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Crypto, Web3 Fundraising Snowball Against Industry-wide Layoffs and Exchange Troubles

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This week has been fairly dull and devoid of green action in the market, but the picture has been far from uneventful outside the spot price scene. Here is a breakdown of the major events constituting the present chaotic and concerning setup.

  • VCs and institutional investors are seemingly ready to get back in the game against projections
  • Exchanges and more crypto companies announce job cuts to manage costs
  • Genesis Global files for bankruptcy, pressure mounts on giant firm Digital Currency Group
  • SEC concludes Nexo's pursuit, reaffirming its stance on digital assets and crypto-related offerings

The crypto market remained unchanged for the better part of Thursday after Wednesday's brief patch of volatility which saw Bitcoin and other largely-traded alts give away minor gains. The slight retracement resulted from market participants' reaction to news of the US Department of Justice shutting down little-known Hong Kong-based crypto exchange Bitzlato. The DoJ announcement, coming only a few days since the US Securities and Exchange Commission (SEC) charged crypto exchange Gemini and distressed lending firm Genesis, stirred up a sour tone in a week that has equally been themed by layoffs. The lender has since filed for bankruptcy as per latest reports.

Capital raises

Market commentators projected the digital assets sector to see a throttled injection of funds this year after a series of crashing events in the last quarter. Thus far, however, the industry is yet to flash any signs of the gloom-ridden forecast betiding. In contrast, several firms and subsidiaries in the blockchain space have announced securing capital from investors confident in their projects, shaking off the beating sustained in the last few months.

HashKey Capital locks more capital in a third fund

HashKey Capital, the corporate venture capital unit of financial services HashKey Group, announced that it had successfully winded down its third funding this week. The investment arm, which holds over $1 billion in assets, raised $500 million to be invested in promising initiatives in the blockchain space, according to a Jan 17 statement. HashKey FinTech Investment Fund III saw participation from a variety of institutions. CEO Deng Chao remarked on the timing of closing and deployment of the new fund, noting that HashKey Capital has proved to be a survivor in past bear seasons and has learned some lessons from these cycles. Last week, decentralized asset management protocol Quasar Finance announced it had closed a $5.4 million raise led by Shima Capital. The Cosmos-based protocol said it intends to use the funds to pursue its goal of “making non-custodial and permissionless asset management available to all,” CEO Valentin Pletnev said.

CyberX's $15 million Series A round

Digital assets trading and infrastructure firm CyberX announced it attracted $15 million in a Series A round led by Foresight Ventures last week. The raise was one of the biggest funding events in the second week of the year. The tech company that operates as a crypto market maker will use the newly gained financial boost to facilitate integrating DeFi protocols into its network and bankroll its global expansion plans. In a separate event, Jump Crypto led a funding round for Aptos-based wallet startup Momentum Safe (MSafe), worth $5 million in seed funding. The event featured notable venture capital firms such as Superscript, Redpoint Ventures, Circle Ventures, Spartan Group, Coinbase Ventures, and Shima Capital.

Circle also participated alongside Blockchange Ventures in the seed extension round of Switzerland-based blockchain firm Obligate, which brought in $4 million. Social crypto wallet firm The Easy Company also closed a $14.2 million seed round last week, aiming to onboard even more people into crypto. Traditional social media bigwigs couldn't miss this, with the likes of Instagram and Twitter among the fleet of angel investors featured in the round. Other Web3 entities that have secured funding this week include credential protocol Gateway, which raised $4.2 million in a seed round that listed several angel investors, including Messari founder Ryan Selkis and Polygon co-founder Sandeep Nailwal.

Pressure mounts on DCG and its subsidiaries as staff trimming continues

Blockchain entrepreneur and founder of Tron Network Justin Sun teased a potential purchase of some of DCG's assets towards the end of last week as the capital market company's outlook worsened amid increasing financial distress. The business executive said he could consider splashing his own money on the latter's assets, Reuters reported last Friday. The crypto mogul superficially expressed his willingness to invest up to $1 billion to acquire specific undisclosed assets from the troubled crypto conglomerate based on a financial evaluation. Estimates place Sun's net worth between $250 million and $3 billion, depending on whether said estimates include crypto and traditional assets. In comparison, DCG's assets are approximated at worth over $10 billion, confirming Sun's hypothetical move would entail only some of the assets.

