Cryptocurrencies: The Dominoes of the $2 Trillion Crash – layoffs, wild sell-offs and bankruptcies

Fears of an impending global recession and the worst inflation in more than 40 years have weighed on the cryptocurrency market since the beginning of the year. The result: bankruptcies and panicked investors. The turmoil has wiped trillions of dollars from the market so far, and thousands of jobs have been cut. And yet: these losses may be only the beginning of the storm. “There will be more turbulence – I don’t think we’re out of the loop,” Marcus Sotiriou, an analyst at London-based GlobalBlock, told Forbes, noting that the future of a dozen companies –among them the Vauld funded by Peter – is uncertain, since in the last month they have either blocked customers’ access to their funds or started restructuring processes.

No one can predict whether cryptocurrencies will stay in bear market territory for long – as long as the “winters” of 2014 and 2018 lasted, the latter sending Bitcoin’s price plummeting 80% and crashing hundreds of then-new tokens . Sotiriou estimates that the current crisis could last up to 12 months, unless high inflation “slows down” soon, allowing the Federal Reserve to ease aggressive rate hikes that have made risky assets less attractive to investors. . Analysts aren’t so sure that will happen.

Matteo Dante Perruccio, a partner at cryptocurrency investment firm Wave Financial, estimates that digital currencies will see their prices recover in six months at the earliest, and two years at the latest, as happened with previous “winters.” “Though now, there is a difference,” he adds, noting that there has been a surge of institutional money – from companies like Tesla, Goldman Sachs, Morgan Stanley and others – pouring into the cryptocurrency market during the pandemic: “When we inevitably go back to a higher priced market, this will certainly be more sustainable and healthy, with less speculation and a more tried and true investment philosophy.”

Forbes chronicles all the “carnage” in the cryptocurrency market, taking a look back at layoffs, dives and extreme sell-offs, but also “seeing” the “lifelines” and acquisitions that can soften the blow

The lost trillions

Low interest rates and measures adopted by governments to support markets during the pandemic have sent cryptocurrency prices soaring. But the Federal Reserve’s decision to tame persistently high inflation by raising interest rates has soured investor sentiment, triggering one of the biggest crashes in the market’s short history. Total crypto market capitalization hit record levels in November 2021, surpassing $3 trillion. dollars. It followed the worst first half in cryptocurrency history, and now the market capitalization has slipped to around $950 billion – a 60% drop since the start of the year, according to CoinGecko.

In addition, project Terra’s luna, one of the leading – until recently – cryptocurrencies with a capitalization of more than 40 billion dollars, it lost almost all of its value in one week in May, after Terra’s other cryptocurrency, the USD, a stablecoin aimed at staying firmly pegged to $1, broke its “locked” rate with the US currency amid a market collapse. Meanwhile, the most popular cryptocurrencies, Bitcoin, Ether and Binance, have suffered heavy losses, 70%, 75% and 65% from their all-time highs, respectively. The market has taken years to recover from similar situations in the past. The wild “winter” that started in 2017 lasted just over 1,000 days until the price of Bitcoin managed to climb to a new record.

Thousands of layoffs

Faced with the market meltdown, cryptocurrency exchanges have laid off more than 2,000 workers in the past five weeks. Coinbase laid off 1,180 employees, or about 18% of its workforce, on June 14 – weeks after the company’s billionaire CEO Brian Armstrong warned investors that a possible recession could lead to a prolonged cryptocurrency bear market. In the memo announcing the layoffs, Armstrong said he was preparing “for the worst” and acknowledged that the company had “grown extremely quickly” amid the pandemic frenzy. “It was a surprise and hard to handle,” commented one former employee on LinkedIn. Others described the staff cuts as “deep” and “unexpected”.

In June, Gemini, the exchange founded by the billionaire Winklevii twin brothers, announced it would cut about 10% of its 1,000 employees, and exchanges Crypto.com and BlockFi would lay off 5% and 20% of their staff. , which in numbers translates to approximately 260 and 170 employees, respectively. Banking platform for cryptocurrency users Celsius reportedly laid off 150 workers and Austrian trading platform Bitpanda cut 270 jobs, calling the move “necessary to navigate the storm and emerge from it financially healthy.”

