust. If that wasn’t enough, the U.S. imposed sanctions on Ethereum’s Tornado Cash, sending developers all over the world in a bit of a panic.
After CoinDesk’s Ian Allison reported in November 2022 that Alameda was quite possibly broke, people started yanking their funds out of FTX, which led Bankman-Fried to freeze withdrawals. It turned out that SBF had been fraudulently using FTX customer funds to palliate losses incurred by Alameda Research over the course of the years. Bankman-Fried was arrested (and subsequently sentenced to 25 years in prison) shortly after FTX filed for bankruptcy.
Shortly after FTX’s demise, SEC Chair Gary Gensler began an aggressive campaign against the sector, suing a huge number of crypto firms (including Coinbase and Kraken) and ushering in an era of “regulation by enforcement” that was decried by the industry and friendly members of Congress alike.
That wasn’t the end of crypto’s tribulations. Crypto lender Genesis and bitcoin miner Core Scientific were soon added to the list of casualties. Worse, in March 2023 three crypto-friendly banks (Signature, Silvergate and Silicon Valley Bank) suffered from bank-runs and collapsed, making it significantly more difficult for crypto firms to access the banking system. Nic Carter, a prominent crypto VC, accused the Biden administration of trying to debank the crypto industry by employing an Obama-era strategy, a theory which has since gained traction within Congress and the Trump administration.
But the winds of fortune finally turned in crypto’s favor. When BlackRock filed for a spot bitcoin ETF in June 2023, it felt like Larry Fink himself was shooting a flare in the dark, signaling that Wall Street was ready to embrace crypto. Two months later, Grayscale defeated the SEC in court on the matter of converting its bitcoin trust into an ETF. The agency had little choice than to greenlight a dozen spot bitcoin ETFs in January 2024, which later became the most successful new ETFs of all time.
At first showing signs of reluctance about launching spot ether ETFs, the SEC suddenly scrambled to approve the products at the last minute. Some observers linked the change of heart to Trump’s new friendliness towards the crypto industry, which contrasted with Joe Biden’s hostility. The fact that the crypto industry donated a tremendous amount of money to the former’s campaign (and to other pro-crypto politicians) certainly helped as well; we saw yesterday that the Democratic Party, once in lockstep with Elizabeth Warren’s anti-crypto crusade, strongly voted in favor of both the GENIUS and Clarity bills.
Trump’s overwhelming victory in November sent shockwaves through Washington and the crypto industry.
The new administration kept its word, though not without hiccups in the form of Trump- and Melania-themed memecoins. Ross Ulbricht is now a free man, and an executive order has been signed to constitute a bitcoin reserve (multiple states, like Texas, Arizona and New Hampshire, have followed suit). Treasury’s OFAC has taken Tornado Cash off of the sanctions list, while the SEC has dropped most of its lawsuits and is gearing up to greenlight a bunch of new crypto ETFs. Debanking is no longer a concern.
Congress, meanwhile, just passed the GENIUS Act (which creates a framework for regulating stablecoins (unthinkable in the wake of Terra’s collapse!!) and will probably pass the Clarity Act (a more complex piece of legislation that assigns clear jurisdiction to the SEC and CFTC when it comes to crypto) before the end of the year.
Not to mention that Coinbase stock is trading at record highs, Tether is now seen as one of the most successful businesses in the world, Circle has gone public, Core Scientific (back from the dead) is on track to get acquired by AI firm CoreWeave, and Michael Saylor’s bitcoin evangelization has given birth to a horde of companies looking to follow in his footsteps to purchase as much BTC (or ETH or SOL or even DOGE) as they possibly can.
All of these events have been reflected in bitcoin’s price. The orange coin, which you could briefly buy for $16,000 after FTX collapsed, is now priced at roughly $120,000, and the total market capitalization of the crypto sector is near $4 trillion (up from $830 million in December 2022).
