Crypto Industry’s Bleak Reality: Behind the Bitcoin Rally
While Bitcoin surges towards new heights and ETF inflows continue to pour in, a darker picture is emerging in the crypto world. Despite the optimism surrounding Donald Trump’s potential return to the White House, several companies are slashing jobs, and interest in once-hot assets is dwindling.
Job Cuts and Earnings Misses
Crypto exchange Kraken has announced a 15% workforce reduction, while rival Coinbase Inc. reported earnings that fell short of estimates. Software developer Consensys is among other digital-asset firms that have recently started trimming jobs. These cuts come as a surprise, given Bitcoin’s recent strength and industry optimism.
A Tale of Two Markets
The performance of top cryptocurrencies this year highlights the industry’s bifurcation. Bitcoin has gained 64% since January, while Solana has posted similar gains. Dogecoin, associated with Elon Musk, has rallied almost 80%. However, so-called altcoins like Polkadot, Polygon, and Algorand have struggled.
Bitcoin’s Dominance
The original cryptocurrency has always been the poster child for the sector’s booms and busts. The successful introduction of US exchange-traded funds backed by Bitcoin in January set the stage for its adoption on Wall Street. BlackRock Inc.’s iShares Bitcoin Trust now oversees $31 billion, drawing nearly $900 million of inflows in a single day.
The Struggle is Real
Despite Bitcoin’s success, venture capital investment in digital-asset startups plummeted 20% in the third quarter to $2.4 billion, according to Galaxy. Deals remain far off from the go-go days of the 2021 bull market, showing how confidence has yet to fully recover from the crash that followed.
Crypto Exchanges: A Barometer of Industry Health
Crypto exchanges, which typically list hundreds of tokens big and small, are a good indicator of overall industry health. Coinbase, the biggest US platform, missed on both revenue and profit for the third quarter, sending its stock plunging as much as 15%.
Regulatory Uncertainty
Many firms attribute their problems to lack of clarity around US regulations. Perceived hostility from the US Securities and Exchange Commission has galvanized large swathes of the industry behind Trump, who has said he’d fire SEC Chairman Gary Gensler if elected.
Structural Hurdles
Even if Trump wins, large parts of the crypto industry will still face structural hurdles in turning ideas into profits. The struggles of some digital-asset companies are the result of the difficulty they’ve encountered in generating revenues from their technologies, according to Cristiano Ventricelli, a senior analyst at Moody’s Ratings.
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