Crypto’s hiring wave goes in the opposite direction as prices continue to fall

Layoffs announced at cryptocurrency startups last week could be just the beginning of a reckoning at crypto startups, some analysts have said, as the fledgling crypto market faces a sudden reversal from the celebrity boom it saw a few months ago.

Coinbase, the largest US-based crypto exchange, said it plans to cut 18% of its full-time jobs, or about 1,100 employees, and BlockFi, a crypto lending startup, said it is cutting 20% ​​of its staff, or about 170 employees will dismantle .

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

“The worst isn’t even behind us yet. It’s just getting started,” said Christopher Vecchio, senior strategist at DailyFX, an analyst firm.

“Many of these companies have been trying to expand too quickly and they have fundamentally misjudged 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 hit particularly hard.

Over the weekend, bitcoin not only fell below the closely watched $20,000 price level, but briefly dipped below $18,000 before recovering. It’s down about 70% from its all-time high.

Crypto exchanges and related startups often make money from transaction fees, a model that boomed as the digital currency gained more converts but seems less attractive when trading volume falters.

“Right now, the success and failure of any company in this space is simply tied to adoption and trading volume,” said Jeff Dorman, chief investment officer at Arca, a digital asset manager.

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

Some analysts said the dynamic surrounding crypto startups reminded them of the dot-com boom of the late 1990s, when sites fueled by hype and ample funding hired people much faster than their earnings would normally justify.

Now, as then, tech entrepreneurs have demonstrated the urgency to get in early and make a splash.

“They were just in a race to get this client, so everyone was hiring exponentially,” said Edward Moya, senior market analyst at Oanda, a trading and analytics firm.

Signs of a marketing frenzy have cropped up in recent months, including when exchange 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 layoffs represent a sudden and potentially widespread drop that has been rare in the tech industry.

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

“Borrowing costs have skyrocketed and you will see that those companies that are not yet profitable will come under tremendous pressure,” he said.

Coinbase CEO Brian Armstrong said the company is “over-busy” as the market has proven uncertain.

“A recession could result in another crypto winter and last for an extended period of time,” Armstrong said in a statement.

“While it’s difficult to predict the economy or the markets, we always plan for the worst so we can do business in any environment,” he said.

It’s not clear how widespread job cuts will be among crypto startups, and it’s not the only area of ​​tech facing cost-cutting as real estate tech companies are also shedding jobs.

Crypto startups have been hot enough of late to attract seasoned talent from other parts of the tech industry, as engineers and executives from established companies like Facebook’s parent company Meta entered the high-risk, seemingly rewarding crypto sector.

Dorman said he’s still optimistic about the long-term future of digital coins, particularly as a way for companies or other entities to build closer relationships with investors and customers looking to buy the coins.

“Blockchain is not going away. Prices have come down, but that’s not going away,” he said.

But he said this drop in crypto prices is hurting more than previous major price swings because the crypto community is so much larger now.

“This is very different from five years ago when people were unsure if blockchain would even matter,” he said.

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