Bitcoin Crashes to $21,000, Coinbase Lays Off 18 Percent of Work Force
Is crypto winter here?
Bitcoin is now trading at $21,000, down about $47,000 since last November when it neared $68,000. Prominent companies like crypto exchange Coinbase, after hiring aggressively all year, have turned to layoffs. Aiming to cut about 18 percent of the work force, Coinbase is basically undoing the hiring gains it made this year. Those laid off will receive at least 14 weeks of severance, with tenured employees receiving an additional two weeks for every year worked after the first.
"We appear to be entering a recession after a 10+ year economic boom," wrote CEO Brian Armstrong in a notice to employees. "A recession could lead to another crypto winter, and could last for an extended period. In past crypto winters, trading revenue (our largest revenue source) has declined significantly…we always plan for the worst so we can operate the business through any environment." Armstrong also admitted to employees that the company grew too quickly and that, in order to survive crypto winters—they've handled four in the past—they need to slim down and better manage costs.
This comes on the heels of crypto bank Celsius' announcement this past Sunday that it would be temporarily freezing withdrawals, sparking fears that it just doesn't have the funds, and cryptocurrency exchange Crypto.com's announcement that it would be laying off 5 percent of its work force (about 260 employees). Meanwhile, the Dow dropped 700 points to "the lowest level in more than a year," per CNBC, and the S&P 500 and the Nasdaq composite also continued their dives. On top of all of that, the Federal Reserve has raised interest rates by three-quarters of a percentage point (instead of the expected half).
"The Fed has a very tight needle to thread here and I think investors and the market, in general, are losing a good deal of confidence that the Fed might be able to do that," Ryan Detrick, chief market strategist at LPL Financial, told CNBC. Meanwhile, the crypto world has plenty of theories about why cryptocurrencies are tracking the stock market so closely and what the downturn means for the future.
Nic Carter, general partner at Castle Island Ventures and co-founder of Coin Metrics, told Reason just a few weeks ago on the heels of the Terra collapse that it's investors trying to manage risk in their portfolios during downturns. "Bitcoin is a great asset to liquidate, [since] it sells 24/7, globally, everywhere," he noted. "Bitcoin's just participating in the broad sell-off of risk assets…a consequence of tightening in the monetary system."
Others, like Bloomberg columnist Matt Levine, argue that crypto's "started to work its way into the real financial system. Some traditional investors also own crypto; if their crypto goes down they might have to sell regular stuff. Some public companies are exposed to crypto (because they are crypto exchanges, because they have levered crypto holdings, etc.), so your boring old index fund might go down when crypto goes down."
Still, others point to the silver linings, such as the transparency amid the crypto crash:
What's absolutely fascinating about this crypto liquidity crisis is that, thanks to blockchain, it's all absolutely playing out in public with everyone watching.
In conventional finance, it would be mostly after-the-fact guesswork, murky SEC filings, and imaginative reporting. https://t.co/hTzCI5E4TE
— Antonio García Martínez (agm.eth) (@antoniogm) June 15, 2022
And to a "weeding out" of hype men and indiscriminate investors, something that's cyclical and not altogether bad:
for folks who've been through multiple cycles it feels like there's a genuine relief that comes with a bit of a pullback
the respite from the mania, the time to focus, the weeding out of opportunists, the doubling down on opportunities
— juthica (@juthica) June 2, 2022
As well as the fact that conventional finance has government backstops during downturns in a way the crypto ecosystem just doesn't:
In TradFi, this is when the Fed injects liquidity that lenders have failed to provide. In crypto, there is no digital Fed to buy vast quantities of distressed coin, no digital OPEC to cut production and support prices, and no digital congress to ratify crypto stimulus packages.
— Cumberland (@CumberlandSays) June 16, 2022
At last week's Consensus crypto conference in Austin, investor Mike Novogratz exuded bullish optimism, pointing to crypto's ongoing success at handling remittances abroad and how there will be much more caution when it comes to algorithmic stablecoins going forward after the drama with Terra last month (more on that here). Novogratz noted that he thinks October, or the fourth quarter, is when we might see signs of bitcoin recovery and cryptocurrency decouple and stop tracking stocks so closely.
Meanwhile, Coinbase competitor and large crypto exchange Binance has apparently not taken much of a hit, posting that it's hiring for over 2,000 open positions. Crypto exchange Kraken, which had two critical pieces written about it (and its founder's "libertarian" philosophy of "freewheeling speech") in Vice and The New York Times yesterday, also posted that it's hiring for over 500 open roles. Perhaps there will even be more roles to fill if employees disgruntled with the company's mission-refocusing choose to take the buyouts offered to them by Kraken's CEO, a la Basecamp and Coinbase.
