The post-hype depression has hit the crypto-scene. The continuing price decline along with the loss of purchasing power loss of cryptocurrencies makes them less interesting for users and investors. Therefore, for many of the crypto startups, the demand and the money flow of investors collapses. Staff reductions and cost savings are the new paradigms for crypto startups. The survival of most startups is at stake.
The loss of purchasing power of the crypto scene
The purchasing power of the crypto scene against FIAT world exploded in 2017. The new crypto millionaires were celebrated everywhere and billions of the old FIAT money were funneled into crypto.
This made it easy for the crypto people to buy real-world assets and personnel in FIAT markets. Since the beginning of 2018, however, the purchasing power of all cryptocurrencies has lost more than 80% against the FIAT currencies. Purchases on the FIAT markets have become too expensive for the crypto economy. This means that energy, rent, loans, and employees can no longer be paid for. Unfortunately, there are not alternative crypto markets offering such resources. The first step to survival for crypto startups is to save costs by dismissing personnel.
The paradox of “new” money creation via blockchains, mining and smart contracts is becoming evident. As long as there are no crypto markets for the resources needed by people and companies, the “new” crypto money is worth literally nothing. Without an underlying crypto economy, the coins and tokens have no intrinsic value.
Crypto Pioneer STEEMIT in Troubles
The purchase price loss has massively and apparently life-threatening affected the situation for one of the leading crypto-startups – STEEMIT.
For example, STEEMIT INC, which is registered in New Jersey, recently announced that it would have to lay off 70% of its workforce. STEEMIT operates a blockchain- and crypto-based blogging platform where members are rewarded with Steem Coins for their contributions. The Steem Coins themselves are generated by the miners of the Steemit blockchain. The Steem coin has been listed on various crypto exchanges since August 2016, the project team has done a great job and created a real showcase project. Nevertheless, the price of the Steem, like most other crypto currencies, has fallen massively in recent months and weeks.
Currently, the Steem Coin is listed on CoinMarketCap at the 50th place of the Coins according to the market capitalization. The coin had to record a collapse from more USD 1.8 billion in January 2018 to less than USD 100 million in early December 2018. A loss of 95% of purchasing power versus FIAT.
STEEMIT CEO Ned SCOTT summarizes the situation in a blog post as follows: The sales of Steem Coins for FIAT money are no longer sufficient to operate the Steemite blockchain with the existing cost structure. The possible survival of Steemit can only be guaranteed by cost reduction and restructuring (see also video).
No Sex in Crypto Depression
It is well known that sex sells fantastically on the Internet and is one the web’s largest traffic drivers. In the new crypto industry, however, sex, too, is apparently sinking into depressive moods.
The operators of the blockchain-based erotic platform SpankChain have to reduce their staff. SpankChain intended to become the virtual red light district of the crypto scene. Via SpankChain erotic performers can sell their performances to visitors via webcam. Allegedly, they have earned well with it. In November 2018, it was announced that the 31 registered erotic performers had earned more than USD 70,000 with more than 6,000 registered visitors. Allegedly, about 20 new erotic performers would register each week. The company received around USD 6 million in 2017 as part of an ICO.
The market capitalization of the SpankChain token has fallen from USD 190 million to just under USD 8 million. A loss of more than 95% of purchasing power. In order to minimize losses and save costs, SpankChain has to cut 60% of its workforce. The website www.spankchain.com is currently unavailable.
Expected Wave of Insolvencies in 2019
It does not take a rocket scientist to establish the opinion that Steem, SpankCoin, and other crypto start-ups are not yet profitable and depend on investors money. Above all, however, crypto startups depend on a high purchasing power in order to obtain the necessary resources in the FIAT world. The whole new “money creation” via blockchains and smart contracts helps nothing if the “new money” has no purchasing power in the “old” FIAT world.
As long as the crypto prices have risen, the financing of the projects could be financed solely from the conversion into FIAT and exchange rate gains. However, Bitcoin (BTC), Ether (ETH) & Co have lost 80% and 90%, respectively, to FIAT since January 2018, thus destroying the purchasing power and financing capability of the crypto startups. A rapid recovery is currently not in sight.
In view of the continuing depressive market situation in the crypto segment, we expect many insolvencies and thus total project losses. Especially in the 1st quarter of 2019, we will experience this first big wave of market adjustment.