Crypto’s hiring spree goes in reverse as prices continue to decline

Layoffs announced last week at cryptocurrency startups may be just the beginning of a reckoning at crypto startups, some analysts said, as the still-young crypto market faces a sudden reversal from the celebrity-driven boom it experienced a few months ago. 

Coinbase, the largest U.S.-based crypto exchange, said it was planning to cut 18% of full-time jobs, or about 1,100 people, and BlockFi, a crypto lending startup, said it was cutting 20% of staff, or about 170 people. 

Executives at both companies blamed the possibility of a recession and a slowdown in customer fees for spurring them to try to save additional cash — factors that analysts said are likely to hit the rest of the crypto market, too. 

“The worst is not even behind us. It’s just getting started,” said Christopher Vecchio, senior strategist at DailyFX, an analyst firm. 

“A lot of these companies tried to expand too quickly, and they had a fundamental misread on the macro environment,” he said. 

Rising interest rates, worsening inflation and falling stock prices have taken their toll on all Americans, but digital currencies have been hit especially hard. 

Over the weekend, bitcoin not only fell below the closely watched $20,000 price level but briefly dropped below $18,000 before recovering. It’s down about 70% from its all-time high. 

Crypto exchanges and related startups often make money through transaction fees, a model that boomed as digital currency gained more converts but looks less attractive if trading volume stalls. 

“Right now, the success and failures of all of the businesses in this space are simply tied to adoption and trading volumes,” said Jeff Dorman, chief investment officer at Arca, a digital asset manager. 

“Everybody miscalculated the growth and revenue in this industry,” he said. 

Some analysts said the dynamic around crypto startups reminded them of the dot-com boom in the late 1990s, when websites fueled by hype and abundant funding hired people far faster than their revenue would usually have justified. 

Now, as then, tech entrepreneurs have displayed an urgency to get in early and make a splash. 

“You just had a race to secure that customer, so everyone was hiring exponentially,” said Edward Moya, senior market analyst at Oanda, a trading and analytics firm. 

Signs of a marketing frenzy have appeared one after another in recent months, including when the exchange Crypto.com bought the naming rights to the Los Angeles Lakers’ home stadium and when several crypto-focused companies ran advertisements during the Super Bowl. 

But now layoffs represent a sudden and possibly widespread contraction, which has been rare in the tech industry. 

“You have a lot of companies that were all-in on crypto, and now some companies are in grave danger,” Moya said. 

“Borrowing costs have been skyrocketing, and you’re going to see the companies that are not yet profitable are going to be under tremendous pressure,” he said. 

Coinbase CEO Brian Armstrong said the company “over-hired” given how uncertain the market proved to be. 

“A recession could lead to another crypto winter, and could last for an extended period,” Armstrong said in a statement. 

“While it’s hard to predict the economy or the markets, we always plan for the worst so we can operate the business through any environment,” he said. 

It’s not clear how widespread job cuts will be among crypto startups, and it’s not the only area of tech facing cost-cutting, as real estate tech companies are also eliminating jobs. 

Crypto startups have been hot enough lately to attract experienced talent from other parts of the tech industry, as engineers and executives from established companies such as Facebook’s parent Meta jumped into the high-risk, seemingly high-reward crypto sector. 

Dorman said he’s still optimistic about the long-term future of digital coins, especially as a way for corporations or other entities to build closer relationships with investors and customers who’d want to buy the coins. 

“Blockchain’s not going away. Prices are down, but this is not going away,” he said. 

But he said this drop in crypto prices hurts more than previous large price swings, because the crypto community is now so much bigger. 

“This is very different from five years ago, when people weren’t sure if blockchain was even going to matter,” he said.