Sell-off at a record pace

Investors have been pulling out of cryptocurrencies at a blistering pace, with Bitcoin falling to an 18-month low in June. Outflows totaled $423 million in the week ended June 17, erasing all inflows this year and surpassing the previous record of $198 million from January, according to CoinShares. Assets under management of cryptocurrency investment products slipped to a record low of $21.6 billion in June, a 37% drop from May, as “looming liquidation threats” created “panic” among investors after the luna crash, as CryptoCompare analysts reported in their report. Meanwhile, according to Bank of America, the number of its customers using cryptocurrencies has fallen more than 50% – to fewer than 500,000 – since its November market highs.

Last Tuesday, leading miner Core Scientific revealed that it sold most of its Bitcoins in June, at an average price of $23,000, raising more than $167 million. In a statement, the company’s CEO Mike Levitt explained that the sales came as a result of “significant concern” caused by the market’s “plunge”, rising interest rates and “historic inflation”. Canadian company Bitfarms also “offloaded” 3,000 Bitcoins in late June, for $62 million.

“The usual practice of Bitcoin miners is to sell in the final stages of a bear market,” explains Sotiriou, noting that some companies may need to boost their capital to cover expenses or stay solvent, as high inflation will put a strain on operating cost.

Billions “on ice”

Citing “extreme market conditions”, Celsius became the first major platform to halt withdrawals and transfers between accounts on June 13. In the following days, others followed suit: Babel Finance, CoinFLEX and Voyager “froze” all withdrawals. None of the aforementioned platforms have reopened trading, preventing investors from accessing billions of dollars in capital.

“These platforms are indeed in a very difficult position because they mismanaged their clients’ funds, somehow they lost them, and now they can’t refund their clients – and there’s no guarantee that they will in the future.” explains Sotiriou. Recently, listed Coinbase warned that customers would be treated as “unsecured creditors” should the company go bankrupt.

Bankruptcies and liquidations

Some platforms just crash. On June 27, Voyager issued a default notice to Singapore-based hedge fund Three Arrows Capital (3AC) for failing to make payments on $675 million in Bitcoin and stablecoin loans. 3AC had come to manage about $3 billion, but in late June Singapore’s financial regulators convicted the fund of false information and it now has jurisdiction to manage funds of up to $250 million. 3AC’s problems were compounded by the sell-off’s impact on its risky investments, which reportedly included hefty positions in the Grayscale Bitcoin Trust and about $200 million in… now-defunct Luna. A few days ago, a court in the British Virgin Islands issued a decision according to which 3AC is required to liquidate its assets after being declared insolvent. On the same day, the fund filed for bankruptcy.

Three days later, Voyager also filed for bankruptcy, while transactions through the platform were previously suspended. “I strongly believe in the future of this market, however the prolonged volatility in the cryptocurrency market requires us to take – consciously and decisively – action here and now,” Voyager CEO Stephen Ehrlich said in a statement. The company said it has more than 100,000 creditors and assets of up to $10 billion. Vauld and Celsius also announced that they are exploring restructuring options.

“Life jackets”

Some platforms hope to be rescued before they are forced to be “assimilated” by other, more established companies. Billionaire Sam Bankman-Fried’s FTX exchange has already reached an agreement to buy troubled BlockFi for $240 million. “We are willing to close a not-so-beneficial deal as long as we have to stabilize the situation and protect customers,” he told Forbes in June. More recently, he said FTX has “a few billion” more to help struggling companies.

Meanwhile, Goldman Sachs is reportedly seeking to raise $2 billion to back Celsius’ purchase of distressed assets, while other established financial institutions are also showing interest in the same direction.

“It’s extremely promising,” says Dante Perrucio of Wave Financial. “Big banking institutions are looking for distressed assets in the cryptocurrency market. This means they believe the industry will come back – and come back strongly – despite the difficult times we’re going through now.”

* Former Crypto Billionaire Insists: “Bitcoin Will Soar to $250,000 in Next 18 Months”