All the little crypto troubles of Coinbase, Gemin and Celsius
The collapse of cryptocurrencies has pushed major companies in the sector, such as Coinbase and Gemini, to deep job cuts. Celsius, a kind of crypto-bank, has suspended withdrawals. All the details
For weeks, the value of cryptocurrencies – digital currencies based on cryptography – has generally collapsed : according to Bloomberg , the sector is suffering from the tightening of monetary policies adopted by several central banks around the world to contain inflation, which has developed a trend towards the sale of tokens within a broader gap from higher risk assets.
Cryptocurrencies have often been described by their promoters as hedges against inflation caused by central banks that increase the availability of money in the economy.
WHAT HAPPENS IN COINBASE (AND NOT ONLY)
Coinbase, the American company behind the cryptocurrency exchange of the same name, announced an 18 percent cut of its employees on Tuesday. It is not the only one: there have also been layoffs in other companies in the sector such as Crypto.com, BlockFi and Gemini. Biggest startups like Terraform Labs – offering a dollar-based cryptocurrency, TerraUSD – "They imploded, wiping out years of investment," recalls The New York Times . On Sunday Celsius, a kind of experimental "cryptocurrency bank", stopped withdrawals.
A FRAGILE INDUSTRY?
The newspaper writes that this downturn in the cryptocurrency sector – a global industry worth hundreds of billions of dollars – is evidence of the precariousness of the structure built around these high-risk and unregulated digital assets. The overall value of the cryptocurrency market has shrunk by around 65 percent since last fall, and will continue to decline according to analysts. The share price of cryptocurrency companies has consequently plummeted.
Parallel to the contraction in the value of cryptocurrencies, exchanges are losing money, interest rates are rising and inflation is high: according to the New York Times , this is proof that digital currencies are now linked to the overall market trend. But several companies in the industry, even some of the most popular ones, do not have solid foundations that will allow them to withstand moments of shock.
There are over sixty cryptocurrency startups valued at $ 1 billion or more, according to ratings by CB Insights. In 2021, the sector received venture capital funding of € 25 billion through approximately 1,700 deals. OpenSea, the leading marketplace for non-fungible tokens (NFTs), has achieved a valuation of 13 billion. Even big banks like JPMorgan Chase or big companies like PayPal have taken an interest in cryptocurrencies.
Several experts have been repeating for some time that the extraordinary growth experienced by the cryptocurrency sector in the last two years was not destined to last long, and have compared it to the so-called " dot-com bubble " (that is, the companies in the IT sector) at the end. of the nineties. The bubble burst in the early 2000s: many overestimated dot-coms disappeared from circulation, but the more solid ones – such as eBay, Amazon and Yahoo! – survived and remain relevant to this day. Mike Jones, an investor at Science Inc., told the New York Times that even the euphoria for cryptocurrencies has led to overvaluing so many companies "that don't have the bases," but there are also well-organized companies that will survive the crisis.
THE CELSIUS CASE
Celsius, a kind of cryptocurrency bank, promised users super-high returns, up to 18 percent, if they deposited their digital currencies with it. However, the company's critics wondered how it could guarantee such high returns without putting its clients' funds at risk with risky investments. The collapse in cryptocurrency prices has put Celsius under pressure, leading it to announce, last Sunday, the blocking of withdrawals "due to extreme market conditions". The company did not respond to a request for comment.
THE COINBASE CASE
Market instability has also challenged Coinbase, the leading cryptocurrency exchange platform in the United States. Between the end of 2021 and last March, the collapse in cryptocurrency prices cost Coinbase a loss of 2.2 million active customers, or 19 percent of the total. In the first quarter of 2022, the company's net sales contracted 27 percent year-on-year to $ 1.2 billion. Since last year, when it went public, Coinbase's stock has lost 84 percent.
On Tuesday, the company announced the cut of 1,100 jobs: CEO Brian Armstrong said that Coinbase's rapid growth has prompted it to hire too many people.
GEMINI AND THE WINTER OF CRYPTOCURRENCIES
Another cryptocurrency exchange platform, Gemini, has also said it will eliminate 10 percent of its workforce. The two founders, Tyler and Cameron Winklevoss, stated that the sector has entered a " crypto winter ", ie a bear market situation.
CENTRALIZED VS DECENTRALIZED
Alongside the crisis in the cryptocurrency industry, Il Sole 24 Ore writes that a "clash" is taking place between decentralized exchanges (known as DEx) and centralized platforms (referred to as CEx).
According to Chainanalysis, between April 2021 and April 2022 the decentralized finance exchanges “achieved a turnover on the blockchain worth 224 billion dollars. The volumes sent on the blockchain by the CEx, on the other hand, stopped at 175 billion ”. In other words, "the on-chain volumes of decentralized platforms in absolute have risen more than those of CEx", although the situation changes rapidly: in June 2021, for example, transactions on DEx were worth more than 80 percent of those on blockchain.
Andrea Medri, founder of The Rock Trading, explained to the newspaper that “the lower resilience of DeFi [decentralized finance, ed ] can also be traced back to the technological aspect. Decentralized finance, which it must be said will in any case become central in the crypto world, is increasingly based on third generation blockchains ". “Block chains, as the recent massive thefts themselves have shown, are often not sufficiently solid from a technological point of view,” continues Medri. This characteristic, then, "in times of market difficulty, contributes to the drop in turnover".
According to Christian Miccoli, founder of Conio, “the speculative nature of many projects and investment strategies in DeFi also has something to do with it. A factor that has contributed to the faster decline of decentralized trading platforms compared to centralized ones ”, in which traditional investors are more present.
Today the five main decentralized exchanges (Uniswap, SushiSwap, Curve, dYdX and Ox Protocol) support approximately 85 percent of their sector's blockchain turnover ; while the five centralized platforms (Binance, Okx, Coinbase, Gemini and FTX) are worth 50 percent of operations on centralized lists.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia-on-demand/crollo-criptovalute-taglio-dipendenti/ on Wed, 15 Jun 2022 09:00:23 +0000.