Genesis Global inevitably files for bankruptcy protection

Rumors surfacing early this week suggested that Genesis could file for bankruptcy after failing to recover from the series of blows due to its doubled exposure to now-defunct hedge fund Three Arrows Capital and the defunct FTX exchange. Late Thursday reports have confirmed this fate for subsidiaries Genesis Global Capital, Genesis Asia Pacific, and Genesis Global Holdco. The latter entity filed for bankruptcy protection [of the subsidiaries as well] in New York on Jan 19 with court documents revealing over 100,000 creditors and liabilities of between $1 billion and $10 billion for the lending subsidiary.

The firm's lending unit suspended customer withdrawals in November following revelations of FTX's poor financial status. 3AC, which came to its knee on account of its exposure to the Terra network, had a $2.4 billion loan owed to Genesis before its collapse. The DCG subsidiary has struggled to meet its financial obligations to creditors in the aftermath of the two crash incidents, which have left it in a crunch. The troubled firm is said to owe creditors, including Gemini over $3 billion. Genesis parent company, DCG, has separately made headlines after divulging in a Tuesday letter to shareholders that it will channel its quarterly dividends to preserve cash.

Layoffs – Amber Group and Microsoft join the bandwagon

Singapore-based crypto startup Amber Group has enforced cuts, downsizing its Hong Kong offices by half to 40 as a result, according to an SCMP report. A source familiar with the developments around the Temasek-backed firm, which raised $100 million in a series B funding round in June 2021, said it reduced positions across the compliance, risk management and audit departments – the latter being made redundant in entirety.

Tech peers have also been affected with the likes of Alphabet and Amazon recently adjusting their size in anticipation of slower revenue growth. Microsoft on Wednesday revealed plans to lay off up to 10,000 employees globally in coming weeks, justifying that it overhired during the 2022 pandemic period that saw demand in online and related service surge. Based on confirmed figures in the last dozen months, the tech industry has seen more than 60,000 job cuts. Though the tech company's adjustment affects less than 5% of its current employee size, it is the largest in more than five years. It will cost the Windows maker an estimated $1.2 billion in restructuring expenses.

Microsoft chief executive Satya Nadella assured that the decision should not be cause for alarm as the software systems and applications developer is still keen on filling specific positions. Meanwhile, Amber's latest cost-cutting measure comes just a month after the unicorn closed its digital asset platform WhaleFin and canceled its $25 million advertising deal with the English Premier League football club Chelsea FC. MetaMask development firm ConsenSys announced a similar slash of 11% on Wednesday that will affect 96 of its employees, CEO Joseph Lubin said, noting that the company intends to prioritize its core business.

Exchanges headlines

Late Thursday, crypto lending firm Nexo settled its conflict with the SEC, agreeing to a $22.5 million fine and a similar settlement with Alaska, New York, Texas, and Washington state regulators. The lender additionally shelved its Earn Interest product whilst remarking positively on the charges and fine levied against it.

Coinbase to exit Japan market

Coinbase confirmed on Wednesday previous unofficial reports of shutting down operations in Japan. The leading exchange wrote in a blog that fiat deposit functionality be available until Jan 20, while withdrawal support for assets on its platform will be removed on Feb 16. The exchange tied the decision, which follows a third wave of layoffs constituting 20% of its headcount, to market conditions. Last month, rival crypto exchange Kraken similarly revealed it would stop serving Japan-based customers at the end of January as it seeks to prioritize resources.

In a separate event last week, SkyBridge Capital founder Anthony Scaramucci said that his venture firm plans to buy back the 30% stake it sold to the defunct crypto exchange FTX, awaiting clearance from the bankruptcy team. He intends to use part of the $40 million generated from the sale to boost its balance sheet and pay old investors. Scaramucci has invested in a crypto software firm that former FTX president Brett Harrison is founding.

