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Crypto.com became the latest cryptocurrency company to lay off its employees, announcing on Friday it would cut 20% of its workforce. CEO Chris Marszalek cited market conditions and recent industry events as reasons for downsizing, in line with what other crypto CEOs have accused as the bear market continues to take its toll. rice field.
As I shared with the team today, we continue to perform well, but due to market conditions and recent industry events, this was the right decision for the company at this time.
Chris | Crypto.com (@kris) January 13, 2023
Crypto.com is not the only exchange that has had to lay off workers. Kraken, Swyftx and Huobi all laid off employees last month. Kraken cut staff by 30%, Australian exchange Swyftx cut 40%, and Huobi cut 20%. Coinbase also announced earlier this week that he would be cutting 20% of his workforce, and in June he laid off 18% already.
But it’s not just cryptocurrency companies that have been affected. The entire tech industry is teetering. Amazon, Twitter, Meta, and Salesforce are just a few that have laid off thousands of employees.
The tech sector is notoriously volatile and has been hit hard by rising interest rates over the past year. Given that so many tech companies are not profitable, valuations are often calculated by discounting future cash flows retroactively. When interest rates were zero, this led to high valuations across the board.
But with inflation skyrocketing, central banks have been forced to aggressively raise interest rates. This reduced the value of these discounted cash flows and lowered the company’s valuation.
However, cryptocurrencies also face their own battles apart from the macro environment. There’s no shortage of scandals to point to when Marszalek says “recent industry events,” but the latest is his stunning FTX demise.
The exchange was one of the top three alongside Coinbase and Binance, and its demise sparked a new wave of contagion across the industry.
The FTX scandal cost $8 billion in lost customer assets, but the LUNA crash in May was perhaps even more devastating. Once he said it was because the $60 billion ecosystem collapsed following the death spiral of less stable stablecoins. usa.
This has sparked a string of bankruptcies and collapses across the industry, including crypto lender Celsius and hedge fund Three Arrows Capital.
These scandals caused prices to drop significantly. Falling prices, volumes and interest rates, along with the macro headwinds mentioned earlier, have forced cryptocurrency companies to scale back operations in order to survive.
Criticisms not limited to Crypto.com include the exchange expanding too quickly amid the pandemic bull market hysteria.
We grew ambitiously in early 2022, building incredible momentum and aligning ourselves with the trajectory of the broader industry, whose trajectory changed rapidly at the confluence of negative economic developments. Did.” CEO Marszalek said:
Crypto.com is growing rapidly to 70 million users. However, there were some failures along the way. In February, Matt Damon’s Super Bowl ad was widely criticized for being rather boring. The commercial cost him $10 million and Crypto.com laid off his 5% of its workforce after just four months.
The cuts we made last July helped us weather the macroeconomic downturn. Marzarek said.
However, he added: It did not account for the recent FTX collapse, which significantly undermined confidence in the industry. We have made the difficult but necessary decision to reduce the
While these events were described as “unpredictable,” some analysts pointed to a mismanagement of risk given how the industry correlated with the price of Bitcoin. I’m here. Bitcoin has historically been notoriously volatile and the chart below shows the number of pullbacks the industry has received.
During the COVID-19 pandemic, there was a bullish move that cryptocurrencies finally broke through this intense bear market trend. Ultimately, this was misguided and much of the expansion was predicted with cheap funding and warm printers.
The Federal Reserve’s interest rate hike has pulled liquidity out of the system and sent risk assets down significantly. Few assets have a wider range of risk than a failed cryptocurrency.
A quick glance at Coinbase’s stock price in 2022 shows how quickly crypto exchanges have gone south. Since going public in April 2021, Coinbase has lost nearly 90% of its value.
A chart showing how much these exchanges are indebted to the crypto gods plots Coinbase’s stock price against Bitcoin’s price.
The correlation is extreme, with falling bitcoin prices associated with lower trading volumes and industry interest, ultimately leading to lower revenues for cryptocurrency exchanges.
Of course, this all worked out in hindsight. Not many predicted a setback of this magnitude, and as mentioned above, the non-crypto tech industry is also being punished.
Crypto.com certainly made some mistakes and misjudged how vulnerable they are to the overall price levels and volatility of the cryptocurrency market, but that’s not all.
Over the past year, the macro environment has changed immeasurably, and the pace of rate hikes has been astonishing. Aside from all the scandals that rocked the space, it’s never been pretty for crypto.
