Crypto startups are going through a ‘tough moment’ after layoffs

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In May venture capital company Sequoia circulated a memorandum among the founders of its startup. 52 page presentation warned of a difficult road ahead paved with inflation, rising interest rates, Nasdaq drawdown, supply chain problems, war and general economic fatigue. Things had to get tough, and this time venture capital won’t come to the rescue. “We believe this is a watershed moment,” the firm’s partners wrote. “Companies that move the fastest and have the longest runway are the most likely to avoid the death spiral.”

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Many startups seem to be following Sequoia’s advice. The mood has turned downright doomsday as the founders and CEOs have slashed 2021 surpluses from their budgets. Most importantly, these cuts have affected headcount. More than 10,000 startup employees were fired from the beginning of June, according to laofftracker.comwhich catalogs job cuts. Since the beginning of the year, their number is approaching 40,000.

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Crypto companies have become the latest victims, and the carnage is no small one. Coinbase fired on Tuesday 1100 employees, abruptly disabling their access to corporate email accounts and blocking their access to corporate Slack. These layoffs came just days after Coinbase. withdrawn job offers of more than 300 people who planned to start work in the coming weeks. Two other crypto startups –BlockFie as well as Crypto.comeach of them cut hundreds of jobs on Monday; Cryptocurrency exchange Gemini also fired 10 percent of their employees earlier this month. Collectively, more than 2,000 employees of cryptocurrency startups have lost their jobs since the beginning of June, about a fifth of all startup layoffs this month.

The conversation about cryptocurrency companies has changed dramatically over the past year. In 2021, they were the darlings of venture capitalists who showered them with billions of dollars to fund aggressive growth. Coinbase, which went public in April 2021 at $328 per share, seemed to be hinting at a gold mine in the sector. Other companies such as BlockFi have begun hiring heavily in an effort to go public. Four crypto startups failed expensive prime time ads at the last Super Bowl.

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Coinbase has also focused on rapid growth, increasing its workforce from 1,250 people in early 2021 to around 5,000 people in 2022. Blog post on Tuesday, where he announced the layoffs. “We grew up too fast.”

“Perhaps crypto is the canary in the coal mine,” says David A. Kirsch, assistant professor of strategy and entrepreneurship at the Robert H. Smith School of Business at the University of Maryland. He describes the downturn in crypto startups as one of the potential signals of the “big collapse” as more startups are being judged on how well they can deliver on their promises. Judging by history, those who cannot are doomed to a “death spiral”.

Kirsch spent years studying lessons from past accidents; he is the author Bubbles and crashes A book about boom-bust cycles in technology. Kirsch says the bubble tends to burst first in highly leveraged and high-growth sectors. For example, when the Nasdaq fell in 2000, the value of most e-commerce companies disappeared “long before the wider market decline.” Companies like and, which debuted in public with loud chic, eventually went bankrupt.

In today’s market, crypto startups are also vulnerable. “Perhaps we are seeing a collapse in this sector first,” says Kirsch.

Crypto proponents say it’s normal to fluctuate between periods of abundance and poverty, referred to in the industry as “crypto winters.” Chris Dixon, General Partner of Andreessen Horowitz, wrote about this series in 2020. When the price of Bitcoin rises, people get excited, which leads to more startups, projects, and people investing in the ecosystem. When the price of bitcoin drops — as it did this year, to a fraction of last year’s peak — some of these startups disappear. But Dixon argues that the best of each cycle survives, leading to “discontinuous but consistent growth” in the sector. (Dixon declined to be interviewed for this story.)

Kirsch is not sure that the sector can survive a more significant downturn. “Perhaps the previous crypto winters were just small events after all, because all the participants were sincere believers,” he says. Now that celebrities love Matt Damon as well as Tom Brady attracted more people to crypto platforms, it will be more difficult for them to maintain growth. This could turn this crypto winter into something close to a crypto ice age.

However, entire sectors do not disappear even after the bubble bursts. After the crash of 2000, many e-commerce companies went out of business, but some, like Amazon, continued to grow manically. Now is not the time to completely write off crypto, but rather to see how and what startups can evolve to meet real demand.

These issues will also not be exclusive to cryptography. Instead, take this angle of the startup struggle as a sign that hard times are coming for everyone else—if they haven’t already.

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