SAN FRANCISCO – No one wanted to lose their cryptocurrency craze.
In the last two years, the prices of Bitcoin and other virtual currencies have risen, with the proliferation of crypto start-ups. Companies that market digital currencies to investors were flooded with TV commercials, new lending operations offered high interest rates on cryptocurrency deposits, and exchanges like Coinbase, which allowed investors to trade digital assets, were engaged in procurement.
A global industry worth hundreds of billions of dollars has grown overnight. It’s falling apart now.
After cryptocurrency prices plummeted on Tuesday, Coinbas said it was down 18 percent from its staff after layoffs at other crypto companies like Gemini, BlockFi and Crypto.com. Reputable start-ups like Terraform Labs have imploded, eliminating years of investment. On Sunday, an experimental crypto bank, Celsius, abruptly halted withdrawals.
The backwardness of the cryptographic ecosystem shows the precariousness of the structure built around these dangerous and unregulated digital assets. The total value of the cryptocurrency market has fallen by about 65 percent since the fall, and analysts predict that sales will continue. Shares of cryptocurrencies have plummeted, retailers are fleeing, and industry executives are predicting a long-term downturn that could put more businesses at risk.
“The tide has gone down in cryptography, and we’re seeing a lot of these businesses and platforms relying on shaky and unsustainable foundations,” said Lee Reiners, a former Federal Reserve official who teaches at Duke University School of Law. “The music has stopped.”
Cryptocurrencies are digital currencies that are exchanged using computer networks that verify transactions, rather than a centralized entity such as a bank. Over the years, central banks have been marketed as hedging inflation due to economic overflow. Bitcoin, the most valuable cryptocurrency, has an integrated supply limit.
But now with declining stocks, rising interest rates and high inflation, cryptocurrency prices are also falling, showing that they are tied to the general market. And as people back away from their crypto investments, the outflow reveals the volatile foundations of many of the industry’s most popular companies.
More than 62 crypto companies are now worth $ 1 trillion or more, according to CB Insights, a private finance monitoring company. Last year, the industry received more than $ 25 billion in risk financing, roughly 1,700 agreements, according to a study by The Block. OpenSea, the largest market for special digital images known as fungal tokens, has garnered a staggering $ 13 billion. And Wall Street banks, such as JPMorgan Chase, previously banned cryptocurrencies, and Fortune 500 companies expanded crypto offerings like PayPal.
Many of these companies are equipped to deal with declining cryptocurrency prices. But the cuts are likely to continue as they adjust their strategies after years of over-growth. Among the most vulnerable are start-ups that have launched their own cryptocurrencies as prices fall.
Some industry experts have long said that the prosperous growth of the last two years would not last forever, compared to the dot-com boom of the late 1990s. At the time, dozens of dot-com companies were trading on the Internet due to initial hysteria amid hysteria, although a few of them made money. When confidence began to decline in the early 2000s, dot-coms broke down, leaving the biggest ones standing, such as eBay, Amazon and Yahoo.
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This time, investors are expected to survive. “You definitely have some overpriced businesses that don’t have the basics,” said Mike Jones, an investor in the venture company Science Inc. “But you also have very strong companies that are trading below what they should be.”
There have been warning signs that some crypto companies were unsustainable. Skeptics point out that many of the most popular companies offer products based on risky financial engineering.
Terraform Labs, for example, offered TerraUSD, a stablecoin with a fixed value tied to the US dollar. Do Kwon praised its founder for the coin, and raised more than $ 200 million from big investment companies like Lightspeed Venture Partners and Galaxy Digital, though critics warned that the project was unstable.
The price of the coin was algorithmically linked to the sister cryptocurrency Luna. When the price of the moon fell in May, TerraUSD fell sharply – a “death spiral” that destabilized the broad market and plunged some investors into financial ruin.
This week, the announcement that Celsius would freeze withdrawals had a similar effect. Celsius aggressively marketed its banking lending service to customers, expecting an 18 percent return on their cryptocurrency holdings if they deposited them with the company.
For months, critical performance risk How Celsius can sustain these high-yield investments without jeopardizing its deposits. The company conducted a study of several state regulators. Eventually, the drop in cryptocurrency prices put more pressure on the company than it could bear.
As the price of Bitcoin fell, Celsius announced on Sunday that it was freezing withdrawals “due to the extreme conditions of the market.” The company did not respond to the request for comment.
Market instability has also led to a crisis in Coinbas, the largest cryptocurrency exchange in the United States. Between the end of 2021 and the end of March, Coinbas lost 2.2 million active customers, or 19 percent of the total, as cryptocurrency prices fell. The company’s net revenue fell 27 percent in the first three months of the year from a year earlier to $ 1.2 billion. Its share price has fallen 84 percent since it went public last year.
This month, Coinbas said it would end job vacancies and extend a hiring freeze to deal with the economic downturn. On Tuesday, he said he would cut about 1,100 workers.
Brian Armstrong, CEO of Coinbas, told employees of the layoffs in a note Tuesday morning, saying the company was “growing too fast” as cryptographic products became popular.
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“I’m clear now that we hired too many,” he wrote. A Coinbas spokesperson declined to comment.
“It’s been growing at a cost in recent years,” said Ryan Coyne, a Mizuho Group cryptocurrency and financial technology company. “Now it’s on to profitable growth.”
Gemini, a multimillion-dollar crypto exchange run by Tyler and Cameron Winklevoss, announced this month that it was also releasing 10 percent of its workforce. In a note to staff, the Winklevoss twins said the industry had entered a “crypto winter”.
But they are also optimistic about the future of the industry. “The crypto-revolution is underway and will continue to have a profound impact,” they wrote in a statement. “But except for a gradual or predictable trajectory.”
Last year, the Crypto.com Singapore exchange launched a popular TV commercial starring actor Matt Damon, which stated that “luck benefits the brave” while encouraging investors to put their money into the crypto market. Last week, the CEO of Crypto.com announced it laid off 5 percent of the workforce, or 260 people. On Monday, BlockFik, a crypto lending operation, said it would reduce its staff by about 20 percent.
Gemini and BlockF did not want to comment. A spokesman for Crypto.com said the company continues to “invest resources in global product development and engineering capabilities.”
Cryptocurrencies have long been volatile and have a tendency to rise and fall. In 2013, China’s ban on Bitcoin lowered its price. In 2017, a proliferation of companies that created and sold their tokens led to a rise in cryptocurrencies after price regulators suppressed what were called initial coin offerings.
These bubbles are entering the ecosystem, crypto enthusiasts said. They attract talented people to the industry, who go on to build valuable projects. Many of the most pronounced cheerleaders encourage investors to “buy back,” or to invest more when prices are low.
“We’ve been in these downward spirals before and recovered,” Mr. Jones, Science Inc. investors, he said. “We all believe in the basics.”
Some companies have also remained challenging. On Monday night in Game 5 of the NBA Finals, Coinbas made an announcement referring to past ups and downs.
“Crypto is dead,” he said. “Life Cryptography”.