The past year in the digital asset market has been characterized by a series of negative shocks, triggered initially by the collapse of Terra/LUNA, Citi (C) said in a research report Monday looking back on the year.

“Leverage, volatility and interest have faded as investors battle with declining prices,” analysts led by Joseph Ayoub wrote. “Retail interest has broadly diminished as prices have declined,” and this has “coincided with a more general decline in volatility.”

Institutional interest has also declined. This “loss of trust” followed the failure of many centralized entities, and is reflected in exchange-traded product (ETP) flows, which have remained negative throughout the year, the report said.

Against a broader macro backdrop of inflation concerns, rising interest rates and tightening financial conditions, total crypto market cap has declined by about 61% compared to an 18% drop for the S&P 500 index, the report added.

The bank says the bankruptcies of crypto exchange FTX and lenders Celsius Network and Voyager Digital were failures of centralized entities rather than decentralized entities, “perhaps signifying the resilience of decentralized finance protocols.” Decentralized finance (DeFi) is an umbrella term for a variety of financial applications carried out on a blockchain.

Bitcoin open interest saw a significant decline, the note said. It started the year at more than $23 billion and has dropped to around $9 billion. Leverage has also largely declined. Open interest is the total number of outstanding derivative contracts held by investors and represents active positions.

The bank notes there is still over $150 billion in market cap across stablecoins. This type of cryptocurrency saw only 5% net redemptions in 2022. However, relative declines show different investor behavior and diverging confidence in stablecoins, with tether (USDT) losing as much as $10 billion in market cap, while USD coin (USDC) stayed roughly level and Binance USD (BUSD) increased.

Spot trading volumes have remained resilient despite falling crypto prices, and decentralized exchange (DEX) volumes have grown in recent weeks following the collapse of FTX. The demise of FTX has “further bolstered policymaker calls for crypto regulation, placing a greater emphasis on consumer protection,” according to the note.

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