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Crypto Startups Faceoff Austerity as Cold Winter Bites

  • Crypto startups attracting eye-watering valuations are now having to contend with years of austerity as the sector faces pullbacks from what appears to be a lengthy crypto winter. 
  • Nevertheless, opportunity may be present from laid-off employees starting their own new ventures and as smaller outfits gain access to a bigger talent pool.

If you’re working at a well-funded cryptocurrency startup, congratulations, you’re one of the lucky few and let’s hope that management didn’t put their treasury into some centralized lending platform to generate yield.

In the aftermath of the 2017 ICO bubble and 2018 crash, many firms which had raised monies sought protection against the value of the cryptocurrency raised, to pay salaries and fund development and marketing.

But with the Crypto Winter now well and truly upon us, even the most well-funded crypto startups are having to tighten their belts and gird their loins for the difficult times ahead.

Venture capitalists who had dumped billions of dollars into the cryptocurrency sector, which has since rebranded somewhat to “Web3” in investment circles, possibly to shake the taint of token speculation and volatility, are now having to engage in a bout of soul-searching.

Layoffs at some of crypto’s most richly-valued companies have sent shudders through an industry that has only experienced a time of plenty.

Crypto lender BlockFi, which is suspected of having liquidity issues, recently raised capital on a down round (at a lower valuation compared to previous rounds), a worrying sign and suggestive of some desperation.

Even the big names have not been spared, including exchanges which are expected to make money no matter what, like Coinbase Global (+0.33%), Gemini Trust and Crypto.com, have all indicated layoffs.

To be sure, the hiring spree embarked on by cryptocurrency companies may have been excessive, especially given the volatile nature of the industry and the unpredictability of flows.

Not helping matters, a tightening U.S. Federal Reserve policy and the end of stimulus checks that has seen profligate speculative behavior that favors cryptocurrency trading, take a back seat.

Retail investors, which form the bulk of cryptocurrency exchange revenue from trading fees, have also been noticeably unenthusiastic as they grapple with the highest pace of inflation in four decades.

Large, leveraged and risky entities like Celsius Network and Babel Finance, as well as the rumored insolvency of a major cryptocurrency hedge fund Three Arrows Capital, has employees and investors concerned over which will be the next shoe to fall.

Data from PitchBook suggests that VCs poured in over US$54 billion into cryptocurrency startups since the start of 2020, with many firms attracting eye-watering valuations, that are now being more closely scrutinized.

In such a hostile environment, survival may be wining.

But not all VCs see doom and gloom, and some have identified bright spots, because smaller companies may be able to absorb from a larger talent pool as the bigger players layoff staff.

Staff who have been let go by their cryptocurrency firms may also decide to pitch in and build out or bootstrap their own “Web3” offerings, potentially paving the way for new adoption, applications and growth.

To be sure, the entire cryptocurrency industry might have gotten ahead of itself by betting on growth in a time of easy money, but now that the liquidity taps have been turned off, those that deliver value at a good value, will be those that will ultimately persist in this space.

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