Tyler and Cameron Winklevoss
Photo by Marco Bello/AFP

The biggest crypto bulls are talking crypto winter

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Friday: Gemini’s layoffs, killing off the “Square killer” talk, and the state of crypto VC.

Off the chain

The hospitality industry is rightly skeptical about the prospects for “NFT restaurants,” but a high-profile test is coming to San Francisco. A two-story Japanese restaurant, Shō, is coming to Salesforce Park, the aboveground patch of greenery connected to Salesforce Tower. It’s using NFTs to sell VIP memberships at Earth, Water and Fire levels. It’s not clear why this requires a blockchain, as opposed to, say, a spreadsheet, since no one besides the restaurant needs to verify membership status. But it’s a good indicator of how the NFT craze means the concept is getting applied to just about anything expensive and exclusive.

— Owen Thomas (email | twitter)

The crypto bulls in winter

Even the industry's biggest bulls are saying it: Crypto winter is here.

The brothers Tyler and Cameron Winklevoss, nearly as famous for bitcoin-boosting as they were for sparring with Mark Zuckerberg at Harvard, blamed the chilly onset of stagnant crypto markets for their decision to lay off 10% of staff at Gemini, the exchange they co-founded in 2014.

“This is where we are now, in the contraction phase that is settling into a period of stasis — what our industry refers to as ‘crypto winter,’” the brothers wrote to employees on Thursday. “This has all been further compounded by the current macroeconomic and geopolitical turmoil. We are not alone.”

Gemini wasn't even alone in conducting layoffs that day. The Coinbase Ventures-backed Rain Financial, one of the Middle East’s largest crypto exchanges, also laid off "dozens of employees," according to Bloomberg.

  • Coinbase, meanwhile, said Thursday it would rescind some accepted offers and continue a hiring freeze indefinitely. That’s despite the company promising at the start of May that it would shrug off the broader tech downturn and keep to a plan to triple its headcount by the end of the year.
  • Latin American crypto exchange Bitso laid off 80 employees last week.
  • Exchanges heavily rely on transaction fees for revenue. As crypto prices slump, people tend to trade less often. Gemini is privately held, but the publicly traded Coinbase reported a 44% drop in trading volume quarter-over-quarter in May.

The question everyone’s asking now: How bad will it get? Crypto and blockchain startups raised a record $25 billion from venture investors last year, according to CB Insights, a nearly eightfold increase from 2020.

  • That influx fueled a red-hot job market, with crypto-related job listings growing nearly 400% year-over-year, according to LinkedIn.
  • With bitcoin having lost half its value over the past six months, the news from Gemini and Coinbase offers an early warning sign that crypto winter could put the job market on ice — similar to 2018.
  • Other spending could be affected. Crypto marketing has been booming, padding the coffers of Super Bowl broadcaster NBC and the NBA.

Yet VC dollars are still plentiful for crypto. A May report from J.P. Morgan noted that venture capital was still flowing to crypto startups despite the TerraUSD collapse, something that could help the industry avoid a prolonged downturn similar to 2018.

  • To that point, a16z just raised $4.5 billion for its newest crypto funds, while Binance allocated $500 million for a Web3-focused fund. Haun Ventures raised $1.5 billion for its debut funds in March.
  • Morgan Stanley's research arm is skeptical. The firm said in a report Tuesday that VC funding to crypto companies would likely follow the path of other tech sectors and drop as much as 50% by the end of the year.
  • A big question is how quickly those freshly raised funds will get invested. VCs might well hold onto their dry powder and wait out the rocky market. But at some point, that cash has to get deployed.

Crypto believers are feeling down, not out. The Gemini layoffs are painful, the Winklevoss brothers wrote to employees, but leaner times “will help fuel the next cycle of crypto growth and adoption."

  • Some valuations got too high and a market correction is in order, argued Bradley Tusk, whose Tusk Ventures backed Coinbase and Circle. "But that's very different from seeing crypto as some fad that will now fade away," he said in an email. "It's not going anywhere. If anything, as more and more applications are built on the blockchain, the case for crypto only gets stronger."
  • A group of 26 high-profile technologists made the opposite argument to Congress in an open letter Wednesday, urging lawmakers to approach the industry with skepticism and calling blockchain technology "poorly suited" for all the uses currently promoted by the industry.

The letter is a reminder: The debate about regulating the industry is just getting started, crypto winter or not. Regulation doesn’t have to be a bad thing for digital asset values. Some guardrails could increase consumer confidence and help weed out scams. Gemini even ran ads in 2019 around the idea that "revolution needs rules." Then again, the same day as its layoffs, the firm was hit by a lawsuit from the CFTC, alleging Gemini officials misled regulators about a bitcoin futures product during talks in 2017.

Tyler Winklevoss' response? "Nuts! We obviously disagree with this lol. Will respond more fully when I have a minute. Busy building at the moment."

— Ryan Deffenbaugh (email | twitter)


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On the money

On Protocol: New York State Attorney General Letitia James warned investors about cryptocurrencies, saying virtual currencies could "yield more anxiety than fortune."

Binance partnered with The Weeknd for his global tour. The crypto exchange giant said that the partnership will “integrate Web 3.0 technology for an enhanced fan experience,” and is also the tour’s official sponsor.

Also on Protocol: The Consumer Financial Protection Bureau is getting tired of letting fintechs play in its regulatory sandbox. The agency said that its sandbox initiative has proved to be ineffective, but is still processing applications. A new Office of Competition and Innovation may shake things up through an emphasis on broader rule-making.

Policygenius cut 25% of its staff. The insurance-tech startup had raised $125 million less than three months ago.

A crypto mining moratorium is back on the table in New York. The state legislature introduced legislation last year that would put a two-year moratorium on mining that uses proof of work. A revised pause on new construction passed the state Senate late Thursday. The bill now goes to Gov. Kathy Hochul’s desk.

North Dakota, meanwhile, is getting more mines. Bitzero is investing $400 million to $500 million in the state, which it chose for its North American headquarters and operations hub.

Let’s kill the ‘Square killer’ talk

Square announced this morning that Apple’s two-way “Tap to Pay” feature, which turns iPhones that can already transmit payment-card numbers into terminals that can receive them, will become available to some Square sellers this summer. Apple announced a similar partnership with Shopify and Stripe in February.

Currently, iPhone users can pay in stores or on the go by tapping their iPhones to dedicated NFC-reading hardware made by companies like Square. The forthcoming Tap to Pay feature will allow sellers to collect payments directly through an app on their phone.

The inclusion of Square in Tap to Pay could address overblown perceptions that the new feature is a "Square killer." As Protocol noted when it was first released, Apple's unlocking of NFC hardware didn't provide the range of payment services required to make it useful. It did, however, help Stripe and Shopify — which have ambitions to grow their in-person retail payments — leapfrog the investment Square has made in card-reading hardware.

Read the full story on Protocol.com.

— Veronica Irwin (email | twitter)

The chart

The downturn in digital assets hasn’t stopped VCs eager to fund the sector. Though funding dropped in May, it’s well ahead of last year’s pace, according to data tracked by Dove Metrics. One note of caution: The data tracks funding announcements, not the actual closing dates, so there’s some delay.


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Thanks for reading — see you Monday!

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