Businesses are preparing for a crypto winter - here’s what that means for you?

Businesses are preparing for a crypto winter - here’s what that means for you?

Businesses are expressing concerns about a recession, and in the crypto space, many are preparing for a crypto winter.

According to an email sent to employees Tuesday morning, Coinbase is laying off 18% of its workforce, or around 1,100 people. CEO Brian Armstrong said the company was growing "too fast" during a bull market and raised concerns about a looming recession.

"It looks like we're entering a recession after more than 10 years of economic boom. A recession could lead to another crypto winter and last for an extended period of time in," Armstrong said in the email. “While it is difficult to predict the economy or the markets, we always plan for the worst so that we can conduct business in any environment.

Here's why companies are preparing for a crypto winter and what that means for investors.

What is a crypto winter?

For several months, there has been speculation about the possibility of a crypto winter, which refers to cryptocurrency prices falling and staying low for an extended period of time.

Bitcoin is down about 55% year-to-date and is trading at around $21,000 per coin. about 70% from an all-time high of $69,000 per coin in November. The total market cap of crypto assets has shrunk to less than $1 trillion from its peak of $3 trillion in November.

As Bitcoin fell as much as 80% from record highs and took about 18 months to recover. Stocks, meanwhile, officially entered bear market territory this week, with the SandP 500 index down around 23% year-to-date through Friday afternoon. Experts predict a recession could be just around the corner.

It will shake, says William Luther, an economics professor at Florida Atlantic University and director of the Sound Money Project at the American Institute for Economic Research. it will be used more frequently in the future and “you see it more as a seasonal change. This is why people are calling it a crypto winter, as it suggests spring is on the horizon.

"Judging from past experience, there's been this ebb and flow in the cryptocurrency market," he tells CNBC Make It.

Why executives are worried

Businesses fear that if crypto asset prices fall, investors will scale back their trading activities, making businesses money.

This means companies need to find ways to reduce costs, such as B. Downsizing. Coinbase joins a growing list of crypto firms, including BlockFi and Crypto.com, which recently announced hiring freezes and then downsizing to cut costs.

Fire 20% of their employees when there is a market downturn,” says Luther. However, with cryptocurrencies “there is the potential for their value to fluctuate much more than other assets, so companies close to these currencies expand and contract much more.

What this means for investors

According to Luther, the good news is that the current volatility in crypto-currencies shouldn't change your more expansive portfolio strategy. “You need a strategy where you have a diversified portfolio of stocks and bonds and possibly crypto assets where you have thought carefully about that asset allocation".

Aside from rebalancing your portfolio when the value of your assets has changed: "I don't see anything that has happened in the last six months that would cause me to change my portfolio strategy," says Luther.

Experts in general, keep crypto a small part of your overall portfolio, between 1% and 5%, and only invest as much money as you are comfortable losing.

In the best of times, Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management, recently told CNBC. He made an exception for people with very long time horizons and for whom dollar costs average more than wealth. Those buying now should have a "long-term conviction," Tyrone Ross, CEO, and co-founder of Turnqey Labs, Inc., told CNBC.

Luther sees the current crypto swings more as a reminder of what he tells his students: Be careful if you own too many shares. with your employer, especially if you work in a volatile industry.

He knows it's difficult for the people who are building the technology to sell it: "They're very excited about it and obviously they want to own a piece of the assets they're building. It's a risky proposition if they have a piece of that." Could diversify risk by holding a more traditional portfolio.