Fintech

Everything you need to know about the crypto crash

From layoffs to bankruptcies, the blockchain economy is facing a reckoning.

Broke crypto coin

Here’s how the crash has affected consumers, employees and investors.

Illustration: Christopher T. Fong/Protocol

The crypto market has shed $2 trillion over the past seven months, a stunning meltdown that has upended the once fast-growing industry. The crash has triggered layoffs at exchanges and lenders, account freezes that have left customers in the cold and even bankruptcies at some overleveraged firms.

Here’s how the crash has affected consumers, employees and investors, and gave new energy to efforts by regulators to rein in a digital-assets market that SEC Chair Gary Gensler has called the Wild West.

Consumers feel the sting

As crypto prices continued to fall, some companies limited or froze withdrawals and trades, citing conditions they compared to bank runs. Critics and regulators pounced on these moves, saying they showed a lack of protections for investors and a surfeit of risk by some companies that lent out customer assets and promised sky-high rewards.

June 12: Celsius halted withdrawals, swaps and transfers after facing a liquidity crisis. The firm was hurt badly by the Terra collapse and a drop in the value of staked ether, or stETH.

June 13: Binance, the world’s largest crypto exchange, halted bitcoin withdrawals for several hours. The exchange blamed a “stuck transaction.”

June 17: Babel Finance, another cryptocurrency lender, froze withdrawals. The firm blamed the pause on “unusual liquidity pressures.” Also, Finblox tightened withdrawal limits and paused reward distributions. The staking platform is backed by Three Arrows Capital and was impacted by the hedge fund’s liquidity crisis.

June 23: Coinflex, a crypto lender and futures platform, paused withdrawals, citing “extreme market conditions.”

July 1: Crypto lender Voyager suspended withdrawals, deposits and trading. The firm received a $200 million revolving line of credit and 15,000 bitcoins from FTX CEO Sam Bankman-Fried’s firm Alameda Research.

July 4: Vauld, a crypto lender particularly popular in Southeast Asia and India, paused withdrawals. Nexo offered to acquire the company on July 5, saying it would prioritize restarting withdrawal capabilities post-acquisition.

July 14: CoinFlex began allowing customers to withdraw 10% of their account balances, excepting the company’s flexUSD stablecoin.

July 20: Crypto exchange Zipmex halted withdrawals, citing "volatile market conditions." The company did not say when withdrawals could resume.

July 22: Zipmex resumed withdrawals but continued to restrict deposits, transfers and trades.

Employees lose jobs

Crypto hiring spiked 73% from 2019 to 2021, according to LinkedIn, and well into 2022, some companies maintained aggressive hiring plans. But Coinbase reversed plans to triple its workforce this year, rapidly retrenching and ultimately resorting to layoffs. Not everyone is cutting back: Binance, Kraken and Ripple are among the firms that are still hiring.

June 1: Brazilian crypto exchange 2TM laid off more than 80 employees, blaming “rising interest rates and inflation.”

June 2: Gemini, the crypto exchange run by brothers Cameron and Tyler Winklevoss, laid off 10% of its staff. In a letter to employees, the brothers said the cuts were due to “turbulent market conditions that are likely to persist.”

June 10: Crypto.com cut 5% of its staff, or 260 people. CEO Kris Marszalek said in a tweet that the company needed to “ensure continued and sustainable growth.”

June 13: BlockFi said it would cut 20% of its staff, blaming the “dramatic shift in macroeconomic conditions.”

June 14: Coinbase announced it would lay off 18% of its workforce to ensure that it stays “healthy during this economic downturn.” The company had previously halted hiring and rescinded job offers.

July 3: Celsius cut around 150 employees, or a quarter of its staff. The cuts came three weeks after the lender paused all withdrawals from its platform.

July 5: Institutional crypto trading platform Bullish.com cut around 30 staff members. A spokesperson told the Block the company is still hiring for “strategic roles.” Also, eToro slashed 6% of its employees, or around 100 workers. The company also officially called off its SPAC merger with blank-check company FinTech Acquisition Corp.

July 14: NFT marketplace OpenSea laid off 20% of its workforce, promising generous severance and benefits.

July 21: Cryptocurrency exchange Blockchain.com said it would cut 25% of its workforce. The firm is shuttering its Argentina office and pausing expansion in several other countries.

Investors’ losses mount

The crypto crash forced a wave of consolidation on the industry, with rapid-fire dealmaking aimed at salvaging weaker firms.

The meltdown of Terraform Labs’ UST and luna tokens sent shockwaves through the industry, affecting big firms which had bet on the tokens, including Three Arrows Capital, one of the largest crypto hedge funds.

Soon after, stETH, a token on the Lido network that was once considered a safe bet on the new version of Ethereum 2.0, started to lose its peg. That caused further distress in the market. Firms that had reportedly invested in stETH included Three Arrows, Celsius and Alameda Research.

