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Coinbase cuts workforce to beat crypto winter. What should investors do?

Posted: 15 June 2022 7:14 am

The crypto brokerage warns of recession and a long pullback in the crypto market. But with Bitcoin down 65%, today’s prices might be low enough to buy if you think a recovery is coming.

Coinbase (CB), one of the world’s largest crypto exchanges, says it is hunkering down in anticipation of a recession that could bring a crypto winter – by laying off 18% of its workforce.

“We appear to be entering a recession after a 10+ year economic boom,” CEO Brian Armstrong said in a statement to employees.

“A recession could lead to another crypto winter, and could last for an extended period. In past crypto winters, trading revenue (our largest revenue source) has declined significantly. While it’s hard to predict the economy or the markets, we always plan for the worst so we can operate the business through any environment.”

It’s the latest prediction of a crypto winter, a long period after a serious move down where prices stagnate. And that talk had started before the latest downturn began Friday and took the price of Bitcoin (BTC) down 25% in five days.

Investors should note, though, that past crypto bear markets have been buying opportunities.

Coinbase stock has plummeted

The layoffs come after Coinbase said earlier this month it would keep a hiring freeze in place and rescind a number of accepted job offers. At least two other crypto exchanges have cut employees.

Coinbase has suffered through this crypto downturn. Since hitting the market last fall with shares priced at US$342, and after this week’s losses, it’s trading at about US$51.50.

Armstrong’s message acknowledges the company grew too fast, and it's time to pull back. “Coinbase has survived through four major crypto winters, and we’ve created long term success by carefully managing our spending through every down period,” he says.

The layoffs would also cut Coinbase’s costs and help protect the company’s bottom line in case a crypto winter takes hold, shrinking trading volume.

While J.P Morgan downgraded the stock today, the average analyst price target per Yahoo Finance sits at US$149.17 and the average rating is still a buy. Other rankings could be lowered after today’s news.

Big declines followed by big returns

The bigger question: Is this really a crypto winter?

The term is most often associated with the plunge from roughly the end of 2017 through most of 2018, with the up move not really starting until well into 2019. The price of Bitcoin fell from near US$20,000 to below US$4,000, roughly 80%, with the crypto market generally following it.

But that was followed by peaks above $61,000 in March of 2021 and US$64,000 last November.

Previous crypto bear markets, notably in 2011-2012 and 2014-2016, brought declines of 93% and 85% respectively in the price of Bitcoin. BTC bottomed at US$2.10 in late 2011 and US$175 in early 2015, according to Bitcoinmagazine.

Buying anywhere near those bottoms would have been an investing bonanza, of course.

So is the bottom near?

With the latest drop, Bitcoin is down about 65% from its peak last November. The entire crypto market cap is down about the same.

The drops were deeper on a percentage basis in past bears, but at 65%, we may be getting close. Calling a bottom is impossible, though, crypto could fall farther this time.

Also, if this is what’s called a crypto winter, the price may stay near the low for an extended period. So you may be safe to wait for prices to stabilise.

If you think Bitcoin, the most established crypto, or major coins like Ethereum are going to even regain past highs, it’s not too early to consider buying despite the downside risk.

Smaller and thus riskier cryptos are even harder to call. As we saw with what’s now Luna Classic (LUNC) and even the stablecoin UST, cryptos can collapse and all but disappear. With stocks, bear markets tend to shake weaker companies out of the market. The same could be true of some cryptos in this bear market.

Trying to get a handle on the markets? Cut through the noise with our overview of the best cryptos to buy right now, explore some strategies for how to trade crypto or see if there's a better platform for you with our guide to the best crypto exchanges.

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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