Another crypto lender is fending off forced liquidations, and more firms laid off hundreds of workers this week—marking the latest casualties of a bear market that continues to leave a path of destruction in the digital currency sector.
Fears of global recession and the worst inflation in more than 40 years have wreaked havoc on the nascent cryptocurrency market this year—unleashing a fierce crypto winter that’s forced once high-flying firms into bankruptcy and pushed investors into panic-selling mode. The turmoil has claimed nearly $2 trillion in market value, billions of dollars in frozen funds and thousands of jobs, but current casualties may only mark the beginning of the storm.
“There will be others that come forward with trouble—I don’t think it ends here,” Marcus Sotiriou, an analyst at London digital asset brokerage GlobalBlock, told Forbes last month, noting that close to a dozen firms—including Peter Thiel-backed Vauld—face an uncertain fate after locking customers out of their funds or initiating restructuring proceedings over the past month. “It’s going to be a sustained period of pain,” he says.
It’s anyone’s guess whether the current crypto bear market will ultimately rival the years-long crypto winters of 2014 and 2018—the latter wiping 80% from bitcoin’s price while crushing hundreds of then buzzy new tokens. Sotiriou posits this downturn could last up to 12 months unless persistent inflation soon cools down, allowing the Federal Reserve to ease up on aggressive interest rate hikes that make risky assets less attractive to investors. Analysts aren’t so sure about how quickly that will happen.
“This is necessary for any financial market to mature and evolve,” argues Matteo Dante Perruccio, a partner at crypto investment firm Wave Financial who envisions that cryptocurrency prices will take at least six months—and up to two years—before recovering, similar to cycles past. “But this time, there’s a difference,” he adds, pointing to a wave of institutional money—from the likes of Tesla, Goldman Sachs, Morgan Stanley and more—that fueled widespread adoption during the pandemic: “When we inevitably come back into an appreciating market, it’s going to be more sustained and healthier, with less speculation and more tried and true investment philosophy.”
As crypto investors wait for brighter days ahead, Forbes is tracking all the carnage from the latest crypto winter, including layoffs, price plunges and record selling—as well as the lifelines and acquisitions that may help cushion the blow. Here’s the damage, so far:
Trillions In Value Erased
Low interest rates and government stimulus measures fueled skyrocketing cryptocurrency prices during the pandemic, but the Federal Reserve’s decision to curb rising inflation by hiking interest rates has since battered investor sentiment—ushering in some of the crypto market’s biggest losses in history. After amassing a record value above $3 trillion in November 2021, the cryptocurrency market posted its worst first half ever—plummeting more than 70% through July. The market has since climbed about 33%, but is still off more than 60% from its high, according to CoinGecko.
Piling on to bearish sentiment, Terra’s luna token, a once top cryptocurrency worth more than $40 billion, lost virtually all its value within a week in May after sister token TerraUSD, a stablecoin meant to hold a price of $1, broke its dollar peg as markets collapsed. Meanwhile, top cryptocurrencies bitcoin, ether and BNB have plunged as much as 70%, 75% and 65% from record highs, respectively. It’s taken the market years to recover from similar declines: When growing regulation sparked a fierce crypto winter beginning in 2017, it took more than 1,000 days for the world’s largest cryptocurrency to nab a new high.
Thousands Laid Off
Faced with steep market declines, cryptocurrency companies have laid off more than 3,000 workers since June. By far the biggest blow, popular brokerage Coinbase laid off 1,180 employees, or about 18% of its workforce, on June 14—weeks after the firm’s billionaire CEO, Brian Armstrong, warned investors that a potential recession could lead to a prolonged bear market for cryptocurrencies. In a note announcing the layoffs, Armstrong said he was planning “for the worst” and acknowledged the firm “grew too quickly” during the pandemic bull market. “It was surprising, and it was hard,” one former employee posted on LinkedIn. Others described the cuts as “abrupt” and “sudden.”
Also in June, Gemini, the exchange founded by the billionaire Winklevii twins, said it would cut about 10% of its 1,000 employees, and exchanges Crypto.com and BlockFisaid they would terminate 5% and 20% of their workforces, affecting some 260 and 170 employees, respectively. Since then, lending platform Celsius reportedly laid off 150 workers, and Austrian trading platform Bitpanda cut 270 jobs, calling the move “necessary . . . to navigate the storm and get out of it financially healthy.”
The cuts have only continued in the past two months, with buzzy non-fungible token marketplace OpenSea laying off about 20% of its workforce on July 14. The four-year-old startup was valued at a staggering $13.3 billion in January—amid an explosion of NFT sales that has since largely cooled. “The reality is that we have entered an unprecedented combination of crypto winter and broad macroeconomic instability, and we need to prepare,” said CEO Devin Finzer, a 32-year-old who became a billionaire alongside fellow cofounder Alex Atallah this year, as he announced the layoffs. The company employs more than 750 people, according to its LinkedIn. Days later, Blockchain.com slashed 25% of its workforce. And more recently, crypto brokerage Genesis, which is owned by billionaire Barry Silbert’s Digital Currency Group, on August 17 said it was cutting 20% of its workforce, representing dozens of jobs. The company’s longtime CEO also stepped down.
Some firms have been forced to institute multiple rounds of cuts. Weeks after its first layoffs, Gemini made dozens of additional cuts in July. Meanwhile, Crypto.com reportedly laid off hundreds of additional employees after its publicized cuts in June. A representative declined to comment on the number of layoffs, instead only saying the firm has “optimized [its] workforce to align with current external economic headwinds.”
