Coinbase, one of the leading cryptocurrency exchanges, is going through a turbulent phase. The company was forced to downsize and abandon the Japanese market.
The cryptocurrency crash is affecting the vast majority of industry players, including its biggest veterans. In the wake of rival FTX’s collapse, Coinbasean American exchange platform launched in 2012, was forced to cut back.
The current number 2 of the market reveals to have undergone a sharp drop in its number of users. At the start of 2023, Coinbase only has 8.5 million active users, compared to 9 million a year earlier. When Bitcoin approached $70,000 in November 2021, the firm even had 11.4 million users worldwide. In this context, Coinbase has warned its investors toa drop in income, which are essentially based on transaction fees. According to the company, annual revenue is expected to be halved compared to 2021. In that year, the platform recorded revenue of $7 billion.
Read also: after the FTX disaster, what does 2023 have in store for us?
Cascading layoffs in crypto
The Californian company started the year 2023 by announcing a new wave of layoffs. Coinbase has chosen to dismiss 950 employees, i.e. 25% of its workforce. In a press release, the company points to the slowdown in the crypto-asset market and “ the fallout caused by unscrupulous actors”referring to the Sam Bankman-Fried case.
“There could still be new contagions in the future”says Brian Armstrong, CEO and co-founder of Coinbase, in a blog post.
The American firm had already laid off 1,100 people, 18% of its employees, in June 2022, at the beginning of the cryptocurrency crisis. Anticipating a recession, Coinbase preferred to take the lead by improving the management of its expenses.
“As we looked at our 2023 scenarios, it became clear that we would have to cut spending to increase our chances of doing well in all scenarios”argues the Coinbase CEO, fearing a dark year for crypto.
A few days after Coinbase, another popular exchange also reduced its workforce. Hard hit by the loss of confidence that followed the death of FTX, Crypto.com cut 800 posts, which represents 20% of its staff. Same bloodbath at the Huobi exchange, which laid off 600 individuals this month. Other crypto firms, including Genesis, Blockchain.com, and Consensys, have also reduced their human resources expenditures.
Note that crypto players are not the only ones enacting budget cuts. In early January, Amazon announced the loss of a record 18,000 jobs. A few months earlier, Meta was forced to lay off 13% of its workforce, or 11,000 individuals, while Twitter’s staff was halved. Same observation at Microsoft, which announced the departure of 10,000 people in the coming weeks. All the tech industry is forced to revise its ambitions downwards after the excesses of the Covid-19 pandemic.
Growing too fast
Mirroring Meta and Amazon, Coinbase has hired a lot of employees between 2020 and 2022. To respond to the explosion in its number of users, the company had gradually inflated its payroll, which has 5,000 people. Brian Armstrong admits to being ” too focused on increasing numbers as a measure of success”. Last June, he already estimated that Coinbase ” grew up too quickly to meet the challenges of the industry:
“Growing at the right pace is difficult given the scale of our growth. […] It is now clear to me that we have over-hired”.
It will be remembered that Mark Zuckerberg made the same observation about hiring at Meta. Similarly, Jack Dorsey felt that Twitter grew too fast, which ruined the financial health of the social network.
On the crypto side, Crypto.com is famous for its huge investments and excessive optimism. When cryptocurrency prices were on the rise, the Singapore-based exchange paid out colossal sums forambitious marketing operations. The platform has notably shot an advertisement with actor Matt Damon and paid 700 million dollars to offer the name of the Staples Center in Los Angeles.
A vast restructuring plan
To cut costs, Coinbase made another tough decision. The company preferred to withdraw from the Japanese market waiting for better days. All group activities in Japan are suspended. Customers are urged to withdraw their holdings, in fiat or cryptocurrency, by February 16, 2023. A few weeks earlier, Kraken, another industry veteran, made a similar decision. The exchange, launched in 2011, ceased operations in Japan last month.
Unsurprisingly, this back-to-back bad news pulled Coinbase’s stock price down. Since its IPO in 2021, the stock has lost much of its value. As of this writing, it is trading around $50, down from over $300 in April 2021.
These decisions are part ofa vast restructuring plan, explains Coinbase. The firm aims to optimize its ” operational efficiency » for the next bullish cycle. Nevertheless, Coinbase continues its expansion in Europe. The firm plans to obtain regulatory licenses in several European countries, including France. Through this strategy, Coinbase hopes to inflate the number of users of its services… and increase its profits.
Despite the unexpected rebound in cryptocurrencies, many analysts believe that the bearish phase is not over yet. For Vincent Boy, market analyst at IG France, “Optimism is too fast and euphoria is still too great”. Under these conditions, crypto businesses should continue to exercise caution…
Coinbase
