India's First CBDC, FTX Fiasco, LUNA Meltdown: Crypto Events That Defined 2022
Ethereum Merge, that took place in September, is lauded by the industry as an important step towards green blockchain.
2022 has been a particularly eventful year for the crypto sector. On one hand, the market had to deal with crises such as the LUNA crash or the FTX fiasco. On the other hand, there were notable positive developments such as the Ethereum Merge, which was an impressive technological achievement in itself. In India, the Centre announced a 30 percent tax on crypto gains, which sort of legitimised cryptocurrencies as an asset class. Additionally, the Reserve Bank of India (RBI) introduced its own central bank digital currency (CBDC).
Here’s a quick look at some of the major crypto events that made headlines in 2022:
India announces crypto tax
Cryptocurrencies, non-fungible tokens (NFTs), and similar entities are clubbed under virtual digital assets (VDAs) in the country and face a stringent taxation structure as part of the new regime that came into effect on April 1 this year.
At the Union Budget 2022-23, Finance Minister Nirmala Sitharaman proposed a taxation policy on VDAs. All gains from the sale of VDAs will face a tax of 30 percent. Note that there are no thresholds under which the VDA tax won’t be imposed. This means that even if a taxpayer’s total income is below the threshold limit of Rs 2.5 lakhs, the gains will be taxable.
On top of that, a TDS of 1 percent will be charged on all VDA transactions, which will be deducted by the crypto exchange that will credit or make payment to the seller.
While the amount of tax might be considered high, it still gave a fresh lease of life to investors as the taxation signalled that while unregulated, crypto assets are not deemed outright illegal by the centre.
LUNA crash
In May, the LUNA cryptocurrency lost nearly all of its value as its interlinked stablecoin TerraUSD (UST) lost its US dollar peg. This resulted in a nearly 97 percent dip in LUNA price below its all-time peak of $118, as seen in April. In a domino effect, the crypto market faced an unprecedented crash in prices, ripple effects of which still haunt prices to this day.
The shocking dips have led to investors losing faith in the crypto, with Binance exchange even going to the length of halting LUNA trading. In order to help the Terra ecosystem get back on its feet, founder Do Kwon revealed LUNA 2.0, a revival plan, which entailed several changes, from a new blockchain to a total token reset.
Ethereum Merge
Ethereum Merge, the most-awaited crypto event this year, took place on September 15, as confirmed by Ethereum co-founder Vitalik Buterin on Twitter.
After months of speculations and waiting, the Ethereum network finally switched over from a proof-of-work (PoW) model to a proof-of-stake (PoS) system. Among other things, this will bring a 99 percent reduction in energy consumption on the Ethereum network, marking a valuable step forward toward a green blockchain.
ALSO READ: Why India Needs A 'Green' Blockchain And What Needs To Be Done To Facilitate It
Digital Rupee launched
As cryptocurrencies are gaining traction across the globe, more and more countries are eagerly experimenting with CBDCs to tap into the blockchain-based money sector. India in late November and early December launched two pilots for its own CBDC — Digital Rupee.
The RBI recently introduced two formats of CBDCs — e₹-W (for the wholesale sector) and e₹-R (for retail sector). Unlike cryptocurrencies, the value of the Digital Rupee will be the same as the fiat rupee and won’t depreciate in time in relation to the national currency.
As per RBI Governor Shaktikanta Das, Digital Rupee will help ease logistics, by eliminating the cost of printing notes and other such elements.
Das said that the Digital Rupee will eliminate banks as intermediaries in digital transactions, as seen in the case of the UPI mode of payment. He added that CBDC will also help in transactions between nations as it will enable instant remittance.
FTX meltdown
FTX crypto exchange was founded by Sam Bankman-Fried in 2019. Speculation about the financial health of FTX which started over a November weekend amplified into $6 billion of withdrawals in just 72 hours.
Alameda Research, founded in 2017 by Bankman-Fried, began as a proprietary trading firm involved in cryptocurrencies. It made money by buying and selling crypto. Soon, Bankman-Fried decided to help others do the same. So, he built an exchange in 2019, named FTX.
FTX also gave customers loans if they were willing to bet big in return of interest.
Problems started arising when customers wanted their funds returned, which they had set aside on the exchange for buying and selling crypto in the future. FTX, inevitably, couldn’t return their money.
After setting up FTX,, Bankman-Fried also launched a cryptocurrency token — FTT. FTX itself started buying this token using the revenue generated from exchange transaction fees. So, basically, FTX was trying to inflate demand by buying its own FTT coins.
Now, Alameda had bought FTT tokens at very low prices and then waited for their value to blow up. And then it began borrowing real money, keeping these highly inflated FTT tokens as collateral.
Alameda's balance sheet, which got leaked, implied that the company must pay their lender $8 billion. However, the majority of the assets were in FTT. Once investors saw this leaked balance sheet, they realised how uncertain the situation was and began withdrawing their deposits.
Changpeng Zhao, the 45-year-old CEO of Binance, said that he was willing to buy out FTX after due diligence. When FTX was set up by Bankman-Fried, just six months after the company began its operations, Zhao took up a sizeable stake in it.
In 2021, Bankman-Fried bought out Binance’s stake in the company. It wasn’t an all-cash deal. A bit of it was paid in FTT tokens and Zhao held onto those tokens. The recent Binance deal to cover a liquidity crunch was non-binding and it was subject to further due diligence which led few investors and analysts to question it. As a result of news reports regarding mishandled customer funds, corporate due diligence, and alleged US agency investigations, Binance decided to not pursue the potential acquisition of FTX.
All this led to massive turmoil in the industry and led to massive distrust among the public towards centralised establishments. FTX investors lost nearly $2 billion of their hard-earned money and overall, the crypto market saw a decline of nearly $40 billion.
Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.
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