Table of Contents
main conclusions
Coinbase has announced it is cutting 20% of its workforce, having cut 18% in June The company is trading at a market cap below $10 billion, down more than 90% from its opening price of capital in April 2021. CEO Brian Armstrong sold 2% of his stake last October, when the share was traded at US$63. Today it costs R$38. Armstrong warned that more “waters will flow” in the crypto market. prices so far this year have risen on optimism that inflation is easing Coinbase announced today that it is again cutting a substantial chunk of its workforce. A blog post announced the cuts on Tuesday morning, which cover another 950 jobs. The company had already laid off 18% of its workforce in June. This means that, in the last six months, 35% of its employees were made redundant. “With perfect hindsight, looking back, we should have done more. The best you can do is react quickly as soon as information becomes available, and that’s what we’re doing in this case” – CEO Brian Armstrong in an interview with CNBC.
Why is Coinbase enacting layoffs again?
I wrote a review of 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’s at $38. If you thought Bitcoin was bad, Coinbase was worse. It is now down more than 90% from the price at which it went public. Its market cap is currently under $10 billion, having briefly reached $86 billion on its first day of trading. Coinbase said the layoffs will reduce operating costs by 25% when considered in conjunction with other restructurings. However, there will be an increase in operating expenses between $149 million and $163 million in the first quarter as a result of the cuts. “It was clear that we would need to reduce expenses to increase our chances of doing well in all scenarios,” added Armstrong, before stating that there was “no way” to do this without laying off employees, and adding that several projects with “lesser likelihood of success” will be closed.
Can things get worse in cryptocurrencies?
While crypto markets have gotten off to a good start this year thanks to positive inflation and macro data, Armstrong has ominously warned that “there is still a lot of market fear” in crypto after the FTX meltdown and that there is likely “water to roll” when it comes to of a contagion spiral in the industry. Of course, the layoffs were not limited to the cryptocurrency market. Tech companies like Amazon, Salesforce and Meta have cut thousands of employees in recent months. Technology is notoriously volatile, and with low profits as a standard, valuations derived from discounting future promises and high interest rates have punished the industry. But Coinbase made mistakes. An apparent lack of risk management regarding Bitcoin’s price, given the correlation between the company’s fortunes and the crypto market, has cost them dearly. A quick look at the chart above shows that Bitcoin price and Coinbase shares move a lot in tandem. The original round of layoffs in June came just four months after the company spent $14 million on a Superbowl commercial, which in retrospect signaled the top of the cryptocurrency market quite poignantly. FTX and Crypto.com also spent millions on notorious ads in the big game. Armstrong also admitted in the first round of layoffs that the company had expanded too quickly.
What’s next for crypto?
For crypto, this news alone doesn’t mean much. It’s just an anecdote that highlights the scale of the damage over the past year. Coinbase was the barometer of the industry, the first high-profile crypto company to go public, at a time when most expected a host of companies to follow. But the market has completely transformed. And for it to recover, there is no other way of saying it: the macro climate needs to relax so that the interest rate tightening climate can be loosened. Cryptocurrencies are traded as a high-risk asset, and therefore the loose monetary policy and rock-bottom interest rates of the past decade have boosted it wildly. That is now over. But with inflation appearing to ease at the start of the year, hopes are renewed that the Federal Reserve may return to a “normal” monetary climate sooner than originally anticipated. Then, and only then, can cryptocurrency investors start thinking about positioning themselves vertically on the charts. For now, it’s a wait-and-see approach, with the next key US inflation data due on Thursday.
