Crypto Winter And Its Consequence For Businesses

Correlating with the beginning of the Coronavirus pandemic, the value of cryptocurrency had dramatically surged. It seemed that everyone was either learning a new skill, watching the “Tiger King” on Netflix, or investing in crypto. The surge largely happened thanks to the financial stimulus the government provided and the surplus time at people’s disposal. The trend of rising crypto value continued, and, in November 2021, Bitcoin reached its all-time highest value, amounting to over $68,000. Moreover, a Federal Reserve survey found that 40 million adult Americans, or 12 percent of the entire adult population dabbled into crypto in 2021. 

Today, Bitcoin is worth some $20,000, and the prices of other cryptos have drastically dropped as well. Amidst the huge, $60 billion crash of TerraUSD and Fed’s rising interest rates aimed at combating inflation, the crypto market is suffering another winter. 

Given the crypto’s surge in popularity, the current bearish market must have consequences on American society. Let’s now take a look at some of the key consequences, both positive and negative. In this way, we’ll be able to examine the overall impact of the crypto collapse in a more nuanced manner.

Negative Effects of the Crypto Crash

We’ve grouped the undesirable consequences into three distinct areas: the loss of job positions in the crypto industry, the greatly diminished crypto-trader profession, and the negative effect that the crypto crisis has on small business owners.  

Crypto-Related Layoffs

The first major, and obvious, consequence of the crypto winter is the loss of revenue that many people have relied on to put bread on the table. For instance, two of the largest crypto exchanges, Coinbase and Gemini, were both forced to lay off workers this June. According to TradeCrypto.com, Coinbase fired 1,180 and Gemini some 100 employees. Another example is the crypto lender BlockFi, which let go of some 80 workers. 

It is to be expected that this trend will continue, as the end of the crypto winter is not yet in sight and the recession arrives. Thus, many of the job positions the crypto industry recently created, chiefly for software engineers, are now erased.

Crypto Investors Forced to Change Occupations

Employees working for crypto firms are not the only ones who stand a realistic chance of losing their source of income. 

According to the same Federal Reserve survey, most of the Americans who dabbled into crypto last year have utilized it for investment purposes, and not as a currency used to make payments. In other words, crypto in the U.S. is mostly used for people to make money, often not in a hobbyist way, but as a full-time job.

There are many reports on the web of until-recently successful crypto traders, who’ve decided they had enough of the crypto winter and have emigrated to warmer business sectors. Many of these traders were initially attracted by the allure of “retail-mania” involving the so-called “meme coins”, such as the famous Dogecoin. DOGE has celebrity fans such as Elon Musk and scammerwatch.com writes about Jeff Bezos and Shiba Inu connection. However, that didn’t stop DOGE and other meme-coins from crashing amidst the recession. 

However, if you do not want to base judgment on anecdotal trader accounts only, the numbers don’t lie. For instance, in the first quarter of 2022, Coinbase reported a 44% decline in trading volume (i.e. the total amount of bought and sold assets), when compared to Q4 2021, and the exchange is expecting even lower figures for Q2 2022.

Small Businesses Are Hit

Another area of the American industry that is facing the consequences of crypto winter involves small businesses. According to a survey by Skynova, a respected business invoice software company, about one-third of small businesses in the U.S. are currently accepting payments in crypto. 

This is due to several key reasons. For starters, paying with crypto means the transaction fees will be lower, as there are no bank/credit card charges. Moreover, small businesses gain a wider customer base, as people from all over the globe can shop in American stores with crypto. Lastly, businesses are looking to attract younger customers, who are more prone to adopting digital currencies than older generations. 

These factors combined have been beneficial for small businesses, who usually endure struggling with larger companies for a piece of the market. It’s now easier for big-time companies to swallow small businesses and get closer to fully taking control over their respective markets.

Positive Effects of the Crypto Crash

Let’s now take a look at the other side of the coin. While the first two key issues we’ve discussed have negatively impacted society, the crypto crash might, actually, bring some positive effects as well. We’ve focused on two of the most relevant such effects, related to power consumption and crypto gambling addiction.

Reduced Energy Expenditure

There’s been much talk about the high levels of energy consumption in the crypto industry and its damaging consequence on the natural world. According to Cambridge’s Bitcoin Electricity Consumption Index, Bitcoin miners’ consumption of electricity currently amounts to 81.65 terawatts per hour. For comparison, that’s more than the entire energy consumption of countries like Austria or Colombia.

However, as recently as May 2022, Bitcoin miners were consuming almost twice as much energy, amounting to some 150 terawatts per hour. There’s no denying that the fewer the number of people who are working in the crypto industry, the less amount of damage is being done to Mother Earth. 

Of course, it would be naive to think that crypto’s ecological impact didn’t have consequences on the rest of the society, as well. 

A Much Smaller Number of Gamblers

Another aspect of cryptocurrency that has received much criticism, and rightfully so, is crypto trading’s resemblance to gambling. Even for experienced traders, it’s extremely hard to predict crypto’s price fluctuations. Money comes, money goes. 

The allure of making seemingly easy profit has attracted many people to the crypto industry. Dr Anna Lembke is a professor of psychiatry at Stanford and the author of the book “Dopamine Nation”. She warns about the herd mentality prevalent on social networks, that drives even more people to recklessly invest in crypto. Lembke further noted that the one key difference, which separates traditional gambling from crypto trading, is the fact that the latter isn’t socially stigmatized. However, the dopamine hits gained after a winning move are essential to the popularity of both sectors.

We wrote in the previous section about crypto traders who were forced to move on to another profession. It’s easy to wonder whether that was bound to happen sooner or later in many cases, as the traders gambled away their capital. 

Luckily, with the crypto industry suffering a major crisis, it’s logical that the production of crypto problem gamblers will be diminished.

What Lies Ahead

Despite all the ongoing trouble in the realm of cryptocurrency, the future may not be as bleak for crypto. A survey conducted by The Ascent, a respected finance review website, found that 46.5 million Americans who’ve never purchased cryptocurrency before are intending to invest in crypto, for the first time, in 2023. 

At the same time, skepticism among U.S. citizens pertaining to cryptocurrency is, understandably, on the rise. It’s not unusual that society becomes enamoured with something new and seemingly exciting, only to forget about it once something else has grabbed people’s attention. 

The crypto winter did cause noteworthy and substantial consequences, both good and bad, as we discussed in the article. However, It’s hard to tell whether that will be the case in the future or whether cryptocurrency’s overall impact on American society will diminish in the following years.

Author: Srđan Jovanović

Long-time editor, crypto enthusiast, and all for free trade. Also a social scientist, musician, and a thorough-going liberal. Working in and around the Academia, he has a degree in linguistics, an M.A. in political science, a Ph.D. in history, and a number of postdocs in media and communications, sociolinguistics, politics, and history. He is fluent in English, Swedish, Czech, and Serbian, and handles Russian, German, Norwegian, Slovak, Polish, Italian, and even some Mandarin. Cryptocurrencies are the future.