According to some analysts, the layoffs announced last week in cryptocurrency startups may be just the beginning of a reckoning in new cryptocurrency companies, as the still new cryptocurrency market faces a sudden reversal of the celebrity-driven boom it experienced there a few months.
Coinbase, the largest U.S.-based cryptocurrency exchange, said it planned to cut 18 percent of full-time jobs, or about 1,100 people, and BlockFi, a cryptocurrency lending company, said it was cutting 20 percent of its staff. , or about 170 people. .
Executives from both companies have blamed the possibility of a recession and a slowdown in customer rates for pushing them to try to save extra money, factors that analysts say are likely to affect the rest of the crypto market.
“The worst is not even behind us. It’s just getting started,” said Christopher Vecchio, senior strategist at DailyFX, an analyst firm.
“Many of these companies tried to expand too fast and had a fundamental misinterpretation about the macro environment,” he said.
Rising interest rates, worsening inflation and falling stock prices have taken their toll on all Americans, but digital currencies have been particularly hard hit.
Over the weekend, bitcoin not only fell below the $ 20,000 price level, but briefly fell below $ 18,000 before recovering. It has dropped about 70% from its all-time high.
Cryptocurrencies and related startups tend to make money through transaction fees, a model that has grown as digital currency has gained more conversions, but seems less attractive if trading volume comes to a standstill.
“Right now, the successes and failures of every business in this space are simply tied to the volumes of adoption and trading,” said Jeff Dorman, investment director at Arca, a digital asset manager.
“Everyone has miscalculated growth and revenue in this industry,” he said.
Some analysts said the dynamics around cryptocurrency startups reminded them of the dot-com boom in the late 1990s, when hype-powered websites and abundant funding hired people much faster than their income would normally justify.
Now, as then, tech entrepreneurs have shown the urgency of coming in early and giving a touch.
“You just had a career to secure that client, so everyone was hiring exponentially,” said Edward Moya, a senior market analyst at Oanda, a trading and analytics firm.
Signs of a marketing frenzy have appeared one after another in recent months, even when the Crypto.com exchange bought the naming rights for the Los Angeles Lakers stadium and when several cryptocurrency-centric companies posted ads during the Super Bowl.
But now layoffs represent a sudden and possibly widespread contraction, which has been rare in the tech industry.
“You have a lot of companies that were fully integrated into the crypto, and now some companies are in serious danger,” Moya said.
“Borrowing costs have skyrocketed, and you’ll see that companies that aren’t yet profitable will be under enormous pressure,” he said.
Coinbase CEO Brian Armstrong said the company “hired in excess” given the uncertainty that turned out to be the market.
“A recession could lead to another cryptocurrency winter and could last for a long time,” Armstrong said in a statement.
“While it’s hard to predict the economy or the markets, we always plan for the worst in order to be able to operate the business in any environment,” he said.
It’s not clear what widespread job cuts will be among crypto startups, and it’s not the only technology area facing cost cuts, as real estate technology companies are also eliminating jobs.
Cryptographic startups have been hot enough lately to attract experienced talent from other parts of the tech industry, as engineers and executives from established companies like Meta, Facebook’s parent company, have jumped into the high-risk, seemingly high-reward cryptographic industry.
Dorman said he is still optimistic about the long-term future of digital currencies, especially as a way for corporations or other entities to establish closer relationships with investors and customers who want to buy currencies.
“Blockchain is not going to go away. Prices are going down, but this is not going to go away,” he said.
But he said this drop in cryptocurrency prices hurts more than previous big price changes, because the cryptocurrency community is now much bigger.
“This is very different from five years ago, when people weren’t sure if the blockchain was going to matter,” he said.