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Coinbase founder and CEO Brian Armstrong has announced plans to lay off about 18 percent of the company’s staff, due to fears of recession and declining revenues from crypto-trading.
In a statement published on Tuesday (June 14), Armstrong said the main reason for the layoffs was the rapid deterioration in economic conditions and the effect this has had on the crypto-markets.
“We appear to be entering a recession after a 10+ year economic boom,” he said. “A recession could lead to another crypto winter, and could last for an extended period.
“In past crypto winters, trading revenue (our largest revenue source) has declined significantly.
“While it’s hard to predict the economy or the markets, we always plan for the worst so we can operate the business through any environment.”
Armstrong noted that Coinbase has survived four previous crypto winters, and has managed to deliver long-term growth by keeping costs down during these periods.
He also said that Coinbase is a victim of its own success, admitting that it has grown too quickly from its 1,250 staff at the beginning of 2021, having risen fourfold since then.
“At the time, we were in the early innings of the bull run and adoption of crypto products was exploding,” he said.
“There were new use cases enabled by crypto getting traction practically every week. We saw the opportunities but we needed to massively scale our team to be positioned to compete in a broad array of bets.
“While we tried our best to get this just right, in this case it is now clear to me that we over-hired.”
Staff lay blame at Coinbase execs
Armstrong’s view that over-hiring has made the company less efficient is shared by a significant number of Coinbase insiders.
Writing in a petition submitted to the management last Friday (June 10), employees called for the removal of three executives — a chief operating officer (COO) and two chief people officers (CPOs) — through a vote of no confidence.
The petition listed eight perceived failures that are attributed to the three executives, including low usage of the Coinbase NFT platform, a “toxic” work culture and prioritisation of products over infrastructure.
But the biggest grievances relate to the Coinbase hiring spree of the last 18 months, and the way it was embarked on with no clear plan to turn the extra manpower into improved products or services.
Worse still, the hiring spree came to an abrupt and highly-publicised halt over the last few months, as large numbers of would-be employees had their job offers rescinded.
Cases such as that of Ashutosh Ukey, a 23-year-old computer science graduate from India, began to go viral on social media.
Ukey turned down three PhD offers at US universities to work as a backend software engineer at Coinbase, only to have his job offer rescinded and his US visa put at risk.
According to the petitioners, such bad publicity cannot be divorced from Coinbase’s cratering stock price, which is down more than 80 percent since its initial public offering (IPO) in April last year.
Coinbase’s “plummeting” valuation has led to low morale, the petitioners said, threats of losing top talent and damage to the company’s reputation.
Taking to Twitter to issue a public response, Armstrong was initially unpersuaded by the petition, calling it “dumb on multiple levels”.
“First of all,” he said, “if you want to do a vote of no confidence, you should do it on me and not blame the execs.
“Second, if you have no confidence in the execs or CEO of a company, then why are you working at that company? Quit and find a company to work at that you believe in!”
He went on to say that posting the petition publicly was “deeply unethical” because it harms fellow co-workers, shareholders and customers alike.
“It's also dumb because if you get caught [signing the petition] you will be fired, and it's just not an effective way to get what you claim to want,” he added.
Crypto contagion spreads
Elsewhere in the industry, other major crypto firms are experiencing staffing issues similar to that of Coinbase.
On Monday (June 13), crypto-lending platform BlockFi announced that it too would be reducing its staff count by about 20 percent.
From 150 employees at the end of 2020, BlockFi had increased its staff more than fivefold to a high of 850 — a number that is now unsustainable in a downtrending market.
“Like many others in tech, we’ve been impacted by the dramatic shift in macroeconomic conditions, which have had a negative impact on our growth rate,” said CEO Zac Prince.
“As a result, our number one goal has been to achieve profitability so that we can extend our runway and control our destiny.”
On June 11, Crypto.com also announced plans to cut 5 percent of its staff, or about 260 employees.
“The markets will turn, and when they do, you can be sure that we will be ready to drive and capture the next wave of growth for cryptocurrency adoption,” said CEO Kris Marszalek.
Exceptions to the downsizing trend include Binance, Kraken and Nexo, all of which say they are currently hiring.
Crypto winter begins to bite
The news of mass layoffs at Coinbase comes after a rough few days for crypto-assets, whose total market cap now sits below $1trn for the first time in almost 18 months.
In many ways, crypto is simply following the same path as other risk assets, which have crashed precipitously since the US Federal Reserve signalled that multiple rate hikes will hit the markets in 2022.
But the collapse of LUNA in May, followed by the freezing of withdrawals by Celsius, a crypto-lending platform, on Monday, suggest that there are still areas of over-leveraging in the industry that may be set to unravel.
This week, Coinbase joined the ranks of crypto-platforms imposing restrictions on withdrawals, following an announcement that users must wait 48 hours to withdraw to newly whitelisted wallet addresses.
In a customer statement, Coinbase said it made the changes to “better protect users’ funds against increased external fraud attempts”.
The move means that whitelisting will be required for all crypto withdrawals headed to addresses outside Coinbase.
Once an address is whitelisted, i.e., added to a user’s address book using two-factor authentication, the user must then wait 48 hours to initiate a withdrawal to the address.
For some Coinbase customers, the timing of the changes set alarm bells ringing. “Coinbase just froze crypto withdrawals for 48 hours,” said one user on Twitter. “Sneakily done, with a new feature requiring a 48-hour wait to approve external crypto addresses. Funny timing, right?”
Another added: “The Coinbase whitelist requirement is so sketchy. Nobody can transfer crypto out for 48 hours, and no warning given. The timing can’t be a coincidence.”
As VIXIO reported earlier this week, a crypto-market in freefall has left many platforms struggling to find the liquidity to process withdrawals.
In the 30 days up to June 4, for example, blockchain analysts claimed that Celsius had already borrowed almost $100m from decentralised finance (defi) platforms to service withdrawals.
Restrictions on withdrawals from Coinbase, the largest US crypto exchange by volume and users, and still the only exchange to go public, will only add to fears that a liquidity contagion is spreading.
