The distortions on the cryptocurrency market not only impact speculators’ portfolios, but also leave their mark on the balance sheets of crypto companies. From a pending collapse of the young industry but according to the scene connoisseurs, there is no question.
The falling prices of Bitcoin etcetera are forcing companies in Switzerland increasingly to take drastic measures. After the boom phase at the end of 2017, once celebrated start-ups from Zug’s “Crypto Valley” face tough economic reality.
The troubled industry should also have not reached the bottom, says Ralf Kubli, director of the consultant team of the Zug-based investment company CV VC, told the news agency AWP. In particular, companies that earn money trading cryptocurrencies face challenges. But also in the software development is increasingly working with smaller core teams.
“In addition, it must be said that during the boom some start-ups have hired too many employees and now return to the actual tasks takes place,” summarizes Kubli the situation in the “Crypto Valley” together.
The canton of Zug is meanwhile calm: “I still regard the ecosystem as very vital in terms of settlements and start-ups,” said Bernhard Neidhart, head of the Office of Economy and Labor of the Canton of Zug, on request. He admitted, however, that a consolidation was detectable.
One of the start-ups that was brought back to earth is the well-known American Erik Voorhees, founder and CEO of the train-based “Crypto Exchange Office” ShapeShift. Recently, Voorhees was forced to terminate 37 people, or around a third of its workforce, due to the decline in cryptocurrency prices and strategic mistakes.
As the main reason for the terminations Voorhees called the price development of Bitcoin and Co last year. This had had a substantial impact on the finances of the company. But strategic mistakes, such as too expansionary growth policy, admitted the head of ShapeShift.
The recent aggressively driven growth in the industry should now take revenge: “We expect further redundancies, if the declining trend does not reverse,” predicts about Falcon Private Bank, which is itself active in the crypto market. The black painting should not be exaggerated: “The innovation is not dead, and the developers are still working behind the scenes”, it is emphasized.
According to the latest report of the Zug Blockchain investment company CV VC, the collapse of cryptocurrencies has had a substantial impact on the valuation of the once multi-billion start-ups, whose business model is also kept alive by the price development of cryptocurrencies.
The report, produced in collaboration with consulting firm PwC and IT service provider Inacta, shows that the market valuation of the 50 largest blockchain companies based in Switzerland alone fell by more than half between the third and fourth quarter of 2018 alone. Specifically, market valuation shrank from $ 44 billion to $ 20 billion. The majority of these companies are located either in or around Zug.
However, there is hardly any talk of a pending insolvency wave at crypto start-ups, emphasizes Thomas Landis of the Zurich-based fintech incubator F10. The environment for start-ups continues to be good: “In the meantime, most managers have understood that innovation is important,” says Landis.
It is important, however, that start-ups do not focus exclusively on crypto or just one technology. Rather, they should always put the customer at the center: “Only then will there be interested parties who are looking for it.” The times when a start-up via Initial Coin Offering (ICO) could take millions without having a viable business model, be over anyway.
“From our point of view, a successful start-up at the right time must solve the right customer problem, which the end customer may not yet be aware of at the time,” is the formula of the start-up consultant.
Also published on Medium.