Crypto’s employment spree is reversing as prices continue to fall

Layoffs announced last week at the start of cryptocurrency could only be the beginning of a settlement with cryptocurrency, some analysts said, as the still young crypto market is facing a sudden reversal from the celebrity-driven boom it experienced a few months ago.

Coinbase, the largest US-based crypto exchange, said it plans to cut 18% of full-time jobs, or about 1,100 people, and BlockFi, a start-up of cryptocurrency lending, said it would cut 20% of employees, or about 170 people. .

Executives at both companies blamed the possibility of a recession and a drop in customer fees for encouraging them to try to save extra money – factors that analysts said are likely to hit the rest of the crypto market as well.

“The worst is not even behind us. It’s just a matter of getting started, says Christopher Vecchio, senior strategist at DailyFX, an analyst firm.

“Many of these companies were trying to expand too fast, and they had a fundamental misconception of the macro environment,” he said.

Rising interest rates, worsening inflation and falling stock prices have eroded all Americans, but digital currencies have been particularly hard hit.

Over the weekend, bitcoin not only fell below the closely monitored price level of $ 20,000, but fell briefly below $ 18,000 before recovering. It is down about 70% from the highest level ever.

Crypto exchanges and related startups often make money through transaction fees, a model that flourished as digital currency received more conversions, but looks less attractive if trading volume stops.

“Right now, the successes and failures of all the businesses in this area are simply related to adoption and trading volume,” said Jeff Dorman, Chief Investment Officer at Arca, a digital asset manager.

“Everyone miscalculated the growth and revenue in this industry,” he said.

Some analysts said the dynamics surrounding cryptostartups reminded them of the dot-com boom of the late 1990s, when hype-driven websites and abundant funding hired people far faster than their earnings would normally justify.

Now, as then, technology contractors have shown that it is urgent to come in early and do a splash.

“You just had a race to secure that customer, so everyone hires exponentially,” said Edward Moya, senior market analyst at Oanda, a trading and analytics firm.

Signs of marketing frenzy have surfaced in recent months, including when Crypto.com bought the naming rights to the Los Angeles Lakers’ home stadium and when several crypto-focused companies ran ads during the Super Bowl.

But now redundancies represent a sudden and possibly widespread contraction, which has been rare in the technology industry.

“You have a lot of companies that were all-in on crypto, and now some companies are in serious danger,” Moya said.

“Borrowing costs have skyrocketed, and you will see that companies that are not yet profitable are going to be under enormous pressure,” he said.

Coinbase CEO Brian Armstrong said the company was “overworked” given how uncertain the market turned out to be.

“A recession could lead to a new crypto winter, and could last for a longer period,” Armstrong said in a statement.

“Even though it is difficult to predict the economy or the markets, we always plan the worst so that we can run the business through any environment,” he said.

It is not clear how widespread job cuts will be among crypto startups, and it is not the only area in technology that is facing cost cuts, as real estate technology companies are also eliminating jobs.

Crypto startups have been hot enough lately to attract experienced talent from other parts of the technology industry, as engineers and executives from established companies like Facebook’s parents Meta jumped into the high-risk and seemingly high-paying crypto sector.

Dorman said he remains optimistic about the long-term future of digital coins, especially as a way for companies or other entities to build closer relationships with investors and customers who want to buy the coins.

«Blockchain does not disappear. Prices are down, but this will not go away, he said.

But he said that this fall in crypto prices hurts more than before large price fluctuations, because the crypto society is now so much bigger.

“This is very different from five years ago, when people were not sure if blockchain was going to mean anything at all,” he said.