[Asia Economy Reporter Jeong Hyunjin] Will the market turmoil, which began with global recession concerns and the collapse of trust in cryptocurrencies, lead to a "crypto winter"? Crypto winter refers to a prolonged period during which the value of virtual assets plummets and market liquidity decreases, resulting in low trading volumes. Cryptocurrency companies that have led the industry are anticipating a market freeze and have begun preparing for winter by implementing layoffs. As the price of Bitcoin, considered a relatively stable cryptocurrency asset, has sharply declined, evaluations suggest that the market has entered a "bear market," and even long-term investors who have endured for a long time are expected to face unavoidable damage.
◇ Cryptocurrency Companies Preparing for Winter
Coinbase, the largest cryptocurrency exchange in the United States, announced employee layoffs on the 14th (local time). According to Bloomberg News, Coinbase informed its employees via email on the same day that it plans to reduce its full-time workforce by 18%. The company cited the possibility of a recession and increased management costs as reasons for the layoffs. Brian Armstrong, CEO of Coinbase, said, "We are confirming that we are entering a recession after more than a decade of economic prosperity," adding, "This recession could lead to another crypto winter, which may last for an extended period."
Coinbase currently employs more than 5,000 people. Accordingly, approximately 1,100 employees are expected to be laid off. Coinbase significantly increased its workforce from 3,730 to 6,000 last year. CEO Armstrong explained, "Coinbase grew too quickly," and described the layoffs as "an attempt to maintain the company's soundness during a recession."
Coinbase initially announced a hiring freeze for this year, but the recent significant volatility in the cryptocurrency market and the stock market plunge due to recession concerns appear to have led to this decision. When Coinbase went public in April last year, its stock price was $381, but it closed at $51.58 on the day of the announcement. Earlier, cryptocurrency exchanges Gemini and BlockFi also announced layoffs of 20% and 10% of their employees, respectively, for similar reasons.
The reason cryptocurrency companies are becoming cautious is due to recent turmoil in the cryptocurrency market. Starting with the collapse of the Korean cryptocurrency TerraUSD and its sister coin Luna last month, followed by the withdrawal suspension incident of the cryptocurrency lending platform Celsius the day before, Bitcoin and Ethereum?the leading altcoin?have experienced significant crashes. Additionally, due to high inflation and recession concerns, expectations that the U.S. Federal Reserve will implement a "giant step" (a 0.75 percentage point interest rate hike) at the Federal Open Market Committee (FOMC) meeting held over two days starting the 14th have caused the cryptocurrency market to freeze.
◇ Bitcoin Plummets... "The Darkest Phase"
Even Bitcoin, the representative cryptocurrency, has plummeted, putting not only individuals but also companies that invested in Bitcoin at risk of massive losses. According to CoinMarketCap, a global cryptocurrency market data site, Bitcoin was trading around $21,700 as of 8 a.m. on the 15th. This is the lowest level since December 2020. Bitcoin's price has dropped 30% this month alone, and the decline over the past three days has been 21%, marking an all-time high drop, Bloomberg reported. In the Asian market the day before, the price even fell below the $21,000 mark during trading hours.
Cryptocurrency data analytics firm Glassnode evaluated Bitcoin's current realized price (the average purchase price of Bitcoin holders) at $23,430, nearly $2,000 higher than the current trading price. This means Bitcoin investors are experiencing losses as the price has fallen below the level at which they invested. Bloomberg described the current situation as a "bear market for Bitcoin," stating, "It has entered the deepest and darkest phase, putting even long-term holders under severe pressure."
Bloomberg reported that the market is focusing on identifying which investors are most affected in the current cryptocurrency market. Notably, MicroStrategy, a U.S. software company that actively invested in Bitcoin, is estimated to have suffered losses of about $1 billion due to the price plunge, causing its stock price to plummet. Michael Saylor, CEO of MicroStrategy, has focused on Bitcoin investment since 2020, even issuing bonds to raise investment funds poured into Bitcoin. The market also sees a risk of margin calls for MicroStrategy. The company explained last month that if Bitcoin's price falls below $21,000 due to collateral requirements, it could face margin calls.
- Crypto Winter
Refers to a period in which not only do cryptocurrency prices plummet sharply, but funds also flow out of the market, resulting in prolonged low trading volumes. The first crypto winter occurred from January 2018 and lasted for about a year.
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