For the second time in six months, Coinbase will be laying off a large proportion (20%) of its workforce.
This comes after the major FTX scandal and Coinbases’ own £81m settlement with New York regulators over inadequate background checks. After dismissing 18% in June 2021, Coinbase has decided to eliminate a further 20% of its personnel.
CEO Brian Armstrong blamed the current downturn in the crypto market on unscrupulous individuals in the industry, namely the defunct cryptocurrency exchange FTX and its creator Sam Bankman-Fried.
It's possible that more “shoes will drop” when Armstrong referred to the collapse and the accompanying contagion producing a black eye for the industry.
In order to save money amid the cryptocurrency market collapse, Coinbase has announced it would be laying off around 20% of its workers.
A blog post published Tuesday morning revealed the exchange's intentions to lay off 950 employees. Despite having over 4,700 workers as of the end of September, Coinbase cut 18% of its personnel in June, citing a need to control expenses and expanding “too rapidly” during the bull market.
CEO Brian Armstrong said to CNBC over the phone, “With perfect hindsight, looking back, we could have done more.” He believes what can be done is to respond rapidly when new information becomes available, and that is what they are doing here.
Coinbase States Need to Cut Operating Expenses
As BTC price predictions furthermore become anyone’s guess, the second-most popular exchange in the world prepares itself for an incoming recession.
According to Coinbase, the change would add between $149 and $163 (£122 / £134) million in first-quarter costs.
A recent regulatory filing indicates that the layoffs and other reorganisation efforts would reduce Coinbase's operational expenditures by 25% for the quarter ending in March. The cryptocurrency firm said that it anticipates annual adjusted EBITDA losses of less than $500 (£412) million, which is within the “guardrail” established by the business in the previous year.
According to Armstrong, it became evident that we would need to lower expenditures to maximise our odds of doing well in any scenario after reviewing Coinbase's yearly income in a number of hypothetical scenarios, and there was “no way” to do so without decreasing staff numbers. More than a few “lower chance of success” initiatives are to be terminated by the firm.
When FTX, a major participant in the cryptocurrency sector, went bankrupt a few months ago, it sent shockwaves through the market. Armstrong mentioned the repercussions and the growing pressure on the sector as a result of “unscrupulous individuals in the business”, presumably FTX and its founder Sam Bankman-Fried.
Recession Looms
Coinbase has joined the ranks of other tech businesses (fewer than one-third of business owners think they can easily get assistance with credit: see full survey) that have begun layoffs after recruiting rapidly during the Covid epidemic.
While Salesforce has decreased its workforce by more than 7,000, or 10%, Amazon has said it would eliminate 18,000 employees, which is more than the online retailer predicted last year.
When Elon Musk became Twitter's CEO last year, he laid off over half the company's employees, and Meta eliminated around 11,000 positions (or 13% of their total staff). Genesis, Gemini, and Kraken, all organisations in the cryptocurrency industry, have also laid off employees.
Armstrong said that “every organisation in Silicon Valley felt like we were simply focused on expansion, growth, growth”, with some even using the size of their workforce as an indicator of success. “The current emphasis is on operational efficiency, which is good for the ecosystem and the sector as a whole.” As opposed to liquid investment and credit, which the UK economy has recently felt as a whole.
Earlier in 2017, Coinbase said that it will be adding 2,000 positions in product, engineering, and design. Armstrong has said that he is now working to return Coinbase to its “start-up beginnings”, where smaller, more nimble teams operate.
Since its IPO in April 2021, Coinbase's share price has fallen dramatically. After soaring on its first trading day, the stock has dropped to around a tenth of its all-time high. The 2031 due date debt of Coinbase is still trading at about 50% of face value. Towards the end of September, the firm still had about $5 billion in cash and equivalents.
Coinbase has said that it would notify concerned workers through personal email and immediately cut off their access to business systems. Despite the latter's “sudden and abrupt” nature, Armstrong deemed it the only reasonable decision given its obligation to preserve client information.
Armstrong was unwavering in his assertion that the sector will survive the recent wave of bankruptcies and dramatic decrease in trade activity. When asked how Coinbase would profit from FTX's downfall, he responded that FTX's elimination will help Coinbase in the long run. This “validates”, according to Armstrong, the company's choice to construct in the United States and go public there. The head of the company made a comparison to the dot-com bubble and collapse.
By carefully controlling expenses, “the most successful businesses of the Internet age were able to grow even larger”, he noted. This is exactly what will occur.
Takeaway
Coinbase has joined the ranks of other tech businesses that have begun layoffs after recruiting rapidly during the Covid epidemic. While Salesforce has decreased its workforce by more than 7,000, or 10%, Amazon has said it would eliminate 18,000 employees, which is more than the online retailer predicted last year.
When Elon Musk became Twitter's CEO last year, he laid off over half the company's employees, and Meta eliminated around 11,000 positions (or 13% of their total staff). Genesis, Gemini, and Kraken, all organisations in the cryptocurrency industry, have also laid off employees.
It’s all looking promising in the near term in the eyes of many experts. In this environment, the UK’s consumerist cash flow is feeling the constraints of the current recession.
