Cryptocurrency Analyst,
Stansberry Pacific Research
People losing their jobs is a bad, sad thing. But it might be a good thing for crypto prices.
With bitcoin down 80 percent from its all-time high in December 2017 and most other cryptos down 90 percent or more, crypto companies are slashing jobs.
The world’s second-largest crypto exchange, Bithumb, laid off half its staff last month. Dozens of other crypto companies have announced cuts. Meanwhile, hundreds have shut down altogether.
The table below shows layoffs just from the big players.
Crypto layoffs and closures
Source: Finance Magnates Intelligence and media reports
The table above shows layoffs just from the big players.
Over 300 blockchain companies in the U.K. shut down in 2018 (blockchain is the database technology behind cryptos), and more than 1,000 crypto projects were abandoned worldwide.
One crypto executive said it best when he announced his layoffs: “The latest crypto winter is upon us, and today [we] felt the bitter frost.”
It sounds bad, but it’s actually good for investors.
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Layoffs as financial turning points
In July 1993, tech titan IBM was in crisis mode. The personal computer (PC) was going mainstream. That meant no one wanted IBM’s high-powered mainframe computers (mainframes are giant, room-sized computers typically built for corporations).
IBM’s stock was in a freefall. It had lost more than 75 percent of its value over six years.
So executives announced a plan. They would refocus on software and personal computers. To do it, though, they had to lay off 60,000 employees. It was one of the biggest layoffs in America’s history.
And it was a colossal shift in the company’s focus.
It worked. IBM became the world’s second-largest PC manufacturer by the mid-1990s, and its shares soared 1,200 percent over the next six years.
Of course, that doesn’t happen to every company that undergoes layoffs. Some are acquired or go out of business.
Other times, even great companies are forced to cut staff due to outside events. But the companies that make it through tough times tend to do exceptionally well.
That’s due in part to the cyclical nature of business. Bear markets eventually turn bullish, and the companies that survived the bear market are best positioned to capitalize on the next bull run.
But layoffs are often the turning point – the “bet the farm” moment. Backed against the wall, executives must commit to a new strategy. And the companies that are left are lean, focused and hungry for growth. That’s exactly what we’re seeing in the crypto industry.
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Crypto companies are pivoting
It was easy to launch a crypto company during the 2017 bull market. All you needed was a good pitch and some reputable-sounding advisors. Investors threw money at just about any idea.
When the mania died in 2018, the easy money dried up. That’s forced crypto companies to lay off employees and re-evaluate their strategies.
Crypto company ConsenSys is a good example. It runs a start-up incubator (an umbrella company for lots of tiny crypto projects and startups).
A big part of ConsenSys’s funding came from the founder’s holdings in the crypto token Ethereum. But Ethereum fell from US$1,400 in January 2018 to less than US$100 in December 2018 (Ethereum now trades around US$140).
So ConsenSys was forced to cut 13 percent of its staff in December and now it’s reprioritizing.
When the company launched in 2014, revenue wasn’t a primary consideration for the startups it funded. In the wake of the layoffs, ConsenSys now says revenue is a key metric for its startups.
And because ConsenSys holds much of its working capital in Ethereum, it will also likely pursue projects that will make Ethereum more valuable.
We’re seeing similar things out of other crypto companies.
After 3,000 percent growth in 2017, crypto exchange Shapeshift said it lost its focus. It pursued too many ancillary business ideas that ate into the company’s revenue. Now, it’s cut 33 percent of its staff, and it’s refocusing almost entirely on its core exchange business. In other words, it’s getting lean and focused.
And because crypto exchanges like ShapeShift need new customers to use and exchange crypto, their marketing efforts will also likely go toward growing the entire crypto ecosystem.
So as crypto companies fight for growth, they’re fighting for the survival of cryptos like bitcoin and Ethereum, too. That’s good for crypto investors.
Layoffs mark the perfect time to buy
Crypto layoffs aren’t scaring me away from the sector. In fact, they’re one of the most reliable investment indicators I use. They come at inflection points – times when companies or sectors are so beaten down that investor sentiment can’t get much worse.
We’ve reached that point in the crypto industry. Tough times have forced bad crypto companies out of business. The companies that are left are focused on growth. And almost all of them have a vested interest in seeing the price of cryptos rise.
In short, as painful as these layoffs are for companies, I believe they’re telling us we’ve reached a market bottom. And that makes now the perfect time to start buying cryptos.