- The 2018 cryptocurrency market plunge is greatly affecting the software-development community that produced over 1,000 digital coins.
- One of the primary reasons the companies suffered is because a portion of their funds is in digital assets.
- Also, as prices collapse, many developers find it difficult to raise additional funding.
Between Thursday night and Friday morning, 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. However, the market crash has already left a lot of bankrupt startups in its wake.
Several Startups Affected
ETCDEV, the startup that led the Ethereum Classic development announced they are shutting operations this week due to a funding crunch. Ethereum Classic has a market capitalisation of around $400 million and is currently among the top 20 coins in the market.
New York based ConsenSys, one of the world’s biggest crypto-related software startups divulged they will be reorganising and reducing their workforce by as much as 13 percent.
In late November, Steemit Inc., also announced in a blog post, 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 they have reduced their number of employers from 12 to 8.
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.
Pricing Pressure on Digital Assets
Since 2012, venture capitalists have already funded around 1, 180 crypto startups. According to Coindesk, the total amount raised reached more than $5.6 billion. A total of $22.5 billion was also raised by hundreds of companies by issuing tokens to accredited investors via ICOs.
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 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.”