The crypto industry had a rough go of it in 2022, with crashing cryptocurrency prices and a series of catastrophic bankruptcies.
Since January, the global crypto market cap has sunk nearly 65%, falling from $2.2 trillion to $803 billion, according to CoinMarketCap. It had previously reached a peak of almost $3 trillion in November 2021.
Chad Harris, chief commercial officer of Riot Blockchain, which is building a crypto mining facility in Corsicana, felt the change in industry sentiment this year, he said at a recent Texas Blockchain Summit.
“Two years ago, this audience was packed,” he told attendees in November. “Today this is an audience full of passionate people who believe that they can actually facilitate what they tell the public. I think it’s important because every single time one of us fails in a disastrous way, it affects every one of us in this room.”
The challenging year included the collapse of cryptocurrencies Luna and Terra, as well as the bankruptcies of key crypto lenders Voyager and Celsius Network in July. November saw two more high-profile companies bite the dust as crypto platform FTX filed for bankruptcy, leading crypto lender BlockFi to follow suit.
The latest in the string of calamities came on Dec. 21 when Austin-based crypto mining company Core Scientific filed for Chapter 11 less than a year after going public in January, brought down by rising electricity rates and the falling price of Bitcoin.
So what does all of that mean for a state that has openly embraced crypto companies?
“The sentiment is we’re disappointed in FTX, but we’re resolved and optimistic about the future of the industry,” Texas Blockchain Council president Lee Bratcher said the summit. “We’re rolling up our sleeves and moving forward.”
In September, crypto-mining data center operator Compute North, which had two facilities in Texas, filed for bankruptcy protection. The struggling company sold its Big Spring operation to Foundry Digital in November.
While Compute North was the state’s only notable crypto bankruptcy this year, some Texas crypto miners have had to curtail operations to deal with the downturn, Bratcher said.
“I can’t say names, but it’s a small number,” he said. “Most are at full steam.”
The Texas Blockchain Council leader said funding for crypto projects has dried up significantly, and he expects that to continue into 2023. He said if current conditions of falling crypto prices and rising energy costs continue, there could be one or two more bankruptcies in the new year.
“But we are bullish on the future,” he said. “I think the worst is behind us.”
Jackie Sawicky, a self-described environmentalist who is protesting Riot Blockchain’s new North Texas facility, said she thinks the worst is still to come for the industry.
“This is not just a bubble,” she said. “It’s collapsing. It is a dying industry. The problem is a lot of these things can’t be undone. There are real-world consequences for people who invested with these companies.”
The valuations of the largest cryptocurrencies don’t make sense for an asset “whose real economic use is yet to be established,” wrote Oxford Economics senior economist Tamara Basic Vasiljev in a recent report. Bitcoin is trading at $16,720 in spite of being down 65% this year.
“The crypto market is still plagued by the accusation that it is a supersized Ponzi scheme — as long as it remains hard to define an economic case for the existence of cryptocurrencies it will be a challenge to defend a price level for any of them,” Vasiljev wrote.
Sawicky said crypto companies are made to consume resources, like electricity, yet they don’t produce any useful products.
Wes Cummins, CEO of Applied Digital in Dallas, pointed out that it’s been a rough year for tech companies overall. Facebook’s stock is down 66% this year, while Amazon’s fell 50% and Google’s slid about 40%.
“It’s cleaning out the pumps and the frauds,” Cummins said.
Going forward, Bitcoin will likely exert even more dominance in the cryptocurrency market, while smaller coins, like Luna, will fall away, which would be a positive development, Cummins said. Pricing site CoinGecko found that about 40% of the more than 8,000 cryptocurrencies listed on its site in 2021 have since been deactivated or delisted, becoming “dead coins.”
That means consumers are likely to turn to platforms offering better consumer protection.
“The people who got burned with FTX may be done,” Cummins said. “But a lot will stay involved.”