The crypto industry is facing an unprecedented crisis. This crisis is a relentless wave of layoffs and bankruptcies, striking at the heart of even the most established players. In an industry known for its rapid evolution and potential for disruption, the prevalence of such distressing trends signifies a critical juncture for the entire blockchain economy.
The continuous spread of layoffs and bankruptcies paints a sad picture of crypto companies’ challenges. From well-known giants to innovative startups, no corner of the industry seems immune to the upheaval. The crisis is not confined to a few isolated incidents; it has grown into a pervasive phenomenon that demands attention and analysis.
Several Culprits Identified for the Crypto Industry Upheaval
Experts have highlighted several culprits for the recent upheaval in the crypto market.
- Regulatory Ambiguity: Governments worldwide are grappling with how to regulate digital currencies. This ongoing uncertainty has created a volatile and unpredictable investment environment.
- Market Speculation: With every new token launch, speculators jump on the bandwagon, inflating prices. When the hype subsides, prices can plummet, causing market instability.
- Security Concerns: High-profile hacking incidents have led to significant losses, undermining investor confidence and contributing to market volatility.
- Economic Uncertainty: Global economic instability, fueled by events such as the COVID-19 pandemic, has added another layer of unpredictability to the crypto market.
- Technology Maturity: As the technology behind cryptocurrencies continues to evolve, periods of instability are to be expected. This is not unlike the ‘dot com’ bubble of the late 90s, which was characterized by similar ups and downs.
Significant Layoffs and Bankruptcies
The turmoil in the crypto industry has led to many layoffs and bankruptcies, reshaping the sector’s landscape. Notable crypto companies have faced dire circumstances, with some undergoing layoffs and others filing for bankruptcy.
Genesis Global Holdco
On January 19, Genesis Global Holdco LLC, the parent company of cryptocurrency lender Genesis Global Capital, filed for Chapter 11 bankruptcy protection in New York. The collapse of FTX and losses linked to the failed crypto hedge fund Three Arrows Capital exacerbated the company’s financial struggles. Genesis Global Capital’s partner firm, involved in Gemini’s defunct Earn program, estimated liabilities between $1 billion and $10 billion, with over 100,000 creditors.
The bankruptcy filing revealed that Genesis owed significant amounts to its top 50 creditors, including crypto exchange Gemini, trading giant Cumberland, Mirana, MoonAlpha Finance, and VanEck’s New Finance Income Fund. The filing stated that Genesis’ crypto lending business suffered due to the collapses of Three Arrows Capital and crypto exchange FTX. However, subsidiaries engaged in derivatives, spot trading, custody, and Genesis Global Trading continued client trading operations.
Silvergate Capital
In March Silvergate Capital, a prominent central lender to the cryptocurrency industry, revealed its decision to wind down operations and liquidate its bank. This announcement caused the company’s stock to plummet by over 36% in after-hours trading.
Silvergate had been a key financial institution for crypto companies, alongside Signature Bank based in New York. With just over $11 billion in assets, Silvergate’s size was dwarfed by Signature Bank’s over $114 billion. Notably, the bankrupt crypto exchange FTX was among Silvergate’s significant customers.
Centerview Partners was appointed as Silvergate’s financial advisor, while Cravath, Swaine & Moore would provide legal services throughout the liquidation process.
The decision to liquidate followed closely on the heels of Silvergate discontinuing its payments platform, the Silvergate Exchange Network (SEN), a core offering. The company had faced challenges for some time, including a significant layoff of 40% of its workforce and a substantial net loss of nearly $1 billion in the fourth quarter of 2022. 8% to $3.8 billion at the end of the previous year.
Blockchain.com
In January, cryptocurrency brokerage Blockchain.com announced it reduced its workforce by 28%, which amounted to approximately 110 employees. This move added to a series of distressing events within the cryptocurrency industry during that week.
These job cuts followed a previous round of layoffs in July 2022 when Blockchain.com was compelled to let go of about 150 employees. The decision was driven by the company’s struggle to manage the repercussions of a substantial financial loss. Specifically, Blockchain.com faced a $270 million setback due to loans extended to the now-failed hedge fund, Three Arrows Capital.
