Blockchain.com CEO on Crypto Winter: We are now falling into despair”

Blockchain.com CEO on Crypto Winter: We are now falling into despair”

Cryptocurrencies have fallen a total of 45% since the start of the year - the first time they've fallen directly into bear market territory in three years.

Like Crypto's previous downturn in 2018 and 2019, the layoffs are starting to hit.

Crypto exchange employees were the first on the chopping block - companies like BitMEX and Gemini have promised to cut staff since April, while Coinbase plans to withdraw accepted job offers to cut costs.

Without naming specific companies, Blockchain.com CEO Peter Smith in Amsterdam Money20/20 conference this week said that many crypto companies have grown too quickly without focusing on becoming profitable.

“We are the smallest crypto company of its kind by headcount – others have thousands of employees before profitability,” Smith said, noting that several companies have unsustainably spent up to $800 million on marketing costs this cycle.

Smith added: "A lot of this needs to be washed out of the space, not just in crypto but in fintech in general. We're going to see a fundamental rotation from growth to free cash flow."

Smith said investors had pushed Blockchain.com, founded in 2011, to spend more on marketing and grow faster during the previous mania. Bitcoin rose dramatically from $9,000 to nearly $62,000 between the second half of 2020 and November 2021, sparking explosive growth across the crypto sector.

“Every company that has followed this strategy has had a dramatic upturn in their business – big growth rounds collapsed, companies are now raising at low prices – it will be difficult for them to adapt,” Smith said. Earlier this week, Reports emerged that crypto lender BlockFi was looking to raise funds at a valuation of $1 billion, up from $3 billion in its previous round in March 2021.

The three eras of crypto bear markets

However, it is up for debate whether a bear market equates to the dreaded “crypto winter.”

After all, the previous bear market lasted significantly longer than nine months, and the depths of the crypto winter sent Bitcoin down 90% from its 2017 peak.

By Smith's assessment, the current bear market has been going on for nine months - leaving more potential pain on the horizon if past patterns repeat themselves.

In an interview with Blockworks, Smith outlined what he calls the three eras of bear markers: the beginning, which is hard to feel; the middle, where despair sets in; and the new normal.

“We're entering the second era [despair], which is my favorite,” Smith said. “I am a free market capitalist and enjoy the cleansing power of the market.”

Otherwise known, he said, as the chapter where the tide goes out and we all see who wears pants, echo Warren Buffett from a 2001 Berkshire Hathaway earnings call. Ironically, Buffett is a vehemently Crypto skeptics.

This phase is also defined by the ability to differentiate high-quality projects for the benefit of customers, teams and shareholders.

“In the final phase, everyone is looking around and saying, 'Oh, this is crypto now, and we're all going to figure out how to make this thing work.'"

Blockchain.com exited its LUNA position before the crash

Blockchain.com never listed Terraform Labs' failed stablecoin UST, even though the platform offered LUNA. Smith opposed UST, describing the decision to avoid the stablecoin as “not a popular choice.” There was some internal pressure to offer it so that users could unlock up to 20% APY on the lending platform Anchor.

“Consumers love 20%, but consumers also hate zero,” Smith said, referring to the collapse of LUNA and UST.

However, Blockchain.com was an early investor in LUNA, long before UST. Smith said he had doubts about the sustainability of the Terra ecosystem and ultimately exited the position before the crash.

“Anything that goes up too quickly worries me,” Smith said. “Solana also ascended too quickly.” Solana is currently changing hands for $41 - 85% below its record high of $260 set in November.

Smith also had doubts about algorithmic stablecoins, although he had invested in some. He said it would be "very cool" if someone worked, but defaults to thinking they won't and wants to be proven wrong.

Still, the crypto veteran scoffed at the idea of ​​taking Justin Sun's new algorithmic stablecoin Decentralized US Dollar (USDD) seriously. USDD's circulating supply has skyrocketed from zero to over $700 million since the beginning of May.

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The post Blockchain.com CEO on Crypto Winter: We’re Now Entering ‘Despair’ is not financial advice.