The cryptocurrency exchange platform Coinbase Global Inc. announced this week it will cut nearly a fifth of its employees amid worsening economic conditions.
The company’s CEO and founder, Brian Armstrong, said he believes the industry is heading towards a “crypto winter.” He announced that the firm is cutting 1,100 employees, or 18%, in an effort to manage operating expenses.
“Our employee costs are too high to effectively manage this uncertain market,” said Armstrong in a letter to employees. “We appear to be entering a recession after a 10+ year economic boom. A recession could lead to another crypto winter and could last for an extended period.”
Armstrong acknowledged that his decision to scale the company’s workforce over the past two years had caused the company to grow too quickly, stating, “This accountability rests fully with me.”
All employees affected by the layoff will receive a minimum of 14 weeks of severance pay, plus an additional two weeks for every year of employment beyond one year. They will also receive assistance in finding employment at other firms, including portfolio companies from Coinbase Ventures.
The layoffs are predicted to incur approximately $40-$45 million in restructuring expenses for Coinbase.
Coinbase’s downsizing is more negative news for the cryptocurrency market, which has dropped by 25% over the past month from $1.24 trillion to $929 billion, according to Coinmarketcap.
Coinbase has struggled to maintain investor confidence since its initial public offering in April 2021. The platform’s first-quarter-2022 results show that trading volume on the exchange has slowed significantly since the prior year. The company is down from its all-time high of $425 and is trading at roughly $51, representing an 88% decrease in value.
In an exclusive interview with The Dallas Express, President Howard Greenberg of the American Blockchain and Cryptocurrency Association (ABCA), a non-profit cryptocurrency trade association, spoke about what lies ahead for Coinbase, given the worsening economic outlook.
“Coinbase will face significant challenges over the next few months. The Coinbase business model relies too much on trading fees and will struggle with the recent decline in interest,” Greenberg said. “More OTC competition is also entering the field, such as FTX and Gemini, vying for institutional investors, which will also cut into profits.”
Greenberg asserted that the crypto industry needs proper regulation to reach its full potential.
“We need the guardrails of regulation to ensure a better direction for corporations and new projects to be complicit,” he said. “New regulations will also provide better protection to the regular consumer and investors.”
Some investors have expressed concern over the possibility of the company filing for bankruptcy.
“Custodially-held crypto assets may be considered to be the property of a bankruptcy estate,” wrote Coinbase in a recent Securities and Exchange Commission filing. “In the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings, and such customers could be treated as our general unsecured creditors.”
Armstrong clarified that the company faces “no risk of bankruptcy.” The company has also said customer assets are safe, and each account is segregated.
“Coinbase has survived through four major crypto winters, and we’ve created long-term success by carefully managing our spending through every down period,” Armstrong wrote. “Down markets are challenging to navigate and require a different mindset.”
The Dallas Express reached out to Coinbase for comment and was directed to official statements from the company.