Major digital asset exchanges are laying off hundreds of workers in an abrupt reversal of the industry’s breakneck expansion as a two-year hot streak gives way to a crypto cooldown.
US-listed Coinbase on Tuesday announced plans to lay off nearly a fifth of its workforce, numbering more than 1,000 people, joining rivals such as Gemini, Crypto.com and BlockFi in downsizing. as this year’s cryptocurrency price crash stifles the trading activity that is the lifeblood of the industry.
“If there is no trading volume, there is no money. . . it looks like it’s going to be tough for quite some time,” said Julian Sawyer, former CEO of cryptocurrency trading hub Bitstamp.
The market value of the world’s 500 largest crypto tokens has plunged from a high of $3.2 trillion in November to less than $1 trillion this week, ending years of gains in major currencies like bitcoin and ether.
The pullback reflects a broader slump in global financial markets, but has been most severe in the most speculative asset classes at a time when central banks are backing away from the stimulus they pushed in 2020.
Crypto investors tend to trade much more actively during bull markets. Now, declining volumes are eating up the once-hefty fees exchanges earn by facilitating trade.
Spot trading volumes on major crypto platforms averaged around $800 billion per month from March to May, less than half the level for the same period in 2021, according to Financial Times calculations based on data from CryptoCompare.
Coinbase had expanded to around 6,000 employees from 3,730 at the end of last year as the exuberance of the crypto markets progressed.
Rivals that have prospered in recent years are also derailing its growth plans. Crypto exchange Gemini said in early June that it would lay off 10 percent of its staff amid “turbulent market conditions” that the founding Winklevoss brothers said could “linger for some time.” In recent days, Crypto.com has also said it would cut 5 percent of its workforce, around 260 people, and crypto lending platform BlockFi will lay off a fifth of its workforce, around 170 people.
Brazil’s Bitcoin Market also recently laid off 90 people, about 12 percent of its employees. Director Fabricio Tota said the exchange went from 200 to 700 in just under a year in 2021.
“When you grow so fast, you don’t grow in an organized way. So it’s time to start looking for inefficiencies and be more organized,” said Tota.
Coinbase was already facing backlash both inside and outside the company. Last month he signaled plans to cut back and even rescinded some job offers. Chief Financial Officer Alesia Haas said in a panel interview last week that “we are operating in an uncertain time.”
John (not his real name) had quit his job and was preparing to move from Europe to London for a job at Coinbase. “Everything here was packed. Any movement is a big problem, you put everything in order, say goodbye to people, I was seeing someone here. Everything fell apart,” he said. After his UK visa application collapsed, he was left trying to get back to his old job.
Rick Chen, head of public relations for employee information-sharing platform Blind, said that Coinbase had assured people that the deals would not be rescinded. “Having whiplash a few weeks later when that’s not the case, I haven’t seen anything like this,” he said. Coinbase noted a blog post and twitter posts of senior management and made no further comment.
A former senior Gemini executive said the company’s recent announcement about the cuts is just the tip of the iceberg, claiming the exchange was “over-hired” in last year’s cryptocurrency bull market.
“Ten percent is completely underestimated. Unbeknownst to people, Geminis were laying off important people since March,” the former employee said. Gemini declined to comment.
Charley Cooper, CEO of blockchain software company R3, warned that “arrogance” often enveloped the cryptocurrency industry.
“The laws of economics also apply to cryptocurrencies. It is very difficult to convince people in mainstream finance that you are serious about business if you constantly believe that your asset class is immune to the laws of economics,” he said.
Increased regulation of crypto assets has also added costs for operators. “If you do it right, the regulatory overhead is huge because we have to dive into the old world and keep up with the new world,” said Eric Demuth, CEO of Bitpanda, the Austria-based exchange.
But the chill exchanges feel may depend on their business model, for example, whether they offer derivatives trading or rely on institutional traders for revenue.
In the past three months, trading in derivatives that facilitate bets on the future direction of currencies is down 17% from peak levels, far less than the drop in spot, according to CryptoCompare.
Crypto exchange FTX, which has 300 employees, said it remains “strongly profitable.” Binance, the largest exchange by volume, said it will continue its hiring pace. “We believe that cooler markets offer the best opportunity for organizations to invest in or acquire large projects at a more favorable price,” Binance said.
OKex managing director Lennix Lai said the exchange plans to add 30 percent to its 2,800-strong workforce in the next year.
But for people like John it has been a hard lesson.
“I wish people had the memory to punish companies that behave like this, but sadly we live in a world with a week’s memory on the most scandalous issues,” he said.