Blockchain.com CEO on Crypto Winter: We’re Now Entering ‘Despair’

Cryptocurrencies are collectively down 45% since the start of the year – well into bear market territory for the first time in three years.

As with crypto’s previous downturn spanning 2018 and 2019, layoffs are starting to strike.

Employees at crypto exchanges have been the first on the chopping block – the likes of BitMEX and Gemini have pledged to cut staff since April, while Coinbase plans to withdraw accepted job offers to cut costs.

Without naming specific firms, Blockchain.com CEO Peter Smith said at Amsterdam’s Money20/20 conference this week that many crypto companies were growing too fast, without focusing on becoming profitable.

“We are the smallest crypto company of its kind by headcount — others have thousands of employees before profitability,” Smith said, noting that several firms unsustainably spent up to $800 million in marketing costs through this cycle.

Added Smith: “A lot of that needs to be washed out of the space, not just in crypto, but fintech more generally. We’re going to see a fundamental rotation from growth to free cash flow.”

Smith said investors had pushed Blockchain.com, founded in 2011, to spend more on marketing and grow faster throughout the previous craze. Bitcoin surged from $9,000 to nearly $62,000 between the second half of 2020 and November 2021, sparking explosive growth across the crypto sector.

“Every company that followed that strategy has had a dramatic evolution of their business — big growth rounds collapse, companies are now raising at down-round prices — it’s going to be difficult for them to adjust,” Smith said. Earlier this week, reports surfaced that crypto lender BlockFi was looking to raise $1 billion in funding, down from $3 billion in its previous round in March 2021.

The Three Eras of Crypto Bear Markets

In Smith’s estimation, the current bear market has been going on for nine months – leading to more potential pain on the horizon if past patterns repeat themselves.

However, it is up for debate whether a bear market is the same as the dreaded “crypto winter”.

After all, the previous bear market lasted significantly longer than nine months, and the depth of the crypto winter saw bitcoin sink nearly 90% below its 2017 peak.

In an interview with Blockworks, Smith outlined what he calls the three eras of bear markets: the beginning, which is hard to sense; the middle, where despair sets in; and the new normal.

“We are entering the second era [despair]which is my favorite,” Smith said. “I’m a free market capitalist, and I enjoy the purifying power of the market.”

Otherwise known, he said, as the chapter where the tide goes out and we all see who’s wearing pants, echoing Warren Buffett from a Berkshire Hathaway earnings call in 2001. Buffett is a staunch crypto-skeptic.

This stage is also defined by the ability to differentiate quality projects, to the benefit of customers, teams and shareholders.

“The final phase is when everyone looks around and says, ‘Oh, this is crypto now, and we’re all going to figure out how to make this thing work.'”

Blockchain.com exited its LUNA position before the crash

Blockchain.com never listed Terraform Labs’ failed stablecoin UST, even though the platform offered LUNA. Smith opposed UST, describing the decision to avoid the stablecoin as “not a popular choice.” There was some internal pressure to offer it so users could unlock up to 20% APY on the Anchor lending platform.

“Consumers love 20%, but consumers also hate zero,” Smith said, referring to LUNA and UST’s collapse.

However, Blockchain.com was an early investor in LUNA, long before UST. Smith said he had doubts about the sustainability of the Terra ecosystem and eventually left the position before the crash.

“Anything that goes up too fast worries me,” Smith said. “Solana also went up too fast.” Solana is currently trading hands at $41 —85% below the all-time high of $260 recorded in November.

Smith also doubted algorithmic stablecoins, despite investing in a few. He said it would be “really cool” for one to work, but by default tends to think they don’t want to and want to be proven wrong.

Still, the crypto veteran scoffed at the idea of ​​taking Justin Sun’s new algorithmic stablecoin, the Decentralized US Dollar (USDD), seriously. USDD’s circulating supply has skyrocketed from zero to over $700 million since the beginning of May.

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