From Chaos to Genius: The Crypto Industry's Wild Ride

The Terra ecosystem, founded by Do Kwon, was initially designed with a unique mechanism where its native token, LUNA, was intricately linked with the network's algorithmic stablecoin, UST. The process of minting new UST involved destroying LUNA tokens, thereby reducing their supply, while redeeming UST led to the creation of new LUNA, increasing its supply. This system functioned smoothly as long as UST maintained strong demand, largely fueled by the 20% yearly interest offered by Anchor Protocol. However, in May 2022, massive selloffs caused UST to lose its peg to the US dollar, prompting a rush to redeem UST, which in turn created a huge influx of new LUNA, pushing its price downward and triggering a vicious cycle of redemptions. This collapse obliterated over $40 billion in market value within a mere 72 hours. The repercussions of Terra's downfall were felt across the crypto industry, which was heavily leveraged at the time. The collapse led to the demise of crypto hedge fund Three Arrows Capital and crypto lenders like Voyager, BlockFi, and Celsius. Furthermore, the US imposed sanctions on Ethereum's Tornado Cash, causing widespread concern among developers globally. Following a report by CoinDesk's Ian Allison in November 2022 suggesting Alameda's potential insolvency, investors began withdrawing funds from FTX, leading to a freeze on withdrawals. It was subsequently discovered that SBF had been misusing FTX customer funds to cover losses incurred by Alameda Research, resulting in his arrest and later sentencing to 25 years in prison after FTX filed for bankruptcy. In the aftermath of FTX's collapse, SEC Chair Gary Gensler initiated an aggressive campaign against the crypto sector, filing lawsuits against numerous crypto firms, including Coinbase and Kraken, and adopting a 'regulation by enforcement' approach that was widely criticized by the industry and sympathetic members of Congress. The challenges for the crypto industry persisted, with crypto lender Genesis and bitcoin miner Core Scientific joining the list of casualties. Moreover, in March 2023, three crypto-friendly banks - Signature, Silvergate, and Silicon Valley Bank - suffered bank runs and collapsed, significantly hindering crypto firms' access to the banking system. Nic Carter, a prominent crypto VC, accused the Biden administration of attempting to debank the crypto industry, employing a strategy reminiscent of the Obama era, a theory that has since gained traction within Congress and the Trump administration. However, the tide eventually turned in favor of crypto. When BlackRock filed for a spot bitcoin ETF in June 2023, it marked a significant turning point, signaling Wall Street's readiness to embrace crypto. Two months later, Grayscale secured a court victory against the SEC, paving the way for the conversion of its bitcoin trust into an ETF. The SEC subsequently approved a dozen spot bitcoin ETFs in January 2024, which went on to become the most successful new ETFs of all time. Initially hesitant about launching spot ether ETFs, the SEC later scrambled to approve these products at the last minute, with some observers attributing this change of heart to Trump's newfound friendliness towards the crypto industry, contrasting with Joe Biden's hostility. The substantial donations from the crypto industry to Trump's campaign and other pro-crypto politicians likely played a role as well. The Democratic Party, once aligned with Elizabeth Warren's anti-crypto stance, strongly supported both the GENIUS and Clarity bills. Trump's landslide victory in November sent shockwaves through Washington and the crypto industry. The new administration kept its promises, albeit with some setbacks, including the emergence of Trump- and Melania-themed memecoins. Ross Ulbricht is now a free man, and an executive order has been signed to establish a bitcoin reserve, with multiple states like Texas, Arizona, and New Hampshire following suit. The Treasury's OFAC has removed Tornado Cash from the sanctions list, while the SEC has dropped most of its lawsuits and is preparing to greenlight a batch of new crypto ETFs. Debanking is no longer a concern. Meanwhile, Congress has passed the GENIUS Act, creating a regulatory framework for stablecoins, and is likely to pass the Clarity Act, which clarifies jurisdiction for the SEC and CFTC in the crypto space, before the end of the year. Notably, Coinbase's stock is trading at record highs, Tether is now viewed as one of the most successful businesses globally, Circle has gone public, Core Scientific is on track to be acquired by AI firm CoreWeave, and Michael Saylor's bitcoin advocacy has inspired a wave of companies seeking to purchase large amounts of BTC, ETH, SOL, or even DOGE. These developments have been reflected in bitcoin's price, which has surged from a low of $16,000 after FTX's collapse to roughly $120,000, with the total market capitalization of the crypto sector nearing $4 trillion, up from $830 million in December 2022.