Recent events have shocked the entire crypto market as some currencies have fallen by 90 percent in value from their peaks. Bitcoin has crashed more than 80 percent from its peak of around 20,000 dollars in December 2017. The crash may be attributed to many reasons, mainly the lack of mainstream adoption. What actually lead to the peak prices from late 2017 to early 2018 was pure speculation, something that historically results in a bubble bursting.
Many reasons can be attributed to this crash. There weren’t enough places where one could spend these coins, technology wasn’t ready enough for mass adoption, lack of standards and many such reasons lead to this crisis. Unfortunately, investors trying to get rich quickly pumped billions into the crypto market raising its valuation to unstable levels. This clear overvaluation was in a desperate need for correction. This sudden rise in the price of cryptocurrencies led to huge attention into this space. Now, it’s almost a household name while it was once just whispered in the far corners of the web. With the attention came investments, talent, and companies into the world of the blockchain, but with the recent crashes, many of the entrepreneurs are threatened with bankruptcy.
The Crypto Startup environment
The entire startup environment surrounding cryptocurrencies is diverse, trying to cash in on the next tech revolution. One can find startups trying to incorporate blockchain technology into every field, from medicine to finance. This has generated huge interest into cryptocurrencies as many see the clear advantage this new technology can bring in their respective fields. The technology has some clear limitations and some startups focus on solving these. Most of these startups are funded through an ICO, a purely crypto means of raising funds. The excitement around crypto has also created an equally energized startup environment which might be losing steam as prices are falling.
How big is the problem?
Cryptocurrency startups have been laying off large swathes of their workforces as the price of cryptocurrencies tumbles to new lows every day. The troubling part is that many of these companies kept some of their funds in digital assets, like Bitcoin and Ethereum, and when the price of these assets fall, there is a sudden cash problem. Many of these startups don’t even have the funds to cover for their day to day expenses. This has forced many of them into taking extreme decisions.
The development team behind Ethereum classic, ETCDEV(Ethereum Classic Development), has stopped its operations as it could not secure additional funding. ConsenSys, the largest of the crypto-related startups is restructuring its workforce by reducing its size by 13 percent. This announcement came on Thursday. SpankCoin, a coin to fund an adult entertainment service, announced it will be cutting down its team from the current size of around 20 staff and freelancers to eight. Spankchain is currently valued at 6 million dollars while earlier this year it was valued at 190 million dollars. Steemit, a platform for content creators where users themselves generate the content and get rewarded by the community, has laid off 70% of its staff to reduce cost. Ever since 2012, nearly 1,180 crypto startups have been funded by several venture capitalists. Many startups have raised their own funds through ICOs, sometimes over a billion dollars. Regulators are tightening their grip on the crypto market which makes getting funds even harder. The situation looks really dire for current and upcoming startups
Is this the end?
Startups are a risky venture, they usually have a greater failure rate than normal business but success can bring a windfall of cash compensating for the risk born by investors. Crypto startups are no different. Most of them will fail and the current environment is accelerating this. Although from the outside it might look like an apocalypse, a closer look reveals that this could actually benefit the whole community in the long run. Startups will be forced to adapt in order to survive. They will restructure to be more efficient and all this volatility will make them be better prepared for the future. Whenever there is excess liquidity, which was the case in the whole blockchain sphere until recently, companies spend without much financial restraint on projects which might have no financial viability. In fact, what is happening now will make the market more mature. Investors will now be more cautious before investing. When crypto goes mainstream, only the best startups will survive and the rest will perish in the ensuing chaos.
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