All the big layoffs, record withdrawals and bankruptcies triggered by the $ 2 trillion crash
The combated cryptocurrency lender, Voyager Digital, filed for bankruptcy this week and became the latest victim in a bear market that will continue to leave a trail of destruction in the digital currency sector.
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ears of global recession and the worst inflation in more than 40 years has wreaked havoc on the emerging cryptocurrency market this year – and has unleashed a violent cryptocurrency winter that has once forced high-flying companies to go bankrupt and pushed investors into panic-selling mode. The unrest has already claimed trillions of dollars in market value, billions of dollars in frozen funds and thousands of jobs, but current victims can only mark the beginning of the storm.
“There will be others who come up with problems – I do not think it ends here,” says Marcus Sortiriou, an analyst at London Digital Asset Brokerage GlobalBlock. Forbes, and notes that close to a dozen companies – including Peter Thiel-backed Vauld – are facing an uncertain fate after limiting withdrawals or initiating restructuring cases in the past month. “It’s going to be a persistent period of pain,” he says.
There is some guess as to whether the current crypto bear market will eventually compete with the years-long crypto winters of 2014 and 2018 – the latter wiping 80% off the price of bitcoin while crushing hundreds of new tokens that were lively at the time. Sotiriou suggests that this decline could last for up to 12 months unless sustained inflation cools down soon, allowing the Federal Reserve to ease aggressive rate hikes that make risky assets less attractive to investors. Analysts are not so sure that it will happen.
“This is necessary for any financial market to mature and develop,” argues Matteo Dante Perruccio, a partner at crypto-investment firm Wave Financial, which envisages that cryptocurrency prices will take at least six months – and up to two years – to recover, in similarity to cycles past. “But this time there is a difference,” he adds, pointing to a wave of institutional money – from the likes of Tesla, Goldman Sachs, Morgan Stanley and others – that led to widespread adoption during the pandemic: “When we inevitably return to a valuation market, it’s going to be more sustainable and healthier, with less speculation and a more proven and true investment philosophy. “
While crypto investors are waiting for brighter days ahead, Forbes traces all the carnage from the last crypto winter, including layoffs, price drops and record sales – as well as the lifelines and acquisitions that can help curb the battle. Here is the damage so far:
Trillions in value deleted
Low interest rates and government stimulus measures led to sky-high cryptocurrency prices during the pandemic, but the Federal Reserve’s decision to curb rising inflation by raising interest rates has since beaten investor sentiment – ushered in some of the cryptocurrency market’s biggest losses in history. After accumulating a record value of over $ 3 trillion in November 2021, the cryptocurrency market delivered its worst first half ever and has plunged to around $ 950 billion, a decline of almost 60% this year, according to CoinGecko.
Terra’s luna token, a cryptocurrency that was once in the top tier worth more than $ 40 billion, followed by bearish sentiment, lost virtually all of its value within a week in May after its sister token TerraUSD, a stablecoin intended to hold a price at 1 dollar, broke his dollar party. markets collapsed. Meanwhile, the best cryptocurrencies bitcoin, ether and BNB have plummeted by 70%, 75% and 65% respectively from record high levels. It has taken market years to recover from similar declines: When growing regulation triggered a violent cryptocurrency winter that began in 2017, it took more than 1,000 days before the world’s largest cryptocurrency reached a new high.
Thousands laid off
“A recession could lead to another cryptocurrency winter, and could last for a longer period,” wrote Brian Armstrong, founder of Coinbase, in a letter announcing layoffs in June.
The Jamel Toppin / Forbes collection
Faced with sharp market declines, cryptocurrency companies have laid off more than 2,000 workers in less than five weeks. By far the biggest blow, the popular brokerage house Coinbase laid off 1,180 employees, or about 18% of the workforce, on June 14 – weeks after the firm’s billionaire boss, Brian Armstrong, warned investors that a potential recession could lead to a prolonged bear market for cryptocurrencies. In a memo announcing the layoffs, Armstrong said he planned “at worst” and acknowledged that the company “grew too fast” during the beef pandemic market. “It was surprising, and it was difficult.” a former employee posted on LinkedIn. Others described the cuts as “abrupt” and “sudden”.
Also in June, Gemini, the stock exchange founded by billionaire Winklevii twins, said it would cut around 10% of its 1,000 employees and switch Crypto.com and BlockFi said they would lay off 5% and 20% of their workforce, affecting 260 and 170 employees respectively. Since then, the lending platform Celsius has reportedly laid off 150 workers, and the Austrian trading platform Bitpanda cut 270 jobs, calling the move “necessary … to navigate the storm and get out of it financially sound.”
