Published: May 5th, 2020
Nine in every ten cryptocurrency firms fear they may go under in the next six months. The current health crisis has adversely affected investment and networking for most of these firms. Sadly, almost all of these companies do not qualify for the stimulus packages that governments are giving other businesses to keep them alive.
The Swiss Blockchain Federation, a public-private partnership that brings together players in the blockchain, politics, economics, and the scientific communities report that about 90% of blockchain firms may be bankrupt within the coming six months.
While this figure is a representation of the situation in Switzerland, the think-tank thinks that the situation is likely similar elsewhere in the globe as well.
According to the Swiss organization, most of these firms do not qualify for government intervention. They said in a report. The narrative adds that the situation has spiraled because of the coronavirus pandemic, which has severely forestalled activities in the blockchain and cryptocurrency space.
The COVID-19 outbreak and the subsequent global spread has affected not only the global economy but also the traditional and emerging service and technology industries as well. On April, 28, British Airways announced that it would be laying off 12,000 individuals from its workforce that comprise of some 42,000 members.
The situation has been replicated over almost all segments of the economy. Experts think that most countries are slowly sliding into recession if they are not there already.
The revelation by the federation indicates that many cryptocurrency firms may cut jobs as well. According to its vice president Lorenz Furrer, the crypto valley may soon transition into the valley of death if a rescue package does not come fast enough.
The federation came up with the report after sampling some 800 Swiss-based cryptocurrency firms. The research sought to know how the companies were fairing during the period that the coronavirus pandemic is ravaging the world.
The survey carried out between March 31 and April 3 reported that between 80% and 90% of the firms feared that they are likely to be bankrupt within the coming 180 days if they do not get some form of government assistance.
In the last three or so years, Switzerland has emerged as a safe environment for blockchain startups and entrepreneurs. The country’s legislation favors the crypto industry. Some experts think the leeway is so much so that it is the reason that Facebook decided to base its Libra operations in the European country.
Switzerland’s ever-swelling blockchain industry employs some 4,000 people many who are now facing the risk of being laid off. The blockchain and cryptocurrency firms are more vulnerable to the effects of the coronavirus pandemic because the industry has witnessed dwindling investments across the globe.
Because of the strained capital infusion into the blockchain space, many companies in their infancy do not have any safety nets nor qualify for any subsidies or loans from the government. The Swiss Blockchain Federation says that it is worth noting that most of these companies look up to links and networking events to attract capital. With the strict restrictions that most governments have imposed that include social distancing measures, most of these functions have been postponed indefinitely.
Already, the annual conference of the Crypto Valley Association has been postponed. Similarly, several other events in the space that have suffered due to the restrictions enforced by various governments.
The country’s coronavirus numbers inspire hope. The central European country has almost 30,000 confirmed cases with about 1,500 deaths. However, it also has one of the top recovery rates. About 24,500 individuals have recovered.
The precedence set by such closures will exacerbate the downturn that started last year. In 2019, about 70 cryptocurrency-based hedge funds catering for pension funds and other similar investors closed their doors.
With the coronavirus pandemic still raging in Switzerland and much of Europe, the new funds launching will fall as long as the crisis continues. As opposed to 2016 to 18 seasons when a record 5,000 crypto firms were launched, 2019 saw a paltry 700 firms set up shop.
The closures experienced in 2019 were majorly in North America which had 28 firms that wound up their businesses. Europe and Asia Pacific regions bid bye to 23 and 14 firms, respectively while the remaining regions had three firms that closed shop.
An outlook of the industry shows that small altcoins projects and cryptocurrency startups that are already struggling during this crisis period may have a hard time pulling out of the rubble. According to an opinion piece by Alex Lielacher, a columnist for Crypto News, any company that is struggling to raise cash or having a hard time generating revenue is already running the risk of closing down.
He says, however, that the upside of these companies is their penchant for working remotely, which means that their operations are not necessarily affected. The columnist says that the only problem now revolves around closing deals that generate revenue. Because of the pandemic and the ensuring containment restrictions that most governments have enforced, people prefer to hold on to the monetary wealth that they have instead of splashing into new investments.
Lielacher predicts that trading platforms and small exchanges will be the first to pack and go. Such establishments rely on trading fees. With a reduction in the volume of trade, most of these platforms will see their revenue shrink.
The coronavirus pandemic has affected all segments of the economy. One of the victims is the blockchain and cryptocurrency industry which is experiencing massive closures with about 90% of firms expected to become bankrupt in the coming six months. Unfortunately, these firms do not qualify for government stimulus. Industry players are, however, asking governments to institute change that will see such firms qualify for support.