Business Case Studies

Bear Market Frees Up Crypto Talent: Where Will They Go?

There is no doubt that 2018 was an ugly year for the crypto markets. Sure, hodlers have been feeling the pain for some time when checking their Blockfolio, but few expected that market conditions would start hitting crypto projects. What does this mean for the crypto markets and where might the laid off talent from the struggling crypto projects go?

What’s The Problem At Crypto Projects?

A lot of crypto projects popped up in 2017 and raised tens of millions of dollars. Yes, a lot of money was raised, but we have to remember these funds were meant to finance the entire roadmap of a project, possibly stretching five years or more into the future. Because ICOs raised funds and effectively had their whole project pre-paid for years into the future, it is perhaps surprising that a year-long bear market should impact on the development of some crypto projects to this extent.

So, how badly have some crypto projects been affected?

  • Crypto social media platform Steemit kicked things off on the 28th of November when they announced that they laid off 70% of their staff.  Ned Scott, Steemit Founder, and CEO put it:

    “While we were building our team over the last many months we have been relying on projections of basically a higher bottom for the market and since that’s no longer there, we’ve been forced to lay off more than 70 percent of our organization and begin a restructuring.”

  • ConsenSys is a blockchain company powering a significant amount of Ethereum related software. They were forced to lay off 13% of their staff in early December 2018.
  • After raising $158 million in crowdfunding, most would have thought that Sirin Labs would be doing alright. However, CEO Moshe Hogeg came out on Bloomberg to reveal that the business only had enough funds to allow them to operate for 6-12 months.
  • On the 3rd of December 2018, Igor Artamonov CTO of ETCDEV’s announced on Twitter that his company’s development efforts on Ethereum Classic would cease. He went on to cite poor market conditions and a cash crunch in the ETCDEV business.
  • Crypto miners such as Digital Gold announced in early December that they would be shutting down their mining operations. The current market conditions are even negatively impacting industry leaders like Bitmain. The Chinese crypto news publication 8BTC also revealed in late November that Chinese miners were selling equipment by the kilogram.

Right now, the entire crypto market is hurting. The truth is that it’s likely that many other crypto projects are struggling financially and have yet to disclose this to the public. It seems probable that the lay off of talent in the crypto industry is only going to increase in the near future.

How Has It Come To This?

The shutdown of some of the crypto mining farms is perhaps to be expected. In traditional markets, we have seen the commodity supercycle repeat over and over again. Put simply, when the price of a commodity goes up, it makes it profitable for an ever-increasing number of mines to come online and mine. When commodity prices decline, these miners with a higher break-even cost base get shut down. A similar thing has happened with crypto miners and it’s maybe not surprising that a significant number have been forced to close their doors.

With cryptocurrency projects, it’s an entirely different matter. During fundraising, financing for the entire project was meant to have been raised and pre-paid. So what went wrong? The only reasonable explanation is poor treasury management. It appears that many crypto projects were betting on crypto prices continuing to rise in 2018 and held a significant amount of funds in crypto. Maybe some of the funds were not spent well either.

The question that’s probably on everyone’s minds is ‘How have crypto projects spent the funds they have raised?’ This is a fair question and we’d argue that crypto projects do have a responsibility to come clean and explain to their communities what is really going on. If it were standard industry practice for projects to release transparency reports, like TenX and Nimiq, then maybe fewer crypto projects would find themselves in the situation they are currently in.

Yes, there is currently despair, capitulation, and pain being felt in all verticals of the cryptocurrency market. However, the interesting question is where will this laid off talent go?

To Leave Crypto Or To Stay In Crypto? That Is The Question

One thing is for sure, it’s not nice for people in the cryptocurrency space to be laid off due to poor treasury management. What’s going to be interesting is seeing where these people end up going. Yes, it’s possible that we will start to see an exodus of talent from the cryptocurrency industry or we could see these people flocking to projects which have been run more sustainably and see a new consolidation of talent in crypto.

Where might these newly minted crypto nomads go? Well, Justin Sun, the CEO of Tron announced that the project would be creating a fund for Ethereum and EOS developers to migrate their dapps to Tron.

Lesser known projects such as Nimiq have also recently set up their own Community Project Funding initiative. Could this be an opportunity for developers, along with their work and talent, to be consolidated into fewer, more shrewdly run projects?

Final Word

We have a feeling that the crypto layoffs that we have heard about in the last few weeks are just the beginning. The truth is that many crypto project founders have large incentives not to disclose that there are funding issues at these companies. We suspect that many more crypto projects are struggling and have yet to disclose the true state of their financial position.

Naturally, crowdfunding contributors will feel let down by projects they have backed. However, for the cryptocurrency markets to move forward we should perhaps be thinking about measures to prevent this happening again. What this bear market has shown us is that some crypto projects have not managed their treasuries well at all and that the news of financial difficulties has come as a shock to many.

To prevent this from happening again, Total Crypto suggest that transparency reports should be more commonplace to reflect a higher industry standard. In addition, should crowdfunded projects upgrade their treasury management processes? Yes, the cryptocurrency market has suffered a major set back. It all depends on whether crypto projects are willing to learn from their mistakes. However, the opportunity is there for a stronger market to rise from the ashes.

For now, the crypto community and crypto projects are in survival mode. Only time will tell if this industry has a future or if it will be consigned to the history books as a failed experiment in decentralization. We think the industry is undergoing a new period of talent consolidation, where projects with superior treasury management will benefit and emerge from this bear market stronger than ever.

Disclosure: The author holds some NIM in their portfolio and is compensated in a long-term independent consulting capacity by Nimiq. This article must not be construed as investment advice. Always do your own research.