Bitcoin is soaring, so why is there still a wave of layoffs in the cryptocurrency sector?

Written by: Sander Lutz

Translation by: Blockchain Simplified

This week, there have been many reasons to celebrate for the U.S. crypto industry: Bitcoin is just a hair's breadth away from its all-time high, crypto ETFs have reached new milestones on Wall Street, and next week's presidential election seems poised to push the ecosystem forward regardless of the outcome.

However, it's hard to ignore the tough week faced by some of the leading U.S. crypto companies. On Tuesday, Ethereum software giant Consensys laid off 20% of its global workforce. Just hours later, New York-based decentralized crypto exchange platform dYdX reduced its team size by 35%. The next morning, one of the largest U.S. crypto exchanges, Kraken, also cut 15% of its staff.

By the end of the week, Coinbase released disappointing Q3 earnings that missed expectations and showed a decline in customer activity. So, what’s going on?

Experts told Decrypt that multiple factors might be at play—ranging from the potential resolution of short-term election and regulatory concerns to deeper issues about the position of crypto-native companies in an industry increasingly dominated by traditional financial giants. "This is definitely the most bearish bull market in history," said Alex Tapscott, Managing Director of Ninepoint Partners Digital Asset Management, to Decrypt.

Despite the optimistic headlines about the crypto boom, Tapscott pointed out that this mainly applies to Bitcoin, which is "becoming more and more unique." Even Bitcoin’s strong performance doesn’t necessarily mean the crypto industry as a whole is thriving. "Yes, Bitcoin’s price has gone up a lot, but where’s that money flowing?" said Owen Lau, Senior Analyst at Oppenheimer & Co. "That money is flowing into traditional financial companies, not crypto-native ones."

Lau explained that Wall Street giants like BlackRock have been purchasing billions of dollars worth of Bitcoin via their trading platforms, capitalizing on brand trust and ultra-low fees, while crypto exchanges like Coinbase and Kraken are being sidelined. He added that companies tied to weaker cryptocurrencies, like Ethereum-based Consensys, are in an even worse position. (Note: Consensys is one of Decrypt's 22 investors, but Decrypt operates independently in terms of editorial decisions.)

Concerns over regulatory uncertainty and the upcoming presidential election may be significantly dampening crypto activity and investment—at least for now. Kristin Smith, CEO of the Blockchain Association, told Decrypt that while she remains optimistic that both a Trump or Harris administration would bring regulatory clarity and support to the industry, the current hostile stance of the U.S. Securities and Exchange Commission (SEC) has caused significant harm to businesses and won't be resolved until next year. "I think a lot of capital is still on the sidelines, nervous about entering the space until they see more clarity," Smith said. "So, I do think that regulatory and political issues are a big factor in all of this."

Earlier this week, the Blockchain Association launched an initiative to track how much leading crypto companies have spent on litigation with the SEC. The organization reported that the figure has already surpassed $400 million. When Consensys announced its 20% layoffs on Tuesday, CEO Joe Lubin stated that the job cuts were related to "millions of dollars" the company had spent defending itself in court.

Nonetheless, some experts insist that even if the U.S. government were to embrace the crypto industry, its struggles wouldn’t disappear. Oppenheimer's Lau believes the current landscape for crypto-native companies, especially CEXs (Centralized Exchanges), is too crowded, with many of these companies eventually either disappearing or being acquired by traditional financial firms. "I don’t know why the market allows for 200 exchanges in the world," he said. "It just doesn’t make sense to me."

Meanwhile, Tapscott from Ninepoint argues that simply removing SEC Chairman Gary Gensler is not enough to unleash a true crypto bull market. "This isn’t just an election issue," he said. "If you look at past cycles, there’s always been some new application or feature that gets people excited." Tapscott pointed out that decentralized applications (dapps) and innovations like NFTs were once responsible for driving the crypto market to unprecedented highs.

"So, what is there this time that can excite people the way that previous innovations did?" he asked. "I think the answer is, nothing yet." While the prospects of politicians and Wall Street embracing crypto are undoubtedly exciting, Tapscott added that this development alone will not trigger a real bull market in the industry, nor can it replace the enthusiasm driven by truly new blockchain use cases. "How can you do something with this technology that was never possible before?" he said.

Original article from Foresightnews:

https://foresightnews.pro/article/detail/70825

AIC Team

2024/11/11