What is happening at Coinbase? Another 20% of employees laid off

Key Takeaways

• Coinbase has announced it is cutting 20% of its workforce, having cut 18% back in June
• The company is trading at a market cap of below $10 billion, down over 90% from the price at which it went public at in April 2021
• CEO Brian Armstrong had sold 2% of his stake last October when the stock traded at $63. Today, it is $38
• Armstrong warned of “more shoes to drop” in the crypto market
• Prices thus far this year have headed upward off optimism that inflation is softening

Un oh. Coinbase today announced that it is again cutting out a substantial period of its workforce. A blog post announced the cuts Tuesday morning, which comprise another 950 jobs. The company had previously laid off 18% of its workforce in June. This means that in the last six months, 35% of its employees have been made redundant.

“With perfect hindsight, looking back, we should have done more. The best you can do is react quickly once information becomes available, and that’s what we’re doing in this case” – CEO Brian Armstrong in an interview with CNBC.

Why are Coinbase enacting layoffs again?

I wrote a deep dive on the state of the exchange in October, after it was revealed that CEO Armstong was selling 2% of his stake. Coinbase was trading at $63 that day. Today, it is at $38. If you thought Bitcoin was bad, Coinbase has been worse. It is now down over 90% from the price it went public at.

Its market cap is currently below $10 billion, having briefly been worth $86 billion on its first day of trading.

Coinbase has said that the layoffs will reduce operating costs by 25%, when considered in conjunction with other restructuring. There will be an increase in operating expenses of between $149 million and $163 million for the first quarter as a result of the cuts, however.

“It became clear that we would need to reduce expenses to increase our chances of doing well in every scenario”, Armstrong added, before affirming that there was “no way” of doing this without laying employees off, and adding that several projects with a “lower probability of success” will be shut down.  

Could things get worse in crypto?

While crypto markets have got off to a hot start this year thanks to positive macro and inflation data, Armstrong ominously warned that there is “still a lot of market fear” in crypto following the FTX collapse, and that there are likely “more shoes to drop” when it comes to contagion spiralling through the industry.

Of course, layoffs have not been limited to the crypto market. Tech companies such as Amazon, Salesforce and Meta have cut thousands of employees over the past few months. Tech is notoriously volatile and with low profits the standard, with valuations derived from the discounting back of future promise, high-interest rates have punished the sector.

But Coinbase have made errors. An apparent lack of risk management with regard to the Bitcoin price, given how correlated the company’s fortunes are to the crypto market, has cost them. A quick glance at the above chart shows that the Bitcoin price and Coinbase stock very much move in tandem.

The original round of layoffs in June came only four months after the company spent $14 million on a Superbowl commercial, which in retrospect signalled the top of the crypto market quite poignantly. FTX and Crypto.com also spent millions for notorious adverts in the big game. Armstrong also admitted at the first round of layoffs that the company had expanded too quickly.

What next for crypto?

For crypto, this news in isolation does not mean much. It is merely an anecdote which underlines the scale of the damage this past year. Coinbase was the bellwether for the industry, the first high profile crypto company to go public, at a time when most expected a slew of companies to follow.

But the market has transformed entirely. And for it to bounce back, there is no other way to put it: the macro climate needs to ease up such that the tightening interest rate climate can be loosened up. Crypto trades like a high risk asset, and hence the loose monetary policy and basement-level interest rates of the past decade have propelled it boisterously.

That is now over. But with inflation seeming to soften to open the year, hope is renewed that the Federal Reserve may move back to even a “normal” monetary climate sooner than originally anticipated. Then, and only then, can crypto investors begin to think about heading vertically on charts.

For now, it is a wait-and-see approach, with the next all-important inflation data in the US out Thursday.