Crypto Winter Gets Icier Just Days Into New Year

Less than a week into the New Year the cryptocurrency winter is turning even icier, marked by hundreds of lost jobs and a seemingly endless bear market that have combined to erode investor confidence. And there’s no sign that the crypto chaos will end anytime soon.

Key Takeaways

  • A raft of negative and damaging events have defined the start of 2023 for the cryptocurrency market and its industry.
  • Former FTX CEO Sam Bankman-Fried filed a request to keep his 56 million shares of the consumer trading app Robinhood, valued at roughly $450 million, to pay for his legal fees.
  • In the first week of 2023, crypto lender Genesis cut 30% of its staff, crypto-focused bank Silvergate Capital Corp. fired 40%, and crypto exchange Huobi let 20% of its employees go.
  • Several regulators have stepped up warnings to banks to be aware of the risks associated with crypto.

Bankman-Fried Tries to Hold Onto $450 Million Robinhood Stake

Every time the FTX saga seems to die down, another harrowing chapter unfolds. This week, former CEO Bankman-Fried pleaded not guilty to charges of fraud, resulting in a court date set for Oct. 2 later this year. To help pay for his defense, Bankman-Fried filed a request to maintain control of his 56 million shares of the consumer trading app Robinhood, valued at roughly $450 million at current prices.

In an opposition filing to FTX debtors’ requests submitted to the bankruptcy court Thursday, Bankman-Fried argued that requests by debtors to get hold of the Robinhood funds should be denied, as they “have failed to carry their heavy burden of demonstrating that they are entitled to this form of relief.” 

Bankman-Fried is not alone in his desire for control over the Robinhood assets, as several parties, including now-bankrupt BlockFi, also want the few remaining assets to settle claims they have against FTX. In a Dec. 22, 2022, bankruptcy filing, FTX argued that because there are so many creditors seeking ownership of the shares, “the asset should be frozen until this Court can resolve the issues in a manner that is fair to all creditors of the debtors.” 

Hundreds of Jobs Slashed

Meanwhile, many crypto companies have slashed jobs in response to the chaos surrounding FTX. Crypto lender Genesis cut 30% of its staff in its second round of job cuts in recent weeks and is considering bankruptcy after losing $175 million locked up in an FTX trading account. Genesis also owes $900 million to crypto exchange Gemini, which has criticized how Genesis is handling the insolvency crisis. 

Silvergate Capital Corp., a crypto-focused California bank, fired 40% of its employees after investors scrambled to redeem $8.1 billion at the bank in the wake of crypto exchange FTX’s collapse. The collapse affected Silvergate because it held deposits for FTX units and Alameda Research, the trading firm behind FTX.

Mirroring the industry trend of slashing costs, China-based crypto exchange Huobi said it plans to cut about 20% of its staff. “With the current state of the bear market, a very lean team will be maintained going forward,” Huobi said in a statement.

Regulators Warn Banks of Crypto Risks

As if its job losses weren’t bad news enough, a U.S. court ruled that the now-bankrupt crypto firm Celsius can keep all its customer crypto deposits, meaning that no account holders will be able to recover their funds from the defunct exchange.

In light of this ruling, investors now better understand why crypto experts advocate the idea of “not your keys, not your crypto,” which essentially means investors can’t be sure that their crypto holdings are protected unless they keep them in a crypto wallet that they themselves own and control.  

Several federal regulators have also further warned banks to be aware of risks tied to cryptocurrency assets, including legal uncertainties and misleading disclosures. For the first time, the Federal Reserve, Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency in the U.S. said in a joint statement that they would monitor the exposure of banks to crypto assets.

The Bottom Line

The crypto market is looking grim, with no relief in sight. Current layoffs seem to be a spillover from late 2022, when Coinbase announced it would lay off 18% of its workforce, Kraken cut its workforce by 30%, and Singapore-based crypto exchange Crypto.com laid off 5%.

The deep freeze gripping the global crypto market continues, as the value of most major cryptocurrencies remains down or flat versus the latest week, with Bitcoin trading around $16,850 at midday Friday New York time.