The crypto world has been suffering through a crypto winter for more than a year. Several large crypto exchanges like FTX and Celsius have gone into bankruptcy. Now the Coinbase exchange is laying off employees for the second time in less than a year to reduce costs. As quoted on Bloomberg, its CEO noted that the company needs to adjust it business plan away from betting on continual growth in crypto prices and a guaranteed steady increase in numbers of customers. As Coinbase makes adjustments, crypto winter drives changes in crypto business plans far and wide.
Second Round of Coinbase Layoffs
The New York Times reports that Coinbase is laying off twenty percent of its staff after having laid off twenty percent in June of 2022. Coinbase went public in 2021 and experienced impressive expansion during the Covid pandemic. The Times quotes their CEO as saying that with hindsight as a guide they should have cut more staff back in 2022. It is consistent with the general retreat in markets that Coinbase stock is down 88% from its 2021 $342 peak. Coinbase’s situation is a milder version of those companies now in bankruptcy. Everyone was betting on crypto going up forever.
Perpetual Expansion as a Business Plan
Many businesses have experienced exceptional growth and then moved into a maturity phase. Microsoft and Amazon are prime examples. But, even in their mature phases companies can continue to grow and to shrink. Amazon.com made history recently for being the first company to lose a trillion dollars in market capitalization as the stock market imploded due to inflation and the Federal Reserve steadily raising interest rates. Coinbase and, in fact, the entire crypto realm is similar to Microsoft and its growth with personal computers and the internet throughout the 1990s up until the dot com crash when its growth fell back, recovered a bit, and leveled off for 14 years. The comes a point at which the market for a company’s products and services gets saturated. At that point only the best managed companies with the best business plans and the highest margins of safety survive.
Does a Business Plan Make Money and Will It Continue to Do So?
One of the most successful investors ever is Warren Buffett. Buffett does not invest in a company unless he clearly understands how that company’s business plan will make money now and will continue to make money into the distant future. The concept of intrinsic stock value is based on projected cash flow for the long term. This is an approach that investors need to take when coping with crypto investment losses. Many fortunes have been made or at least added to by investors who spotted unfairly devalued stocks during bear markets. In the case of a company like Coinbase, their two decisions to cut back drastically on expenses in order to stabilize cash flow instead of simply waiting and hoping for crypto winter to end and prices to soar again appear to be a wise ones. Despite the crypto ideal of total independence from the old financial system, crypto is part of the financial and investment world and anyone doing business in this realm needs assets in reserve as well as the promise of more business.
What Will Investors Think of Cryptocurrencies in 2023?
As we see it, there have been two types of crypto investors. There have been those who speculated on buying Bitcoin, Ethereum or one of the other tokens and were fortunate to purchase very early or during a trough. These folks stayed with crypto because it seemed to work to produce wealth. The other folks are the true believers who likely got into cryptocurrencies early and believe in the original purpose of Bitcoin which was to provide a fair and equitable way to buy and sell things on the internet free from third parties and government interference. A lot of folks in the first group are bailing out because the crypto winter has shown us that crypto is not a hedge against inflation, not a safe refuge for wealth during times of geopolitical and social turmoil, and not divorced from the stock market and other investment vehicles. These were “selling points” previously and as they have been shown to be wrong the rather shallow faith of the first group of investors has dissipated. The true believers are becoming disillusioned because crypto seems to have lost its way. The system that was meant to be decentralized became a closely knit boys club with assets loaned or invested behind the scenes, often fraudulently so.
What Crypto Business Plans Will Succeed Going Forward?
The Metaverse, NFTs, decentralized finance, and the blockchain itself all show promise as ways to make money. The Metaverse, especially, is in an early stage and decentralized finance has taken a hit with crypto prices having fallen so badly. Our opinion is that crypto businesses that offer real world opportunities to make money, not based on pure speculation, have a chance at long term success. It is always hard to pick who will be the winners in an evolving niche but in the end, it turns out to be the companies that are fast on their feet, able to maintain a monetary reserve, and provide what the public wants from their business niche.
Crypto Winter Drives Changes in Crypto Business Plans – SlideShare Version
