Crypto winter is upon us, and it appears the turmoil in this sector only ratchets up on a daily basis. Despite a generally bullish move higher in most cryptocurrencies, Today’s news of significant Kraken layoffs is the latest negative headline investors are digesting.
The crypto exchange reported that it will lay off approximately 1,100 workers, or roughly 30% of its overall workforce. This workforce reduction comes amid “significantly lower trading volumes and fewer client sign ups,” according to the company.
This bear market has prompted many investors to simply reduce or eliminate exposure, and get out of the trading game. For exchanges that generate the vast majority of their revenue and profits from transaction volume, that’s not a great thing.
Let’s dive more into what investors should expect with the crypto sector moving forward.
Kraken Layoffs Are Only the Latest Crypto Workforce Reductions
Like Kraken, other major exchanges such as Coinbase (NASDAQ:COIN) have been cutting staff. As profitability declines, investor concerns around the cash burn rates of these exchanges has been amplified. Thus, while not publicly-traded, Kraken is following the playbook of other companies in a bid to maintain sustainability.
Much of this focus on profitability and solvency/liquidity comes in the wake of the fallout from the recent FTX bankruptcy. The demise of the then-second-largest crypto exchange in the world shocked the sector. Accordingly, there’s still contagion-related concerns permeating this sector.
I think the Kraken layoffs we’ve seen announced today may not be the last we’ll hear of from here. Until investors can rest assured their tokens are held securely on a one-to-one basis, cold storage may be a more enticing place to store funds. Additionally, without proper regulation in this space, it’s hard to understand why institutional investors would trust an exchange in holding their assets.
Thus, it may be tough sledding ahead for Kraken, Coinbase and others in this space.
On the date of publication, Chris MacDonald 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.