With Coinbase Global (NASDAQ: COIN) and other major cryptocurrency firms announcing layoffs as most crypto assets crater in value, many experts are beginning to ponder the possibility that a "blockchain bubble" may be ready to burst.
The script of crypto markets heading south and de-fi firms scrambling to cut costs is eerily similar to the infamous "pop" of the dot-com bubble, which dragged many once-prosperous e-commerce firms into the ground. Much like the dot-com companies of the early 2000s, many crypto companies have expanded at breakneck speed, rapidly acquiring employees and scaling operations as the crypto market exploded in value.
As Coinbase CEO and co-founder Brian Armstrong admits, however, that rapid expansion may have been detrimental to de-fi companies.
"At the beginning of 2021, we had 1,250 employees. At the time, we were in the early innings of the bull run, and adoption of crypto products was exploding," Armstrong said. "We saw the opportunities, but we needed to massively scale our team to be positioned to compete in a broad array of bets. It's challenging to grow at just the right pace, given the scale of our growth. While we tried our best to get this just right, in this case, it is now clear to me that we over-hired."
Crypto.com and BlockFi joined Coinbase in sharing the misfortune of over-eager expansion and announced their own respective layoffs last week. While the recent round of layoffs is in reaction to the crypto market rout that saw some firms suspend withdrawals, some 40,000 employees have been laid off from blockchain companies this year due to the contraction of the crypto industry as a whole.
If the script continues to follow the dot-com bubble burst, a more significant crypto market collapse will soon follow, with many startups and less developed firms likely to end up on the chopping block. Without regulatory safety nets to protect consumers, many traders could lose everything. In any hypothetical crypto bubble burst, larger and more established firms would likely survive and play crucial roles in shaping the post-burst industry.
With regulators increasingly interested in regulating the blockchain, the post-burst crypto market will likely be defined by greater government oversight in many countries. While many traders will probably balk at this prospect, increased oversight could be the insulation crypto needs to prevent a future market crash.