Coinbase
On January 10 Coinbase CEO Brian Armstrong issued a formal statement confirming the company’s plan to implement a 25% reduction in operating expenses. This initiative would involve the unfortunate layoff of an additional 950 employees.
The impact of these layoffs was estimated to result in expenses ranging from $149 million to $163 million for the exchange. As part of its commitment to support affected employees, Coinbase ensured that all individuals affected by the layoffs would receive a minimum of 14 weeks of base pay, continued health insurance coverage, and assistance in finding new job opportunities.
Regrettably, this wasn’t the first time Coinbase had announced layoffs. In June of the previous year, the company had already undergone a round of layoffs, letting go of 18% of its workforce. This earlier decision was attributed to anticipating a “crypto winter,” characterized by prolonged periods of decreased and stagnant cryptocurrency prices. The recurrence of layoffs highlighted the challenges cryptocurrency companies face in navigating the industry’s volatile and evolving nature of the industry.
Crypto.com
On January 13, Crypto.com announced its decision to lay off 20% of its workforce. Kris Marszalek, the CEO, communicated this development through a blog post, stating that the decision was influenced by the challenges posed by the collapse of the crypto empire FTX, led by Sam Bankman-Fried.
CEO Kris Marszalek explained that the company’s ambitious growth had been impacted by the failure of FTX, necessitating further cuts. Marszalek clarified that all affected employees were aware of the layoffs.
At the time of the announcement, Crypto.com had 2,450 employees, as indicated by PitchBook data. This number suggests that approximately 490 employees were affected by the layoff decision.
Marszalek emphasized that the reduction aligned with Crypto.com’s commitment to prudent financial management. He expressed optimism about the company’s future and its efforts to restore trust in the cryptocurrency industry. Marszalek, who founded Crypto.com in 2016, has overseen its growth into a significant player in the industry, reportedly achieving over $1.2 billion in revenue by 2021.
The challenges faced by Crypto.com in 2022, including high-profile errors in transfers and a prior round of layoffs, underscored the complex and volatile nature of the cryptocurrency market.
Luno
In January, Luno, a crypto exchange under DCG, faced challenging market conditions that led to a significant workforce reduction. The company decided to lay off 35% of its employees due to the adverse impact of harsh market conditions on its growth and revenue.
Luno acknowledged the difficult landscape of the broader tech industry and the crypto market in 2022. The company expressed that it had not remained unaffected by the challenges prevalent in the industry during that time.
In a statement shared with Insider, Luno stated, “2022 has been an incredibly tough year for the broader tech industry and, in particular, the crypto market. Luno, unfortunately, hasn’t been immune to this turbulence.”
Luno communicated the decision to lay off employees to the workforce during a live-streamed town hall conducted by the London-based firm. Luno addressed its employees, highlighting the unforeseen and extreme events that had unfolded in the industry over the preceding months. The company attributed these challenges to a “global economic downturn” and the series of shocks stemming from the collapse of Three Arrows Capital and FTX, which were influential factors contributing to the decision.
The incident underscores the volatility of the crypto market and its susceptibility to external factors that can significantly impact the operations of crypto-related businesses.
Huobi
In January, Huobi, a prominent digital currency exchange based in Seychelles, announced its intention to reduce its global workforce by approximately 20%, marking another instance of layoffs within the cryptocurrency industry grappling with challenges.
Huobi is recognized as one of the largest cryptocurrency exchanges on a global scale, facilitating millions in trading volumes daily based on data from CoinGecko.
The prevailing difficulties in the cryptocurrency market drove the decision for the layoffs. Justin Sun, a member of Huobi’s advisory board, confirmed this move to CNBC, clarifying that the reduction in workforce was pending.
Given the ongoing bear market conditions, the exchange aimed to maintain a streamlined team. The motivation behind this personnel optimization was to align with the brand strategy, enhance the organizational structure, boost efficiency, and ultimately regain a competitive standing in the industry.
As of October 2022, Huobi boasted a workforce of approximately 1,600 employees globally, as the Financial Times reported. This move reflected the broader trend of workforce adjustments earlier in the year as companies sought to adapt to market challenges and optimize their operations for sustainable growth.
