The cryptocurrency market has experienced a huge crash this year that was triggered by changes in macroeconomic conditions across the world. This crypto winter caused the market to lose billions of dollars, as investors become risk-averse.
According to data from Coinmarketcap, the market’s value has been cut in half, moving from around $2.2 trillion on January 1 to roughly $900 billion at the moment.
In this environment of decentralized exchanges, centralized exchanges are struggling as at the mainstream adoption of crypto. These centralized exchanges needs to rethink their strategy if they want to improve their top-line performance.
Digital asset exchanges collect revenue from transaction fees, with the revenue being determined by factors such as the value of digital assets on the exchange and what type of fee schedule is utilized. If a digital asset’s value increases, percentage-based fees bring in more revenue for the company.
Higher trading volumes mean that fees are earned more often, increasing revenues.
With above fact in mind, if the value of crypto currency has declined by more than 50% in 6 months, it’s safe to say that many exchanges will have a difficult time managing their finances.
The question is, which company will be able to survive the downturn? Who will go under?
Recently, we have seen some layoffs in the crypto industry. Companies are now letting go some of their workforce in this sector, for example:
- Coinbase – 1,000+ employees.
- Crypto.com – 250+ employees.
- Gemini – 100+ employees.
- BlockFi – 150+ employees.
As a result of the crypto winter, smaller exchanges have had to adopt severe measures which includes paying employees less. For example, Buenbit in Argentina had to lay off 45% of it’s payroll because of insufficient funds.
New Data Reveals Public’s Confidence In Crypto Companies Is Low
There have been some incidents that could threaten the stability of some of these companies, for example, the debacle with Terra’s LUNA tokens. This incident led to billions in losses to investors.
The Celsius Network – $20 billion invested with around ten million users that trade coins on the platform – recently halted all withdrawals, transfers, and swaps.
Venture Capital firms within the cryptocurrency space are raising concern because of things like Binance and FTX, who invest in companies as early as the project starts.
It is hard to prevent losses when the different parts of a company are not allowed to interact with each other. The standard practice in traditional finance prevents certain areas of a company from interacting with other more risky parts of the company.
Which Crypto Exchange will Shut Down First?
Small exchanges are more susceptible to a run-on-the-bank. If a small exchange faces financial difficulties, they may have lost most of their revenues and be losing money or burning cash.
We can’t say for sure which exchange will be first to go under, but it is clear that BlockFi has not been doing as well as one would think, having had to ask for money from a competitor.