Crypto Firms Quake as Prices Fall

SAN FRANCISCO – No one wants to miss a cryptocurrency mania.

Over the past two years, crypto start-ups have expanded as the prices of Bitcoin and other virtual currencies have risen. Companies that marketed digital coins to investors were flooded with TV commercials, with new lending operations offering sky-high interest rates on exchanges such as crypto deposits and coinbases that allow investors to trade digital assets.

Hundreds of billions of dollars worth of global industry practically bounced overnight. Now it is breaking down.

After a week-long decline in cryptocurrency prices, Coinbase said on Tuesday it was cutting 18 percent of its employees after layoffs at other crypto companies such as Gemini, BlockFi and Crypto.com. High-profile start-ups like Teraform Labs have evolved, ruining years of investment. On Sunday, an experimental crypto bank, Celsius, abruptly stopped withdrawals.

The pullback in the crypto ecosystem reflects the uncertainty of the structure built around these risky 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. Share prices of crypto companies have skyrocketed, retailers are fleeing and industry officials are predicting a prolonged downturn that could put more companies at risk.

“The tide has turned in crypto, and we’re seeing that many of these businesses and platforms are on a volatile and unsustainable footing,” said Lee Rainers, a former Federal Reserve official who teaches at Duke University Law School. “The music is off.”

Cryptocurrency is a digital coin that is exchanged using a computer network that verifies transactions rather than a central institution such as a bank. For years, it has been marketed by central banks as a hedge against inflation as it fills the economy with money. Bitcoin, the most valuable cryptocurrency, has a built-in limit for its supply.

But now with stocks crashing, interest rates falling and inflation soaring, cryptocurrency prices are also falling, indicating that they are tied to the overall market. And as people turn away from crypto investments, the outflow is exposing the volatile foundations of many popular companies in the industry.

More than 62 crypto start-ups are now valued at 1 billion or more, according to CB Insights, a firm that tracks private financing. Last year, the industry received more than $ 25 billion in venture funding in approximately 1,700 deals, according to research by The Block. OpenSea, the largest marketplace for unique digital images known as nonfungible tokens, has reached an astonishing value of $ 13 billion. And Wall Street banks such as JPMorgan Chase, which previously stayed away from crypto assets, and Fortune 500 companies like PayPal started offering crypto.

Many of these companies are equipped to avoid a downturn in cryptocurrency prices. But cutbacks are likely to continue as they adjust their strategies after years of excessive growth. The most sensitive may be startups that have launched their own cryptocurrency, as prices have dropped across the board.

Some industry experts have long argued that the good growth of the last two years is not sustainable, compared to the dot-com boom of the late 1990’s. At the time, dozens of dot-com companies were going public in the midst of a frenzy over the Internet’s initial promise, although few of them made money. When confidence evaporated in the early 2000’s, many dot-coms went bad, only the biggest ones – such as eBay, Amazon and Yahoo – emerged.

This time, investors predict that there will be more survivors. Mike Jones, an investor at venture firm Science Inc., said, “You definitely have some overhauled companies that don’t have the basics.” “But you also have some really strong companies that are trading below their needs.”

There are warning signs that some crypto companies were not sustainable. Skeptics have pointed out that many popular companies offer products based on risky financial engineering.

Terraform Labs, for example, offers TerraUSD, a so-called stablecoin with a fixed value in US dollars. The coin was released by its founder, Dr. Kwon, who raised more than $ 200 million from major investment companies such as Lightspeed Venture Partners and Galaxy Digital, although critics warned the project was volatile.

The value of the coin was algorithmically linked to the sister cryptocurrency, Luna. When Luna’s price plummeted in May, TerraUSD plummeted – a “death spiral” that destabilized the broader market and plunged some investors into financial ruin.

This week, Celsius’s announcement that it was going to cool down had a similar effect. Celsius aggressively marketed its bank-like credit service to customers, promising as high as 18 percent yield if they deposited in their crypto holdings company.

For months, critics wondered how Celsius could sustain such a high yield without risking its depositors’ funds through risky investments. The company had conducted investigations from several state regulators. In the end, the fall in cryptocurrency prices puts more pressure on the company than it can bear.

As the price of Bitcoin plummeted, Celsius announced on Sunday that it was stabilizing withdrawals “due to extreme market conditions”. The company did not respond to a request for comment.

Market volatility has also created a crisis on Coinbase, America’s largest crypto exchange. Between the end of 2021 and the end of March, Coinbase lost 2.2 million active customers, or 19 percent of its total, as the price of crypto fell. The company’s net income in the first three months of the year fell 27 percent to $ 1.2 billion from a year earlier. Its share price has fallen 84 percent since it was announced last year.

This month, Coinbase said it would cancel the job offer and extend the hiring freeze to combat the economic downturn. On Tuesday, he said he would cut about 1,100 workers.

Brian Armstrong, chief executive of Coinbase, announced the layoffs in a note to employees on Tuesday morning, saying the company had “grown very fast” as crypto products became popular.

“It’s clear to me now that we were renting more,” he wrote. Declined to make a Coinbase comment.

“It has grown at all costs over the last few years,” said Ryan Coyne, who covers crypto companies and financial technology at Mizuho Group. “It’s now turning to profitable growth.”

The crypto exchange, led by Gemini, billionaires Tyler and Cameron Winklevos, also announced this month that it was cutting 10 percent of its workforce. In a memo to staff, Winklevos Twins said the industry has entered “Crypto Winter”.

But they also expressed optimism about the future of the industry. “The crypto revolution is well underway and its impact will be profound,” they wrote in a memo. “But his path has been anything but gradual or predictable.”

Last year, Singapore-based exchange Crypto.com aired a now-famous TV commercial starring actor Matt Damon, who declared that “luck favors the brave” because it encouraged investors to put their money into the crypto market. Last week, the chief executive of Crypto.com Announced That he was laying off 5 percent of the staff or 260 people. On Monday, BlockFi, a crypto financing company, said it was cutting its staff by about 20 percent.

Gemini and Blockfy declined to comment. Crypto.com said the company “focuses on investing resources in manufacturing and engineering capabilities to develop world-class products.”

Cryptocurrencies have long had volatile and boom-and-bust cycles. In 2013, the Chinese ban on Bitcoin reduced its value. In 2017, crypto prices soared due to the proliferation of companies making and selling their own tokens, which crashed after regulators cracked down on so-called initial coin offerings.

These bubbles are built into the ecosystem, crypto enthusiasts said. They attract talented people to the industry, who go on to create valuable projects. Many vocal cheerleaders encourage investors to “buy the deep” or to invest more when prices are low.

Mr. Jones, Science Inc. Said the investor. “We believe in all fundamentals.”

Some companies have also protested. During Game 5 of the NBA Finals on Monday night, Coinbase aired a commercial featuring the boom-and-bust cycle of the past.

“Crypto is dead,” he declared. “Long live crypto.”

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