Bitcoin and other cryptocurrencies are no stranger to meteoric price drops. In the blink of an eye, a coin can increase hundreds of percent and plummet to near zero. Cryptocurrency is an emotional and monetary rollercoaster.
Coinbase has just announced it is laying off 18% of its workforce immediately. Although, it is apparent Coinbase executives didn’t seem to have as high hopes as the wider crypto community, selling off $1.2 billion in shares since it was listed.
Coinbase overhired and spent way too much on talent than the market could support. The recklessness in which Coinbase has been run has resulted in a company sensitive to crypto turbulence. The current downturn isn’t the first; we saw this exact situation in 2017. It appears Coinbase learned nothing.
Also worth noting, Crypto.com also laid off staff, 260 staff (around 5% of its workforce). And not too long ago, Gemini laid off 10% of its workforce, saying it was preparing for “crypto winter”
Unlike in 2017, there is more to lose this time around. While 2017 disproportionately affected average traders (many buying in because of the inescapable hype), the 2022 plunge has financial institutions, hedge funds, companies and even countries invested.
In simple terms: there is a lot more money invested, not just Uncle Jack, who bought some Bitcoin because he saw it on the news or discussed it at the Thanksgiving dinner table.
What contributes to the drop is dramatically rising inflation fuelled by the Russia/Ukraine conflict and parts of Asia still trying to fight COVID, resulting in supply chain logistics issues that have a flow-on effect on the rest of the world.
Experts are sounding the alarm that we’re possibly heading for a global recession. Many have been sounding that alarm for two years or more.
Ironically, Bitcoin was born out of the 2008 Global Financial Crisis. It was meant to be a new start, designed to address the problems with fiat currency. It appears that Bitcoin and its offspring prove that even cryptocurrency is not immune to external economic conditions.
Many Bitcoin proponents (myself included at certain points in my crypto life) have argued Bitcoin is a long-term store of value, and that it’s the digital equivalent of gold. Sorry, but gold doesn’t drop tens of percent like Bitcoin can. Price fluctuations and corrections are a part of a healthy market, but these drops are anything but healthy.
I mean, look at this Bitcoin price graph. This is from January 2022 to June 2022 (halfway through June). It’s pretty damn harrowing to look at. Bitcoin has fallen off a cliff, and like it always does, it drags pretty much the rest of the crypto market along with it.
But we’ve seen this all before. Bitcoin has had a handful of massive drops in value over the years, including one in 2021. Unlike previous falls, we are seeing some occur closer together. Bitcoin has been falling for a while now. A 50% drop isn’t cause for concern for some Bitcoin hodlers who have been around longer than a couple of years.
If we do see parts of the global economy fall into recession, a repeat of what happened in 2008 (or worse), we will see just how resilient cryptocurrency can be during a real financial crisis. So far, cryptocurrencies have yet to experience a recession. Will hodlers really keep their positions or will they sell to keep the electricity turned on, so they don’t freeze in the winter?
Love him or hate him, respected investor Warren Buffet has been sounding the alarm on cryptocurrency since 2018 and most recently again. You could argue that old money doesn’t understand new money, but it’s hard to argue that Berkshire Hathaway hasn’t had an incredible run with its investments and management of funds.
While Coinbase might be one of the biggest, this is only the beginning. In the coming months, you’re going to see exchanges completely fail. Many exchanges have been operating like the bull run would last forever. Stupidly hiring large swathes of talent instead of cautiously operating with some kind of buffer.
Don’t be surprised if Coinbase lays off more of its workforce in another month or two. Other companies will soon be following suit.
For some, the “blood in the streets” will lure die-hards who haven’t already been liquidated into buying more. Others will encourage others to buy more despite the possibility that Bitcoin may break beneath $20k USD and trigger a catastrophic sell-off.
We are already nearing a terrible marker: undoing five years’ worth of gains.
The famous question: is Bitcoin dead? will undoubtedly be asked for the millionth time. With global economies falling and inflation running rampant, it does make you wonder how many cryptocurrencies will die as a result? Bitcoin will likely live, but it will be trimmed down in the short to medium term. Where is the bottom?
