Coinbase is cutting about a fifth of its workforce as it looks to preserve cash during the crypto market downturn.
The exchange plans to cut 950 jobs, according to a blog post published Tuesday morning. Coinbase, which had roughly 4,700 employees as of the end of September, already slashed 18% of its workforce in June citing a need to manage costs and growing “too quickly” during the bull market.
“With perfect hindsight, looking back, we should have done more,” CEO Brian Armstrong told CNBC in a phone interview. “The best you can do is react quickly once information becomes available, and that’s what we’re doing in this case.”
Coinbase said the move would result in new expenses of between $149 million and $163 million for the first quarter. The layoffs, along with other restructuring measures, will bring Coinbase’s operating expenses down by 25% for the quarter ending in March, according to a new regulatory filing. The crypto company also said it expects adjusted EBITDA losses for the full year to be within a prior $500 million “guardrail” set last year.
After looking at various stress tests for Coinbase’s annual revenue, Armstrong said, “it became clear that we would need to reduce expenses to increase our chances of doing well in every scenario” and there was “no way” to do so without reducing head count. The company will also be shutting down several projects with a “lower probability of success.”
Cryptocurrency markets have been rocked in recent months following the collapse of one of the industry’s biggest players, FTX. Armstrong pointed to that fallout, and increasing pressure on the sector thanks to “unscrupulous actors in the industry” referring to FTX and its founder, Sam Bankman-Fried.
“The FTX collapse and the resulting contagion has created a black eye for the industry,” he said, adding there’s likely more “shoes to drop.”
“We may not have seen the last of it — there will be increased scrutiny on various companies in the space to make sure that they’re following the rules,” Armstrong said. “Long term that’s a good thing. But short term, there’s still a lot of market fear.”
Cryptocurrencies have suffered alongside technology stocks as investors flee riskier assets amid a broader economic downturn. Bitcoin is down 58% in the past year, while Coinbase shares are off by more than 83%.
End of a growth era
Coinbase joins a chorus of other tech companies cutting jobs after going on a hiring binge during the Covid pandemic. Last week, Amazon said it would cut 18,000 jobs, more than the online retailer initially estimated last year, while Salesforce reduced its head count by more than 7,000, or 10%. Elon Musk slashed about half of Twitter’s workforce after taking the helm as CEO last year, and Meta cut more than 11,000 jobs, or 13%. Crypto companies Genesis, Gemini and Kraken have also reduced their workforces.
“Every company in Silicon Valley felt like we were just focused on growth, growth, growth, and people were almost using their headcount number as a symbol of how much progress they were making,” Armstrong said. “The focus now is on operational efficiency — it’s a healthy thing for the ecosystem and the industry to focus more on those things.”
Early last year, Coinbase had said it planned to add 2,000 jobs across product, engineering and design. Armstrong said he’s now trying to shift the culture at Coinbase to “get back to its start-up roots” of smaller teams that can move quickly.
Coinbase went public in April 2021 and has seen its share price plummet since. The stock is trading below $40 after surging to $341 on its public debut. Coinbase debt that’s maturing in 2031 continues to trade at roughly 50 cents on the dollar. The company still had cash and equivalents of roughly $5 billion as of the end of September.
Coinbase said it would email affected employees on their personal accounts, and revoke access to company systems. Armstrong acknowledged the latter “feels sudden and harsh” but “it’s the only prudent choice given our responsibility to protect customer information.”
Despite the industry’s domino effect of bankruptcies and a marked drop in trading volume, Armstrong was steadfast in arguing that the industry isn’t going away. He said the demise of FTX would ultimately benefit Coinbase, as their largest competitor is now wiped out. Regulatory clarity may also emerge, and Armstrong said it “validates” the company’s decision of building and going public in the U.S. The CEO likened the current environment to the dot-com boom and bust.
“If you look at the internet era, the best companies got even stronger by having rigorous cost management,” he said. “That’s what’s going to happen here.”