Blockchain.com CEO at Crypto Winter: We now enter “Despair”

Cryptocurrencies have been down 45% since the beginning of the year – all the way to the bear market’s territory for the first time in three years.

As with Kryptos’ previous downturn that spans 2018 and 2019, layoffs are beginning to strike.

Employees at crypto exchanges have been the first on the chopping block – such as BitMEX and Gemini have promised to cut employees since April, while Coinbase plans to withdraw accepted job offers to cut costs.

Without naming specific companies, 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 in terms of number of employees – others have thousands of employees before profitability,” said Smith, noting that several companies unsustainably spent up to $ 800 million on marketing costs through this cycle.

Add Smith: “A lot of it needs to be washed out of 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 through the previous craze. Bitcoin increased from $ 9,000 to almost $ 62,000 between the second half of 2020 and November 2021, triggering explosive growth across the crypto sector.

“Every company that followed that strategy has had a dramatic development of its business – major growth rounds are collapsing, companies are now increasing at down-round prices – it’s going to be difficult for them to adapt,” Smith said. Earlier this week, there were reports that cryptocurrency lender BlockFi was looking to raise funds worth $ 1 billion, down from $ 3 billion in the previous round in March 2021.

The three epochs of crypto bear markets

According to Smith’s assessment, the current bear market has been going on for nine months – leading to more possible pain on the horizon if previous patterns are repeated.

However, it is up to 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 fall to almost 90% during the 2017 peak.

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

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

Otherwise known, he said, as the chapter where the tide goes out and we all see who is wearing pants, as an echo of Warren Buffett from a Berkshire Hathaway revenue call in 2001. Buffett is a fierce crypto skeptic.

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

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

Blockchain.com left 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 stablecoin as “not a popular choice.” There was some internal pressure to offer it so that users could unlock up to 20% APY on the Anchor lending platform.

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

However, Blockchain.com was an early investor in LUNA, long before UST. Smith said he was in doubt 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 changing hands for $ 41-85% below the record high of $ 260 recorded in November.

Smith also doubted algorithmic stack coins, despite investing in a few. He said it would be “very cool” for someone to work, but is by default inclined to believe that they do not want and want to be proven wrong.

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

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