The US crypto industry had many celebratory moments this week: Bit was just inches away from its all-time high, crypto ETFs hit new milestones on Wall Street, and next week's presidential election seems poised to drive the ecosystem's development regardless of the outcome.
However, you can hardly see this overshadowing the difficult week for top US crypto companies. On Tuesday, Ethereum software giant ConsenSys laid off 20% of its global workforce. A few hours later, the New York-based decentralized crypto trading platform dYdX slashed its team by 35%. The next morning, Kraken, one of the largest crypto trading platforms in the US, also cut 15% of its staff.
As the week drew to a close, Coinbase released disappointing Q3 earnings, failing to meet expectations, and overall customer activity declined.
Experts tell Decrypt that there may be multiple factors at play - from short-term election and regulatory-related anxieties that could be resolved soon, to deeper-seated questions about the place of crypto-native companies in an industry increasingly dominated by traditional finance giants.
"This is absolutely the most bearish bull market in history," Alex Tapscott, managing director of digital asset management firm Ninepoint Partners, told Decrypt.
While optimistic headlines about the Bit rally seem ubiquitous, Tapscott says this narrative only really applies to Bit, which "is increasingly becoming a standalone asset."
Even Bit's strength no longer necessarily means gains for the crypto industry.
"Yes, the Bit price has gone up a lot, but where is that money flowing to?" Oppenheimer & Co. senior analyst Owen Lau told Decrypt. "It's flowing into traditional finance companies, not crypto-native companies."
Lau said that as Wall Street giants like BlackRock trade billions of dollars worth of Bit through their trading platforms, leveraging brand trust and ultra-low fees, crypto exchanges like Coinbase and Kraken are being left out in the cold. He added that companies associated with struggling crypto assets like Ethereum, such as ConsenSys, are in an even worse position. (Disclosure: ConsenSys is one of Decrypt's 22 investors, but Decrypt is editorially independent.)
Concerns related to regulatory uncertainty and the upcoming presidential election may have significantly dampened crypto activity and investment - at least for now.
Kristin Smith, CEO of the Blockchain Association, told Decrypt that while she's optimistic both a Trump and a Harris administration could bring regulatory clarity and support for the crypto industry, the SEC's current hostility toward the sector has already done significant commercial damage, which may not ease until next year.
"I think a lot of capital is still sitting on the sidelines and nervous about entering this space until they see more clarity," Smith said. "So I do think the regulatory issues and the political issues are a big factor in all of this."
Earlier this week, the Blockchain Association launched an initiative to track how much money leading crypto companies have spent defending themselves in SEC lawsuits. The group said the figure has already exceeded $400 million. On Tuesday, when ConsenSys announced its 20% layoffs, CEO Joe Lubin cited the "millions of dollars" the company has spent defending itself in court.
Nevertheless, some experts insist that even if the US government embraces the crypto industry, its woes won't disappear. Oppenheimer's Lau believes the current landscape of crypto-native companies, especially CEXs, is too crowded, and many will ultimately either perish or be acquired by traditional finance firms.
"I don't know why the market allows 200 trading platforms in the world," he said. "That doesn't make sense to me."
Meanwhile, Ninepoint's Tapscott argues that simply removing SEC Chair Gary Gensler would not be enough to unleash a true crypto bull market.
"It's not just an election issue," he said. "If you look at past cycles, there's always been some new application or new feature that gets people excited."
Tapscott pointed to landmark innovations like decentralized applications (dapps) and Non-Fungible Tokens as having previously driven crypto markets to unprecedented highs.
"What's going to do that this time?" he said. "I don't think there is an answer yet."
While the prospect of politicians and Wall Street embracing crypto is undoubtedly exciting, Tapscott added, this development alone is not enough to kickstart a true industry bull run and cannot substitute the enthusiasm generated by genuinely new Blockchain use cases.
"How do you use this technology to do things that were previously impossible?" he said.
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