After those two events, Three Arrows had a liquidity crunch and stopped answering margin calls. That sent further ripple effects throughout the industry. Three Arrows had borrowed from a number of large players in the crypto industry — and it’s unclear to what extent that borrowing was collateralized.

Counterparties of 3AC such as Voyager, prime broker Genesis Trading and BlockFi took heavy losses as a result of working with Three Arrows, just when those firms needed cash the most. Many in the industry are wondering if other crypto lenders, hedge funds or brokerages will be next.

Sam Bankman-Fried’s firms, FTX and Alameda, moved to support companies like BlockFi and Voyager. In some cases the infusions weren’t enough: Voyager filed for bankruptcy despite FTX’s support.

June 22: Voyager obtained a revolving credit line from Sam Bankman-Fried’s Alameda group of $200 million and 15,000 bitcoin.

June 29: Officials in the British Virgin Islands reportedly ordered crypto hedge fund Three Arrows Capital, which Voyager Digital said defaulted on loans worth more than $600 million, to liquidate.

July 1: BlockFi agreed to a deal with FTX that gave the exchange an option to buy the remaining shares of the company for up to $240 million. The crypto lender was once valued by investors at around $5 billion.

July 2: Three Arrows filed for Chapter 15 bankruptcy in New York.

July 4: CoinShares said it would acquire Napoleon Asset Management for an undisclosed sum. CoinShares acquired Napoleon Group in December.

July 5: Crypto lender Nexo agreed to buy fellow lender Vauld after Vauld users withdrew nearly $200 million, causing a liquidity crisis. Nexo hired Citi in June to advise on acquisitions. Also, Uprise reportedly lost 99% of funds shorting luna during its price crash. The firm uses AI-enabled automatic trading strategies, and was hurt by short-lived pumps to luna’s price.

July 6: Michael Moro, CEO of Genesis Trading, confirmed the company took major losses after Three Arrows Capital was unable to meet a margin call. The loans had a weighted average margin requirement of more than 80%, and Genesis had to immediately sell collateral. Also, Voyager Digital filed for bankruptcy. FTX is a major creditor.

July 8: Blockchain.com told shareholders it faced $270 million in losses from exposure to Three Arrows Capital.

July 13: Celsius filed for bankruptcy.


July 14: In a bankruptcy court filing, Celsius revealed its liabilities outweighed its assets by $1.2 billion.

Regulators move in

Regulation is coming down the pike globally, seemingly sooner rather than later.

June 7: The highly anticipated Responsible Financial Innovation Act was introduced by U.S. Sens. Cynthia Lummis and Kirsten Gillibrand; it carved out definitions of various digital assets, contained tax provision clarifications and proposed dividing oversight between the CFTC and SEC.

June 8: New York’s Department of Financial Services issued new guidelines requiring stablecoins to be backed by reserves.

June 16: Multiple states opened investigations into Celsius’ move to freeze withdrawals.

June 30: The EU Parliament and Council reached a provisional agreement on the Markets in Crypto-Assets bill, another move toward finalizing it. The bill, known as MiCA, would introduce a clearer regulatory framework for crypto companies, including sustainability disclosures and stablecoin regulation. The EU’s new transfer-of-funds rules are also set to enforce anti-money laundering and know-your-customer requirements, where crypto companies will have to collect information and personal data for all transactions.

July 4: Tharman Shanmugaratnam, chair of the Monetary Authority of Singapore, said that the financial watchdog is “carefully considering” some additional safeguards for consumer protection, including “placing limits on retail participation, and rules on the use of leverage when transacting in cryptocurrencies.”

July 8: Federal Reserve Vice Chair Lael Brainard urged in a speech in London that the “regulatory perimeter” be extended to include crypto, citing recent market turbulence.

July 12: Vermont financial regulators warned Celsius customers that the crypto lender was likely to be “deeply insolvent.” Also, California regulators said they were investigating “crypto-interest account” providers and urged consumers to file complaints.

Fintech

What the fate of 9 small tokens means for the crypto industry

The SEC says nine tokens in the Coinbase insider trading case are securities, but they are similar to many other tokens that are already trading on exchanges.

While a number of pieces of crypto legislation have been introduced in Congress, the SEC’s moves in court could become precedent until any legislation is passed or broader executive actions are made.

Illustration: Christopher T. Fong/Protocol

When the SEC accused a former Coinbase employee of insider trading last month, it specifically named nine cryptocurrencies as securities, potentially opening the door to regulation for the rest of the industry.

If a judge agrees with the SEC’s argument, many other similar tokens could be deemed securities — and the companies that trade them could be forced to be regulated as securities exchanges. When Ripple was sued by the SEC last year, for example, Coinbase chose to suspend trading the token rather than risk drawing scrutiny from federal regulators. In this case, however, Coinbase says the nine tokens – seven of which trade on Coinbase — aren’t securities.

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Tomio Geron

Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.

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