Investors piled out of cryptocurrency investment funds at a record pace as bitcoin plunged to an 18-month low in June. Outflows totaled $423 million in the week of June 17, virtually erasing all inflows this year and eclipsing the prior record of $198 million from January, according to crypto asset management firm CoinShares. The turbulence pushed the assets under management of crypto investment products to a record-low $21.6 billion in June down 37% from May, as “looming liquidation threats” fueled “panic” among investors after Luna’s crash, CryptoCompare analysts wrote in a report. Meanwhile, Bank of America reports the number of its customers using cryptocurrency tumbled more than 50% to fewer than 500,000 since the market’s highs in November.
Even bullish crypto firms have had to reckon with the changing market. Top miner Core Scientific sold a majority of its bitcoin pile at an average cost of $23,000 in June, raising more than $167 million. In a statement, CEO Mike Levitt attributed the sales to “tremendous stress” driven by weak markets, higher interest rates and “historic inflation.” Canada-based Bitfarms, which made headlines in January by joining Tesla and former billionaire Michael Saylor’s MicroStrategy in buying bitcoin for its balance sheet, also offloaded a large sum, dumping 3,000 bitcoins, or nearly half its pile, for $62 million in late June.
“It’s typical behavior for bitcoin miners to sell during the final stages of a bear market,” explains Sotiriou, noting some firms may need to shore up funds to cover expenses or stay solvent as high inflation tacks on to operating costs.
Billions In Frozen Cash
Citing “extreme market conditions,” crypto lender Celsius became the first major platform to pause withdrawals and transfers between customer accounts on June 13. Within days, others followed suit: Babel Finance, CoinFLEX and Voyager all froze withdrawals. Only Voyager has since resumed the transactions, allowing customers to withdraw up to 24 hours per day starting on August 11, nearly two months after the freeze started.
More have since followed. In late July, Singapore-based crypto exchange Zipmex temporarily paused withdrawals, citing market volatility and financial issues with unnamed business partners; it resumed withdrawals within a day, but deposits and trades on the platform are still disabled. It’s been worse for others: On August 8, Singapore-based Hodlnaut became the latest crypto lender to abruptly halt withdrawals. The firm, which claimed some $500 million in assets under management from thousands of customers, blamed “recent market conditions” for the move, which also stopped token swaps and deposits. Hodlnaut says it’s working to find a way to protect its users’ “long-term interests.”
“[These firms are] in a really sticky situation because they’ve been irresponsible with clients’ funds, somehow lost out and are now unable to pay back their clients—and there’s no guarantee they’ll pay the money back,” explains Sotiriou. In its most recent quarterly filing, publicly traded Coinbase warned of the risk, disclosing customers would be treated as “unsecured creditors,” or lenders without collateral to fall back on, in the event the company goes bankrupt.
Bankruptcies And Liquidations
A handful of crypto firms are simply collapsing. On June 27, Voyager issued a notice of default to beleaguered Singapore-based crypto hedge fund Three Arrows Capital (3AC) for failing to make payments on $675 million in bitcoin and stablecoin loans. 3AC at one point managed some $3 billion, but Singapore financial regulators condemned the firm in late June, saying it provided false information and only had the authority to manage up to $250 million. On top of that, 3AC’s troubles were exacerbated by the sell-off’s impact on its risky investments, which reportedly included overleveraged bets on the Grayscale Bitcoin Trust and about $200 million in now-worthless Luna. On June 29, a British Virgin Islands court reportedly ordered 3AC to liquidate its assets, deeming the firm insolvent; it filed for Chapter 11 bankruptcy the same day.
With 3AC’s fate sealed, Voyager itself filed for bankruptcy on July 5—a mere four days after it suspended trading. “While I strongly believe in this future, the prolonged volatility and contagion in the crypto markets require us to take deliberate and decisive action now,” Voyager CEO Stephen Ehrlich said in a statement. In a court filing, the firm disclosed that it had more than 100,000 creditors and up to $10 billion in assets.
Celsius became the next casualty, filing for Chapter 11 bankruptcy on July 13. It listed assets between $1 billion and $10 billion, liabilities in the same range, and dozens of loans for millions of dollars each from the likes of crypto billionaire Sam Bankman-Fried’s Alameda Research, brokerage Covar.io and investment firm Invictus Capital. “This is the right decision for our community and company,” Cofounder and CEO Alex Mashinsky said in a statement.
More may soon follow: After pausing withdrawals, Vauld has also announced it is exploring restructuring options. And three-year-old Hodlnaut on August 13 filed an application seeking creditor protection with the Singapore High Court. On its website, the firm said it’s aiming to avoid a “forced liquidation” that would force customer assets to be sold at “depressed” prices.
Lifelines And War Chests
Some crypto companies are hoping to be rescued before being forced to shut their doors by turning to more stable counterparts. On July 1, Bankman-Fried’s FTX entered into an agreement to buy embattled BlockFi for as much as $240 million. “You know, we’re willing to do a somewhat bad deal here, if that’s what it takes to sort of stabilize things and protect customers,” he told Forbes in June after providing BlockFi and Voyager with $750 million in credit lines between FTX and his quantitative trading firm Alameda. More recently, he has said FTX has a “few billion” more to help struggling companies.
Meanwhile, Goldman Sachs is reportedly looking to raise $2 billion to help buy up distressed assets from Celsius, and other legacy institutions are also showing interest. “I have this knee-jerk reaction that if you believe that the fundamentals of a long-term case are really strong, when everybody else is dipping, that’s the time to double down,” Fidelity CEO Abby Johnson, who this year shepherded the firm’s industry-first decision to allow bitcoin in 401(k) plans, said when asked about what could be her third crypto winter. “That’s usually the right move.”
“It’s incredibly encouraging,” says Dante Perrucio. “Big institutions looking for distressed crypto assets means they believe that the industry is going to come back—and come back strong—despite this very complicated period we’re all in.”