The effects of the “crypto winter” are rippling across the entire industry, as Coinbase is the latest crypto giant to announce layoffs. The company announced it was laying off 18% of its staff “to ensure [they] stay healthy during this economic downturn.”
In a memo to employees posted on its website, CEO Brian Armstrong said that “the buck stops with me,” explaining that economic conditions are changing rapidly and that “we appear to be entering a recession after a 10+ year economic boom.”
On June 14, Bitcoin was at $22,478, down 18% in the past seven days and down 67.5% from its Nov. 10, 2021 all-time high of $69,044, according to CoinGecko.
“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,” he said.
But what does it mean for users of the platform?
Several industry experts say that while Coinbase’s move was to be expected given the current market conditions, the company is well capitalized.
Josh Goodbody, COO at Qredo, told GOBankingRates that the Coinbase news is certainly disappointing and it shows just how rough the last few months have been for the industry.
“However, this is not very surprising, as it is subject to the scrutiny of the public markets that expect the company to react swiftly,” he said. “To be clear, the organization is very well capitalized, so funds are safe with Coinbase. The company has saved a tremendous amount of cash during the previous bull run to prepare for a moment like this. That said, with crypto in general, our view is that it is always better to self-custody your assets — ‘not your keys, not your coins’. If you have concerns about handing over control of your Bitcoin to a third party, it’s a good time to research self-custody options for absolute peace of mind.”
Coinbase’s Armstrong said in the post that managing costs was critical in down markets, and while Coinbase has survived through four major crypto winters, “down markets are challenging to navigate and require a different mindset.”
He added that the company grew too quickly during the “early innings of the bull run and adoption of crypto products.”
In turn, the company reached the decision to manage expenses as “employee costs are too high to effectively manage this uncertain market.” In addition, it said it needed to increase efficiency, as it has “exceeded the limit of how many new employees we can integrate while growing our productivity.”
Mahin Gupta, founder of Liminal, told GOBankingRates that Coinbase has reportedly amassed a war chest of cash to protect itself from the onset of crypto winter.
“Its officials have stated this publicly, and the founders of the exchange have been through enough downturns during their relatively long history that I suspect they are well prepared,” he stated. “That said, like much of crypto during this recent bull cycle, they hired extensively and so it makes sense that they might have to cut back. It’s sad to see the layoffs happening, but such moves can be essential during these challenging periods.”
Coinbase, which started its Nasdaq listing in April 2021 in one of the most anticipated initial public offerings (IPOs) of 2021 — as this was the first crypto exchange to go public — said last August it had stockpiled cash in the event of a “crypto winter.”
The company said it had amassed $4 billion in cash as it prepares for closer regulatory scrutiny and to weather a slew of business risks in the crypto industry, CFO Alesia Haas told The Wall Street Journal at the time.
Coinbase acknowledged the potential so-called crypto winter in a letter to shareholders last August.
“The wind is in our sails right now, and it feels good. But crypto is a young volatile industry and there will come a day when times are harder. We know this because we’ve experienced major crypto winters where financing was difficult to get, partners cut us off, and we lost large parts of our employee base. Tension gets high during these times. We’ve sustained by enduring, and not over-reacting. It’s never as good as it seems, and it’s never as bad as it seems,” the company said in the August letter.
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