Record sales
Investors piled out of mutual funds in cryptocurrencies at record speeds when bitcoin plunged to a low of 18 months last month. Outflows amounted to $ 423 million in the week of June 17, erasing virtually all inflows this year, overshadowing the previous record $ 198 million from January, according to crypto-asset management firm CoinShares. The turbulence pushed assets under crypto investment management to a record low of $ 21.6 billion last month, down 37% from May, as “threatening liquidation threats” led to “panic” among investors after Luna’s crash, CryptoCompare analysts wrote in a report. Meanwhile, Bank of America reports that the number of customers using cryptocurrency has fallen more than 50% to less than 500,000 since the market peaked in November.
Even bullish crypto firms have had to reckon with the changing market. On Tuesday, top miner Core Scientific revealed that it sold a majority of its bitcoin pile at an average cost of $ 23,000 last month, raising more than $ 167 million. In a statement, CEO Mike Levitt attributed the sale to “enormous stress” driven by weak markets, higher interest rates and “historical inflation”. Canada-based Bitfarms, which made headlines in January by joining Tesla and former billionaire Michael Saylor’s MicroStrategy to buy bitcoin for the balance sheet, also loaded off a large sum, dumping 3,000 bitcoins, or nearly half the pile, for 62 million dollars late last month.
“It is typical behavior for bitcoin miners to sell in the final stages of a bear market,” explains Sotiriou, noting that some companies may need to raise funds to cover expenses or stay solvent as high inflation exceeds operating costs.
Billions in frozen cash
Referring to “extreme market conditions”, cryptocurrency lenders scared Celsius markets after stopping withdrawals and transfers between customer accounts on 13 June. Within a few days, others followed: Babel Finance, CoinFLEX and Voyager froze all withdrawals. No one has reactivated access, making billions of dollars in funds inaccessible to their investors.
“They are in a very difficult situation because they have been irresponsible with customers’ funds, lost in one way or another and are now unable to repay their customers – and there is no guarantee that they will repay the money,” he said. explains Sotirou. In its latest quarterly report, listed Coinbase warned about the risk, revealing customers will be treated as “unsecured creditors” or unsecured lenders to fall back on, in the event the company goes bankrupt.
Bankruptcies and liquidations
A handful of crypto companies are simply collapsing. On June 27, Voyager issued a default warning to the besieged Singapore-based crypto hedge fund Three Arrows Capital (3AC) for failing to make payments of $ 675 million in bitcoin and stablecoin loans. 3AC managed at one time around $ 3 billion, but Singapore’s financial regulators condemned the company late last month, saying it provided false information and only had the authority to manage up to $ 250 million. On top of that, 3AC’s problems were exacerbated by the impact of the sale on risky investments, which allegedly included surprise bets on the Grayscale Bitcoin Trust and around $ 200 million in the now worthless Luna. On Friday, a court in the British Virgin Islands ordered 3AC to liquidate its assets, and ruled that the company was insolvent; it filed for bankruptcy the same day.
With 3AC’s fate sealed, Voyager filed for bankruptcy on Wednesday – just five days after it suspended trading. “While I have great faith in this future, the long-standing volatility and contagion of the crypto markets requires that we take conscious and decisive action now,” Voyager CEO Stephen Ehrlich said in a statement. In a lawsuit, the company revealed that it had more than 100,000 creditors and up to $ 10 billion in assets. Vauld and Celsius have also announced that they are exploring restructuring alternatives.
Lifelines and war chests
Some crypto companies hope to be rescued before they are forced to close their doors by turning to more stable counterparties. On Friday, FTX, the stock exchange founded by billionaire Sam Bankman-Fried, entered into an agreement to buy the controversial BlockFi for as much as $ 240 million. “You know, we’re willing to make a little bad deal here, if that’s what it takes to stabilize things and protect customers,” he said. Forbes last month after giving BlockFi and Voyager $ 750 million in lines of credit between FTX and his quantitative trading firm Alameda. Recently, the 30-year-old has said that FTX has “a few billion” more to help companies that are struggling.
“There are some third-rate exchanges that are already secretly insolvent,” Bankman Fried told Forbes last month, warning of more cryptocurrency failures.
Guerin Blask / Forbes Collection
Meanwhile, Goldman Sachs reportedly wants to raise $ 2 billion to help buy distressed assets from Celsius, and other older institutions are also showing interest. “I have a knee-jerk reaction that if you think the basics of a long-term case are really strong, when everyone else falls, it’s time to double down,” said Fidelity CEO Abby Johnson, who this year was a shepherd for the firm’s industry first decision. about allowing bitcoin in 401 (k) plans, said last month when asked what could be her third cryptocurrency winter. “It’s usually the right move.”
“It’s incredibly encouraging,” said Dante Perrucio. “Large institutions looking for distressed cryptocurrencies mean they believe the industry is going to come back – and come back strong – despite this very complicated period we are all in.”
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