This week, the U.S. crypto industry has had many reasons to celebrate: Bitcoin is close to reaching its all-time high, crypto ETFs have achieved many new milestones on Wall Street, and the upcoming presidential election is expected to boost this ecosystem, no matter the outcome.
However, it seems few have noticed that this is one of the toughest weeks for top employers in the cryptocurrency field in the U.S.
On Tuesday, Ethereum software giant Consensys announced it was laying off 20% of its global workforce. Just hours later, DYdX, a New York-based DEX, cut 35% of its staff. The following morning, Kraken, one of the largest crypto exchanges in the U.S., also reduced its workforce by 15%.
At the end of the week, Coinbase announced third-quarter earnings that fell short of expectations, with an overall decline in customer activity. What's going on?
Experts say that there are many factors that could affect this situation, from short-term concerns related to the election and regulations that may soon be resolved, to deeper issues regarding the position of cryptocurrency companies in an industry increasingly dominated by traditional financial giants.
"This is definitely the most bearish growth market ever," said Alex Tapscott, Managing Director of Digital Assets at Ninepoint Partners.
Although optimistic headlines about the rise of cryptocurrency are everywhere, this story seems to apply only to Bitcoin, which according to Tapscott, is 'in a league of its own.'
Even the strength of Bitcoin no longer necessarily benefits the entire crypto industry.
"Yes, Bitcoin's price has risen significantly, but where is that money flowing?" said Owen Lau, a senior analyst at Oppenheimer & Co. "It's flowing into traditional financial companies, rather than cryptocurrency firms."
With Wall Street giants like BlackRock purchasing billions of dollars in Bitcoin trades through ETFs thanks to brand credibility and low trading fees, cryptocurrency exchanges like Coinbase and Kraken are being left behind. Companies related to Ethereum – such as Consensys – are facing even more difficulties, Lau said.
Concerns about regulatory uncertainty and the upcoming presidential election may also play a significant role in cooling activity and investment in the cryptocurrency sector – at least for now.
Kristin Smith, CEO of the Blockchain Association, a leading lobbying group for cryptocurrency, said that while she is optimistic that both the Trump and Harris administrations could bring clarity and regulatory support to the industry, the current hostility of the U.S. Securities and Exchange Commission towards the industry has significantly harmed business, and those damages will not be remedied until next year, at least.
"I think a lot of capital is still sitting on the sidelines and is hesitant to enter this space until they see more clarity," Smith said. "So, I believe that regulatory and political issues are major factors in this context."
Earlier this week, the Blockchain Association launched an initiative to track how much money top cryptocurrency companies have spent on lawsuits initiated by the SEC, and that number has exceeded $400 million. On Tuesday, when Consensys announced plans to lay off 20% of its staff, the company's CEO, Joe Lubin, said that the cuts were related to "many millions of dollars" that Consensys had spent fighting the SEC in court.
Nevertheless, some experts believe that the challenges facing the cryptocurrency industry won't disappear even if the U.S. government embraces the sector. Lau from Oppenheimer argues that the current situation of crypto companies – particularly centralized exchanges – is too crowded and many such companies may struggle or be acquired by traditional financial firms.
"I don't understand why the market allows for 200 exchanges in the world," he said. "It's ridiculous."
Meanwhile, Tapscott from Ninepoint believes that more than just removing SEC Chairman Gary Gensler is needed to spark a real bull market for cryptocurrency.
"It's not just the election," he said. "If you look at previous cycles, there has always been some new application or capability that excites people."
Tapscott points to significant innovations in decentralized applications (dApps) or NFTs, both of which have helped the cryptocurrency market reach unprecedented heights. "This time, is there anything that has excited people in the same way?" he asked. "I think the answer is, not yet."
While the prospect of politicians and Wall Street embracing cryptocurrency is exciting, Tapscott emphasizes that this development is still not enough to trigger a true industry-wide bull run – and cannot replace the excitement that a legitimate new use case for blockchain technology could bring.
"How do you do something with technology that was previously impossible?" he said.
