Brian Armstrong, CEO and cofounder of Coinbase, announced on June 14 a layoff of 1,100 people, or 18 percent of staff, via a blog posting that confirmed concerns about the cryptocurrency exchange and about the larger cryptocurrency movement.
“Today I am making the difficult decision to reduce the size of our team by about 18 percent, to ensure we stay healthy during this economic downturn,” Armstrong says.
“Economic conditions are changing rapidly,” Armstrong says, referring to the apparent onset of a bear market and its severe impacts upon crypto. “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. 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 offered more details about why staff cuts were needed:
- “We grew too quickly: At the beginning of 2021, we had 1,250 employees. … 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.”
- “As we operate in this highly uncertain period in the world, we want to ensure we can successfully navigate a prolonged downturn. Our team has grown very quickly (>4x in the past 18 months) and our employee costs are too high to effectively manage this uncertain market. …”
- “We have now exceeded the limit of how many new employees we can integrate while growing our productivity. … We have seen ourselves slow down considerably due to coordination headwinds, and difficulty fully integrating new team members. We believe the targeted resourcing changes we are making today will allow our organization to become more efficient.”
The full text of Armstrong’s blog can be found here: https://bit.ly/39otIwt
Coinbase’s woes serve as evidence that crypto markets are heading toward hibernation, which may or may not happen in the world beyond crypto.
“The pullback in the crypto ecosystem illustrates the precariousness of the structure built around these risky and unregulated digital assets,” according to a June 14 story in The New York Times, “ ‘The Music Has Stopped’: Crypto Firms Quake as Prices Fall,” about the crypto crash. “The total value of the cryptocurrency market has dropped by about 65 percent since autumn, and analysts predict the sell-off will continue. Stock prices of crypto companies have cratered, retail traders are fleeing and industry executives are predicting a prolonged slump that could put more companies in jeopardy.”
To say the least, the cryptocurrency movement has needed global guardrails from the start, and it’s unclear to me why the regulators are taking so long to truly rein in crypto.
Part of the problem is that the experts dismissed cryptocurrencies and said that distributed ledger technologies (DLT), aka blockchains, would be their legacy. Well, the experts were wrong about global inflation and we are paying the price for their ineptitude. No one should have underestimated the strong possibility that Bitcoin and its siblings had the great potential to take off.
Oddly enough, a new bill in Congress may not only be well-timed but may help us out of this morass and onto the next chapter.
Co-sponsors U.S. Senators Kirsten Gillibrand (D-NY), and Cynthia Lummis (R-WY), are pushing for a comprehensive regulatory framework for digital assets. They are also ambitiously trying to balance innovation and protection against “bad actors” in volatile and highly risky markets.
My fear is that glib and cynical Wall Street players will ignore this legislation and similar efforts and retreat from crypto, hoping it dies as a bear market takes hold.
The better approach is for Wall Street’s smarter players to urge Congress to take this crash into winter as an opportunity. It would be the perfect time to dive into the proposed law, the Responsible Financial Innovation Act, and strike the right balance between protection and innovation especially when the pain of the downside is a reality and not a hypothetical.
And, while they’re at it, why can’t the Fed and other U.S. regulators take the lead and speed up the process of setting up a central bank digital currency (CBDC) for U.S. markets?
The markets aren’t waiting and we’re seeing the folly of that. Why are the regulators dithering?