Consequences of the crypto market crashing and the crypto civil war

Last week between Thursday and Friday, the crypto market sold off heavily and sent Bitcoin down by more than 10 percent. It even went below the USD 3,300 mark before slightly recovering and affecting several start-ups.

The crash in the cryptocurrency market is weighing on the software-development community that spawned over 1,000 digital coins amid dreams of independence from traditional financial systems and instant wealth. ETCDEV, the start-up that led development on Ethereum Classic, which is among the top 20 Bitcoins with a market capitalization of about $400 million, announced this week that it’s shuttering operations is due to a funding crunch. Joseph Lubin’s ConsenSys, one of the largest crypto-related software startups based in New York, said Thursday that its workforce will be reduced by 13 percent as part of a reorganization.

In late November, Steemit Inc. announced in a blog post that they have been forced to layoff almost 70 percent of their employees. In a recent tweet, Ameen Soleimani, CEO of SpankChain, an adult entertainment site also announced that they have reduced their number of employers from 12 to 8.

Bitcoin SV (BSV), Bitcoin Cash’s (BCH) hard fork that had been ranked fifth on CoinMarketCap, is now down on the list, with major stablecoin Tether (USDT) having taken over both BSV and Bitcoin Cash. Tether’s market cap now amounts to over $1.8 billion, while BCH and BSV are almost equal with market caps of around $1.8 billion, also trading at an equal price of around $100 at press time.

Recently, the Winklevoss twins’ crypto exchange Gemini announced the listing of Bitcoin Cash custody and trading, adding that their platform will “only be providing support for the Bitcoin ABC network.”

Many of the companies are suffering because they kept a portion of their funds in digital assets, which they sold through initial coin offerings or in Bitcoin and Ether, which served as the preferred means of exchange in the crypto world. As prices collapsed this year by more than 90 percent in some cases, and their so-called digital wallets thinned out, many developers found they couldn’t raise additional funding.

“We are definitely a part of this trend," Igor Artamonov, founder of ETCDEV, said in an interview. "There are a few things that happened at the same time. I am sure if that happened a year ago, that wouldn’t be a problem at all. A year ago there was a lot of free money in the market, but in a bear market there’s a change."

Venture capitalists funded about 1,180 crypto startups since 2012, to the tune of more than $5.6 billion, according to CoinDesk. Hundreds of other companies raised about $22.5 billion by issuing tokens to the public or so-called accredited investors via ICOs, according to the researcher.

Last year, Sirin Labs raised $158 million to create a mobile phone that will enable consumers to trade and use crypto. However, while they are expected to ship the first batch of a few thousand phones this month, they are now considering refocusing on shipping software for other phone makers instead.

In an interview, Moshe Hogeg, chief executive of Sirin Labs admitted they only have enough funds for 6 to 12 more months of operations. 

According to the global director of fintech strategy at Autonomous Research Lex Sokolin, the pricing pressure on digital assets this year will likely lead to 25 to 50 percent layoffs and shutdowns for current projects. He added, “However, the pace of new entrants and capital could counterbalance this contraction and still grow the sector overall.”

Other companies like East Wenatchee and Giga Watt filed for bankruptcy in November because their business models didn’t hold up.

In an email, Martha Bennett, principal analyst at Forrester Research stated that many startups had trouble creating a viable product. She concluded by saying,  “Sooner or later, this would have led to a contraction anyway. The crypto crash acted as both catalyst and wake-up call.”

The Bitcoin Cash Hard - "Crypto Civil War"

The most shocking event of the the month is, of course, the hard fork that Bitcoin Cash has undergone. Now with two variants, Bitcoin Cash ABC and Bitcoin Cash SV, the contentious debate about how Bitcoin Cash should proceed into the future has led to a divorce — with severe repercussions for the market.

Brian Kelly, founder and CEO of investment group BKMC, called this a “crypto civil war,” which is about as accurate a description as any.  

There are rumors that BCH holders have sold their bitcoins and diverted those funds to their respective forks. The resultant hash war has certainly, if not in any measurable way, caused both reputational and financial damage to the cryptocurrency market, nudging an already stagnant market to the wrong side of support levels.

With the market still maturing, such incidents are inevitable.  However, in the grand scheme of things, it is but a blip in the development of a revolutionary asset class.