‘Crypto Winter’: What’s with All the Mass Layoffs?

It’s another crypto winter and there is a downsizing wave sweeping through the cryptocurrency industry.

On Tuesday, Coinbase announced that it was pruning its workforce by 18% in preparation for a recession it says could lead to another crypto winter.

Two weeks earlier, Gemini said it was cutting its staff base by 10%, citing “current macroeconomic and geopolitical turmoil.”

In addition, BlockFi, a crypto lending service, and Crypto.com, a Singapore-based cryptocurrency exchange, have announced similar actions.

This morning we announced that after taking significant time to plan and consider, we are reducing our headcount by roughly 20%. This is not a decision we take lightly and is one that brings us great sadness.

— Zac Prince (@BlockFiZac) June 13, 2022

While BlockFi said it was reducing its headcount “by roughly 20%,” Crypto.com on Saturday said it was letting go of 260 workers or 5% of its corporate workforce.

On the contrary, Binance on Wednesday said it was undergoing talent recruitment for 2,000 open job positions in its exchange.

KuCoin, a Seychelles-headquartered cryptocurrency exchange, also said it has no plan to make any significant changes to its hiring plan for 2022.

"Every year, KuCoin works on its business strategy that already implies some anti-crisis management measures; so we are always ready to react to such market changes," the exchange wrote in a document shared with Finance Magnates

So, what is with all these mass layoffs?

Behind the Retrenchments

These downsizing actions come at a period the cryptocurrency industry is grappling with continued market volatility and struggling to get back on its feet after the Terra-Luna crash.

At the start of the week, crypto market capitalization dropped below $1 trillion to levels last seen in early 2021.

Specifically, Bitcoin slumped 14%, dropping below $24,000, which is the lowest since December 2020.

Also, data from CryptoCompare shows that the total assets under management across all digital asset products fell by 28.6% in May to $34.2 billion.

Nick Ranga, a senior cryptocurrency and forex analyst at AskTraders.com, told Finance Magnates that: “some crypto companies were perhaps over-reaching in their pursuit of growth and market share.”

Dion Guillaume, a high ranking executive at Gate.io, a crypto exchange platform, blamed 'irresponsible spending from the exchanges' as a contributing factor.

“You are spending millions on Super Bowl ads and renaming sports stadiums, but you don't have any [reserve] in your war chest in case of a crypto winter? That's ridiculous,” Guillaume told Finance Magnates.

For his part, Jeremy Britton, the CFO of Boston Trading, explained that a number of firms had recruited too many people during the crypto boom of 2020 “thinking the good times would continue.”

“Markets will always have boom and bust cycles. [Changpeng Zhao] 'CZ' from Binance was sensible and did not become irrationally exuberant, so he is now poised to load up on staff for when the next boom comes,” Britton added.

Dr Christopher Smithmyer, an Adjunct Professor at Doane University, a private university in Nebraska, also put forward a similar view.

“Some of the smaller groups will panic and lay off people, so will companies that are not managing their finances properly. People made billions last year; they should have put some towards a rainy day fund; many just spent it,” Smithmyer said.

Moreover, Smithmyer noted that the current crypto winter is a good way to test the crypto market to tease out poor and weak performers.

However, Scott Melker, a crypto analyst and investor, believes that the laying off is “a responsible move based on market conditions.

“This is not a sign that these companies are struggling, but rather that they are being responsible and focusing on core business rather than expansion into nascent and untested sectors that were the darlings of the last bull run,” Melker told Finance Magnates.

“Coinbase is sitting on a massive pile of cash, minimal debt and huge earnings. They are performing better than almost any other tech company,” he added.

Guy Gotslak, the Founder of Crypto IRA platform, My Digital Money (MDM), also pointed out that: “if you are thinking long-term, this is just a bump in the road.

“Crypto is a young industry. Of course, it is bound to experience some hiccups along the way.

“If you have the bandwidth to stay in, stay in. If you have the bandwidth to put in more, do so. The crash is proving to be epic; the recovery will be just as epic.”

Additionally, Bob Bilbruck, the CEO of Captjur, a strategic consulting and business aggregation firm, supports this view, noting that “this happens in all emerging markets.

“There is always consolidation after massive growth, the crypto market is no different. In most cases, these groups had massive funding and probably overloaded on their operational need; so cutting manpower is the easiest way to add margin and drop operational costs,” Bilbruck explained.

Other Ways Out?

Experts have attributed Binance’s strong posturing amidst the wave of industry retrenchments to the exchange’s global presence and business diversification.

Gotslak explained that crypto companies need to be better integrated into the mainstream economy if only to diversify their source of income and asset holding.

Michael Ryan, a financial planner for over 30 years, pointed out that Binance has been very proactive in diversifying its business and expanding into new markets.

“In addition to its core crypto exchange business, Binance has launched a number of other businesses, including a venture capital fund, a fiat-to-crypto exchange, and a crypto-to-crypto exchange.

“This diversification likely gives them a more stable revenue stream, which is important in times of economic uncertainty,” he explained.

For his part, Guillaume noted that better budgeting and finances is important.

“It isn't rocket science. If you have $2 billion in your chest, then maybe don't spend $1.8 billion on Hollywood actors preaching about your exchange?” added the Head of Global PR and Communication at Gate.io.

However, Bilbruck believes that mass layoff during crypto winters and poor economic conditions is inevitable.

“At the end of the day, they [crypto-related companies] are like any other company that has employees and operational costs to scale and run their businesses efficiently,” Bilbruck said.

“Depending on economic conditions, they may have to scale up or down based on the demand for their products,” he explained.

As mild recovery begins to kick in for some of the top cryptocurrencies, where else will the industry be headed?