Binance
In July, cryptocurrency exchange Binance allegedly underwent a significant workforce reduction, resulting in over 1,000 employees worldwide layoff. The ongoing legal scrutiny from regulatory bodies like the U.S. Securities and Exchange Commission (SEC) and other regulatory challenges prompted the layoffs.
The job cuts impacted more than a third of Binance’s workforce, which had approximately 8,000 employees before the layoffs. However, the exact number of affected employees was not explicitly disclosed by a Binance spokesperson, who confirmed the layoffs to the Wall Street Journal.
The spokesperson explained that the decision to streamline the workforce was driven by the need to enhance talent density within the organization in preparation for the upcoming bullish market cycle. This move aimed to ensure the exchange’s agility and adaptability.
Reports from CNBC indicated that the layoffs could eventually eliminate between 1,500 and 3,000 positions globally, carried out throughout the year.
Notably, Binance founder and CEO Changpeng “CZ” Zhao disputed media reports about the layoffs, asserting that the reported numbers were inaccurate. He emphasized that Binance was still actively recruiting talent, indicating a continued focus on strategic growth despite the challenging circumstances.
Coindesk
Ahead of a stake sale in the publication, CoinDesk is reportedly planning layoffs within its editorial department. According to sources, CoinDesk CEO Kevin Worth communicated through an internal email that a reduction in force would impact several roles, primarily within the media team. The staff reduction is estimated to be around 16% to 45%, with reports suggesting a potential cut of 45%, equivalent to approximately 20 employees.
The leaked email indicated an “all hands” meeting was scheduled at CoinDesk on August 14 at 4:00 p.m. ET. The move came after reports surfaced of a proposed deal to sell a share in CoinDesk to crypto investors Matthew Roszak and Peter Vessenes, who aimed to acquire a $125-million stake in the company.
CoinDesk, currently under the ownership of the troubled Digital Currency Group (DCG), has affiliations with prominent entities in the crypto industry, including Grayscale Investments, Genesis, Foundry, and Luno, as part of its parent company’s portfolio.
Potential Strategies to Address Crypto Industry Upheaval
There are several potential strategies that experts suggest addressing the challenges currently faced by the crypto industry.
- Clear Regulation: Governments and regulatory bodies globally should work on providing clear guidance and legislation for cryptocurrencies. This will alleviate the ambiguity surrounding the industry and provide a stable foundation for growth.
- Investor Education: More effort should be put into educating investors about cryptocurrencies and blockchain technology fundamentals to curtail speculative trading and promote more informed decision-making.
- Robust Security Systems: Crypto companies should invest in stringent security measures to prevent hacking attacks and bolster customer confidence. This includes employing cutting-edge cryptographic techniques, two-factor authentication, and ongoing system audits.
- Risk Management Strategies: Given the current global economic uncertainty, investors should implement robust risk management strategies to mitigate the impact of sudden market shifts. This could involve diversifying their portfolio across a variety of asset types.
- Emphasize Technology Maturity: As the technology behind cryptocurrencies matures, it’s crucial to highlight the positive strides made and the benefits it offers to foster trust and confidence among new and existing investors. This will allow for more sustained and less volatile growth of the crypto market.
Conclusion
The year 2023 has proven to be a challenging period for the cryptocurrency industry, marked by significant layoffs and bankruptcies across various crypto companies. Once characterized by rapid growth and innovation, the industry faced headwinds from regulatory challenges, market volatility, and the aftermath of high-profile collapses.
Prominent players like Genesis Global Holdco, Silvergate Capital, Blockchain.com, Coinbase, Crypto.com, Luno, Huobi, and Binance, among others, fell victim to the complex dynamics of the crypto market. These companies, ranging from crypto lenders and exchanges to media outlets, grappled with financial setbacks, regulatory scrutiny, and market pressures that ultimately led to restructuring, layoffs, or bankruptcy filings.
While the industry has weathered its fair share of storms, the underlying technology and its potential for transformative change remain undeniably strong. As the crypto industry continues to evolve, it will be essential for players to adapt, innovate, and navigate the regulatory landscape to ensure sustainable growth and the realization of its groundbreaking promise. The list of layoffs and bankruptcies in 2023 serves as a reminder of the challenges faced, the resilience displayed, and the imperative for continuous progress in this dynamic and ever-changing sector.
