Massive cutbacks have become the norm in the crypto industry. Every day it seems like there is a layoff story related to cryptocurrency exchanges, Bitcoin ( CRYPTO :BTC ) mining companies or crypto asset financial services companies.
There are two ways to look at this situation: the glass-half-empty approach and the glass-half-full approach.
The glass is half empty
Since this is the mainstream media's favorite story, let's start with the glass-half-empty approach. The story here is very simple. The crypto market will explode in 2022, the cryptozem will begin and companies struggling to survive will start massive layoffs. The implied message, of course, is that many crypto companies will not survive, and if they do, they will play a much smaller role in the current financial system. Following the collapse of crypto exchange FTX (CRYPTO: FTT) , regulators are running out of patience for bad actors and scammers who have somehow found a home in the crypto industry.
Naturally, when it comes to crypto investing, many investors focus on Coinbase (NASDAQ:COIN) , which is one of the most popular crypto companies. The company is incredibly transparent about the impact of the crypto market crash on its business model. Heading into 2023, many analysts believed Coinbase had halted the strike that began in June. But in mid-January, the company announced another layoff of 950 employees, about 20% of its remaining workforce.
The move was particularly disappointing as it suggests Coinbase doesn't expect crypto retail investors to return any time soon. Why would you shed nearly 1,000 employees when Bitcoin has recently made a spectacular comeback? According to CEO Brian Armstrong, this latest cut was necessary to get Coinbase back on the path to profitability. But if you search social media, you can find many doomsday scenarios at Coinbase. And sure enough, a week after the cuts, Coinbase announced it would suspend operations in Japan.
The glass is half-full
However, there is a competing version that suggests the cuts could be a good thing for the crypto industry. It might sound counterintuitive, but this approach is based on a 1950s economic theory (taught in business schools) called "creativity loss." This theory has been used to explain everything from the loss of dominance of Polaroid photography to the disappearance of your hometown newspaper. It can be summed up in one PT phrase: "Out of the old, back in." Some economists say industries sometimes need to grow for the next generation of innovation. So this could be what's going on with crypto right now.
Cryptocurrency exchanges are a good example. The “old” model had centralized exchanges like Coinbase and the “new” model had decentralized exchanges like Uniswap (CRYPTO:UNI) , PancakeSwap ( CRYPTO:CAKE), and SushiSwap (CRYPTO:SUSHI) . Centralized exchanges require people to do the day-to-day work; Decentralized exchanges require only smart contracts and computer code. Simply put, you won't hear about Uniswap firing people because when everything is decentralized, there's nobody to fire. This new model is basically a peer-to-peer business model where you exchange cryptos with other market participants.
Or how about all the bitcoin mining companies that are now closing and laying off employees? This could be a sign that the “old” proof-of-work model like Bitcoin is a thing of the past. Now, Ethereum (CRYPTO:ETH) has finally become a proof-of-stake cryptocurrency as a result of last year's The Merge, perhaps reversing the long-term trend towards a greener and more energy-efficient proof-of-stake. On the other hand, this model offers its own innovation based on crypto bets. This includes innovations like Liquid Standing, which thrived during the crypto winter.
Which situation is more likely?
Of course, it's possible that the glass is half full, just sharp. Maybe all those $1 million bitcoin price predictions were completely ridiculous. Perhaps the crypto industry is destined to be forgotten. Perhaps the meme coins are the Dutch tulip bulbs of that era. Perhaps the belief that mathematicians and cryptographers can create cryptocurrencies out of thin air is a product of this generation's belief that medieval alchemists could turn lead into gold.
This is going to be really disappointing because it means the best and brightest no longer want to work in the crypto industry. No one brags about working at Enron anymore (remember when they were the "smartest guys in the room") - no one brags about having worked at FTX. Perhaps the next wave of tech talent will find something else that interests them, like artificial intelligence and new ways of creating economic value through AI-powered chatbots. But I hope not because the blockchain and crypto business that is emerging from this crypto winter needs this talent more than ever.
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Dominic Basulta holds positions in Bitcoin and Ethereum. The Motley Fool owns shares of and recommends positions in Bitcoin, Coinbase Global, Ethereum, and Uniswap Protocol Token. The Motley Fool has a disclosure policy.