If the first market downturn of the year was just a correction, then the recent, steep plummet of the market certainly marks the first days of a crypto winter. The conditions of the market are pretty sore, and the actions of industry leaders aren’t instilling confidence in investors. One indicator of the bear market are the many layoffs crypto exchanges are undergoing as they seem to prepare for the worst.
Compared to eight months ago, the market is in completely different shape. In November, the total market capitalization of the asset class was well over $2.8 trillion, seemingly marching toward $3 trillion. The market was behaving kindly to speculative investors, who took the last moments of the pandemic era interest rate lows to seek sizable gains. Bitcoin (BTC-USD) was at its all-time high, and Ethereum (ETH-USD) was following close behind, with the added hype of “The Merge” adding to the excitement.
The first months of 2022 undid much of the excitement, especially as the Federal Reserve began its campaign to bump up interest rates. Crypto interest shrank as investors looked toward safer investments and commodities. Of course, the global economy was also hit by tightening supply chain woes, further disincentivizing investment in the crypto market.
These macroeconomic events have given the crypto market plenty of adversity to overcome. But since May, the market has imploded on its own volition. The collapse of the Terra Classic (LUNC-USD) network — at the time a top 10 crypto and one of the biggest stablecoin projects in the world — has seemingly shaken investor confidence to its core. Now, the whole market is caught in a landslide; that $2.8 trillion market cap is below $1 trillion today as the flight from the market continues.
Crypto Winter Hits Exchange Companies, Prompting Layoffs
The crypto winter has obviously hit investors quite hard; some investments have gone from cash cows to worthless in a matter of weeks. And, smaller projects dropping like flies as their liquidities dry up. But the bedlam isn’t limited to these platforms. Rather, it’s extending to Wall Street and private crypto companies in equal measure. Investors can look to exchanges as an indicator of just how detrimental the market conditions are.
This morning, Coinbase (NASDAQ:COIN) announced a massive layoff of employees. The only publicly-traded exchange is firing 1,100 employees — roughly 18% of its workforce — in response to the downturn. This comes just days after the company decided to rescind all of its job offers to candidates. The news comes as COIN stock loses 38% of its value in the month of June.
Coinbase isn’t setting a precedent with the layoffs so much as it is following a trend. Indeed, at least three other exchanges are laying off at least a portion of their workforces this month. BlockFi is firing a whopping 20% of its employees, responding to what it calls a “dramatic shift in macroeconomic conditions.” Additionally, Crypto.com is laying off 5% of its workers, while Winklevoss twin-founded Gemini shaves 10% of its workforce.
The trend is worrying for the crypto asset class — a market predicated on the “buy and hodl” model. It’s troubling to see typically bullish institutions and corporations cutting their losses and buckling down for the worst. It is certainly a trend which was not present during early 2022’s correction. It suggests that even the heartiest of bulls think things will get worse before they start to improve.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