Busan digital commodities exchange project

The city of Busan, Korea's second biggest, is looking to establish a digital commodities exchange, as per Thursday reports which featured a communication from the city government. Busan intends to launch a decentralized platform providing retail traders exposure to tokenized commodities and other unique offerings like intellectual properties of movies and games later this year in H2. The Busan Digital Asset Exchange Establishment Promotion Committee has been tasked to deliver on this system, combining aspects of traditional financial markets. The government hinted at the potential inclusion of all blockchain-based digital assets at an unspecified timeline. Next month, the city is set to institute a legal corporation and start technical tests. Prior local reports on Wednesday set forth that Busan had effectively put an end to its pursuit of a city-backed crypto and security token offerings trading platform.

FTX's acting chief says a comeback is not entirely ruled out

The current FTX CEO, John Ray, has commissioned a task force to assess the possibility of rebooting the exchange, the Wall Street Journal reports. Though Ray, who took over as the acting chief before the firm's bankruptcy, didn't explicitly advance revival in regards to the future of the downfallen entity, he implied in an interview that bringing it back to business is an option as everything is under consideration.

“I'm glad Mr. Ray is finally paying lip service to turning the exchange back on after months of squashing such efforts! I'm still waiting for him to finally admit FTX US is solvent and give customers their money back,” Bankman-Fried remarked on the plans

Earlier this week, FTX revealed that it had discovered roughly $5.5 billion in liquid assets, while it owes an estimated $3.1 billion to its top fifty creditors. SBF previously claimed that he was coerced by law firm Sullivan & Crowell and the FTX US general counsel into resigning and leaving helms to Ray – claims the new CEO dismissed. In another Thursday development, crypto exchange OKX declared $7.5 billion in liquid assets (reserves of Bitcoin, Ether, and Tether only) in the proof-of-reserves monthly report. The exchange previously noted that it maintains a 1:1 ratio for its reserve, suggesting that its on-chain assets match customers' balances.

Institutional investors take the heat as others bank on the downbeat market

The recovering prices of digital assets across the board have reshaped traders' strategies at a retail level. Institutional investors have mostly continued exercising caution from the sidelines after last year's poor market performance affected their long-term profitability.

New York-based financial advisor Saba Capital revealed last week that it holds Bitcoin in its Capital Income & Opportunities Fund, which has assets from traditional financial markets as well. In a Jan 9 statement, Metropolitan Commercial bank contrarily said it has entirely scraped crypto-related services due to recent incidents in the digital asset space. The developments in question are likely tied to the FTX exchange. The New York State chartered bank isn't the only one that has registered a poor record in the digital assets landscape.

Silvergate and Saba updates

Silvergate, which recorded worse-than-expected deposit outflows and a substantial net loss in Q4 according to a preliminary earnings report on Jan 5, is still reeling from the pains of its exposure to crypto. Shares of the bank shot up in the first three days of January before dipping to a record low of $11.55 on NYSE. Silvergate Capital stock has fallen 27% in the last four weeks, contributing to an overall decline of 80% over the past six months. Earlier this month, JP Morgan lowered its target on the digital assets-focused bank's stock by more than half and downgraded its rating on the stock. Bank of America also downgraded its rating, while Canaccord Genuity, Wells Fargo, and Morgan Stanley lowered their targets.

CEO Alan Lane disclosed in a recent conference call that the bank was assessing its product portfolio and customer relationships to derive profitability. Its list of corporate customers includes Bitstamp, Coinbase, Circle, Kraken, and Paxos. In addition to getting rid of some products, Silvergate plans to drop customers in its core business going ahead. Barely a fortnight ago, the San-Diego-based crypto bank said it would lay off around 200 employees – roughly 40% of its workforce. Silvergate Capital is among the financial services whose stock has been downgraded on Wall Street. Last Monday, analysts from independent investment markets firm Jefferies cooled on and slashed targets on Signature bank's stock. Still, not all institutional investors have been seeking to exit the space.

Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.