When business is booming many businesses focus strictly on growth and when cash flow falls, they put aside new projects and lay off workers. This is what is now going on in the world of cryptocurrencies. According to Bloomberg, the crypto exchange Bybit just announced its intention to cut 30% of its workforce. This is just one more piece of evidence that the crypto winter may be more of a crypto ice age than we thought. With the fall of FTX just the latest in a string of crypto business failures, Bybit is emphasizing that they are prioritizing business operations and the preservation of client assets like many of their competitors as crypto businesses tighten their belts.
Sorting Out of the Crypto Realm
A basic aspect and an essential aspect of capitalism is that during bear markets weak companies, poorly run companies, and companies with no financial security go out of business or are taken over by their rivals. Cryptocurrencies started with Bitcoin and now there are thousands. It seemed like such a great idea when the only direction that crypto went seemed to be up over time. The same thing happened in the stock market in the run up to the dot com crash when all one seemed to need was “dot com” in the name of your company and then it became apparent that your company really does need to have intrinsic value in terms of a forward looking revenue stream. Those “dot coms” that had intrinsic value, like Amazon.com became world business leaders but the “lookalikes” that did not have solid businesses failed. It would appear that the same is now taking place in the crypto realm.
How Do Crypto Businesses Make Money?
While you personally can make money by purchasing crypto tokens and waiting for them to go up in price, crypto businesses make money several ways. A company that mines their own crypto tokens can sell them and they can hold them as the price goes up. Crypto exchanges charge for the service of exchanging crypto tokens for other tokens or dollars and vice versa. When a person uses a crypto ATM, someone makes money with each transaction. Along the way crypto business is making money which it has tended to keep as its tokens or other crypto tokens because the common wisdom in the crypto world was that crypto always goes up! Here is where the problem emerges that has caused crypto businesses to tighten their belts.
Crypto Businesses Need to Follow Business Rules to Succeed
When we at Profitable Investing Tips look at a new business niche, we generally tell our readers that two factors lead to success. One is that the best ideas lead to the best products which are generally the most profitable. The other is that no matter how hot the niche and no matter how great the idea, a business needs to be effectively managed so that part of every dollar (or crypto token) that comes in the door is retained as profit. Growing businesses often use their “story” to obtain capital in order to grow and their spectacular growth often disguises the fact that their basic business plan does not result in a profit. When times are tough is often when companies learn that they need to watch all of those “hidden costs” of doing business caused by Parkinson’s Law which basically says that all tasks expand to take up all available time and that all projects use up or exceed their budgets. Crypto businesses that do not understand this concept will survive during good times when the rising tide raises all ships. They will fail when crypto winter turns into crypto ice age and crypto losers outnumber crypto winners as the niche sorts itself out.
Crypto Businesses Tighten Their Belts – SlideShare Version