Three announcements have recently been made indicating the degree of instability in which the world economy finds itself. On January 5, Andy Jassy, CEO of Amazon, reported the layoff of 18,000 workers. In addition, this Monday Bloomberg reported that Goldman Sachs will eliminate 3,200 jobs and on Tuesday, Coinbase announced, through a statement written by its CEO Brian Armstrong, that it will lay off 950 workers, that is, 20% of its workforce.
Therefore, large firms in the technology, banking and crypto sectors have made similar decisions (mass layoffs) in the face of economic changes and fear of a recession. However, as Brian Armstrong noted in his statement, “this is the first time we have seen the crypto cycle coincide with a general slowdown in the economy.”
A bad year for cryptocurrencies. The Coinbase CEO began the statement published last Tuesday by indicating the context in which he made the decision to fire the company’s 950 workers. Armstrong began by pointing to the fact that the crypto market has been down in the past year, along with the broader macroeconomy. In this sense, data from CoinGecko indicate that, indeed, 2022 has not been a good year for the crypto market.
Market and Coinbase Crash. According to the portal, the total capitalization of said market has decreased significantly in the last twelve months: in January of last year it was at 2,300 million dollars, while it currently stands at 843 million dollars. As far as Coinbase is concerned, Yahoo! Finance indicates that the firm’s shares have lost 82.6% of their value.
From inflation to the energy crisis. This crypto-fall is due to some factors such as inflation, the rise in interest rates by central banks (mainly the Federal Reserve), the energy crisis (mining cryptocurrencies has become more expensive due to the high price of electricity) or to the fact that, in economically turbulent times, investors place more trust in less risky assets.
FTX bankruptcy. All this has shaken many companies in the sector, some of which have ended up in bankruptcy, such as FTX, whose liquidator affirmed last December in the US Congress that the company had taken the money from clients to use it in his own benefit. In fact, in the statement, Armstrong seems to be making a reference to Bankman-Fried, founder of FTX, when pointing out how the action of “unscrupulous actors” has caused “collateral effects” in the cryptocurrency market.
Danger of contagion in the cryptocurrency market. In this sense, the CEO of Coinbase warns that the “contagion” in the sector can spread. Forbes already pointed out in November that inflated ‘tokens’, one of the causes of FTX’s bankruptcy, were still in circulation, which could be fatal for the cryptocurrency market. As a result, there has been a loss of confidence among investors, especially institutional ones.
Regulation? No problem. This loss of confidence in cryptocurrencies reinforced the positions of those who defend a regulation of said market, a formula widely rejected by the sector. However, Armstrong claimed that “regulatory clarity” was one of the recent developments that “will ultimately benefit Coinbase,” validating its “long-term strategy.” This apparent contradiction can be better understood if we remember that in November, Joe Biden expressed his gratitude to the FSB (Financial Stability Board) for the recommendations made in a report with the aim of regulating the cryptocurrency market.
Too many hires. On the other hand, the CEO of Coinbase mentioned overhiring as one of the causes of layoffs. According to Armstrong, over the past decade, his company, like other companies in the technology sector, has focused too much “on expanding the workforce as a measure of success,” which has “slowed down” the company. .
Other technology firms such as Meta or Snap have acknowledged having made a mistake in their economic forecasts, which led them to hire too many staff and to be, currently, in a more difficult financial situation.
old formulas. Changes in the economic outlook affect all sectors, although it is true that some, such as technology, are more affected. We also verified that one of the formulas that younger firms opt for when they are badly given is the same as that used by more traditional companies: firing workers.
A year full of doubts. The uncertainty, therefore, is general. However, the cryptocurrency market has reason to be concerned: every bit of bad news in the industry seems to entrench regulatory positions, and if a global recession occurs, it would be the first that cryptocurrencies would experience. All this generates mistrust, alienating investors and further clouding the forecasts of a 2023 full of unknowns in economic matters.
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