Many crypto firms have laid off workers over the past few months. Crypto.com, the third largest crypto firm by number of employees, laid off 20% of its employees after the collapse of FTX. Coinbase has also laid off about 18% of its workforce, totaling about 1100 employees.
It is essential to evaluate the reasons behind these layoffs to determine whether crypto investors should be concerned about people abandoning the space and market itself. Are these fears unsubstaniated or are they fair? Is the market set for an enormous rebound in 2023, or will it be a slow rebuild in terms of number but also investor trust?
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Why Are Crypto Firms Cutting Staff?
Good question, and there isn’t a ‘one size fits all’ answer. In a nutshell, it’s a multifactoral answer with many different roots and branches. In the most straightforward way, the bear market has been worse than anticipated and perhaps in the bullish period the exchanges were too hasty to hire. However, Leona from Crypto Lists explores some of these pontifications below.
Kris Marszalek, the co-founder and chief executive of Crypto.com, has stated that the company grew ambitious at the start of 2022 as the crypto market grew rapidly. It is likely that other companies also hired aggressively because of the bull run. By the middle of the year, various factors had started slowing down the world economy, and this had a direct effect on the crypto market.
It is worth noting that many tech companies were affected by the poor economy. Amazon laid off 18,000 employees, Meta fired 11,000 people, and about 6000 Snap employees lost their jobs.
Again, these companies have mentioned that they hired aggressively following the 2020 Covid-19 pandemic. Because of the lockdowns, more people shifted their discretionary spending from products to tech services. This trend wouldn’t last long as governments around the world eased Covid-19 measures, and that meant profits to tech companies would go down.
The Fall of FTX
Another factor that affected crypto firms is the fall of FTX towards the end of 2022. This was a catastrophic event that led to a sharp decline in the prices of many crypto assets. Although companies like Coinbase and Crypto.com had little exposure to FTX, they still suffered due to the decreased confidence in the crypto sector. These exchanges make money when people trade crypto assets, and investors have to believe that they can make a profit in order to trade.
With the collapse of FTX, more people became cautious and avoided trading on centralized exchanges, and this made companies like Coinbase less profitable.
Are People Pulling Out of Crypto?
While layoffs may suggest that the market is doing poorly, there are still many reasons to keep investing in crypto. As mentioned, one major reason for the layoffs was the losses resulting from the fall of FTX. This event exposed flaws in various crypto projects, and as a result, different firms have learned how to fix various mistakes.
For example, Binance, the largest crypto firm, has announced that it will create an industry recovery fund. This fund will support struggling players in crypto and will prevent catastrophes like that of FTX. These developments should increase investor confidence in crypto.
Promising projects like Solana have also proven to be resilient. SOL was linked to Sam Bankman-Fried, and many experts predicted that it would die completely following the fall of FTX. This didn’t happen as the blockchain is still attracting new developers, and its coin is going up in value.
Many industry players are unlikely to attach their projects to specific individuals as this has proven to increase their vulnerability. Sentiments on platforms like Reddit indicate that investors are also wisely moving to more decentralized crypto projects. Centralized exchanges offer lots of benefits, but you should only store a minimum amount of money on them.
Another lesson investors have learned in the aftermath of the FTX collapse is to quit trusting individuals and firms. It is essential to verify the claims of different firms, especially when they seem unrealistic. Companies guaranteeing 20% APY just for staking tokens are far from realistic and are likely to collapse at some point. The size of the company shouldn’t influence your decision as major firms can be wiped out overnight.
It is also essential for investors to store their cryptocurrencies in their own wallets. Industry experts have always preached the importance of self-custody as this minimizes the possibility of losing your coins. You only need to keep your private keys safe and confidential. If you own a large amount of crypto, you should consider getting a hardware wallet.
Coinbase, Crypto.com, and many other crypto firms have been decreasing their workforce over the past few months. This is because of various factors, including the slow economy and the fall of FTX. Investors shouldn’t be worried by these layoffs, especially because market players and investors have had an opportunity to learn some valuable lessons.