In a regulatory filing today (Jan 10), the crypto exchange Coinbase (COIN) said that it will dramatically cut costs in the first quarter of 2023, and lay off 950 employees.
This is grim news, coming only a few days after a New York State regulator ordered Coinbase to pay a $50 million fine for failure to comply with state financial regulations, and to invest a further $50 million to enhance its compliance.
Like most companies in the cryptocurrency space, Coinbase has suffered from the “crypto winter,” the prolonged drop in prices for cryptocurrencies that began at the end of 2021.
Coinbase’s fate as a company is inextricably tied to the price of cryptocurrencies. This is in part because the company itself holds a great deal of cryptocurrency. When Coinbase went public in 2021, the price of Bitcoin (and many other cryptocurrencies) was soaring, which made the company look richer than it arguably was. Today, Coinbase is on the wrong side of that equation. In the first nine months of 2022, Coinbase recorded nearly $700 million in impairment of its crypto assets, about three times the impairment it recorded in the first nine months of 2021.
Moreover, when crypto prices sink as they have for the last year or so, retail customers trade fewer crypto coins or exit the market altogether. Recently, Coinbase launched a widespread ad campaign drawing contrasts between itself and its now bankrupt competitor FTX. However, even if Coinbase ends up recruiting some customers from FTX, crypto trading volume is significantly down, which means Coinbase makes less money from each customer.
This is the third round of Coinbase layoffs in less than a year. In June 2022, the company announced it was eliminating about 1100 jobs, and in November added another 60.
In a blog post on the corporate site, Coinbase CEO Brian Armstrong wrote: “Coinbase is well capitalized, and crypto isn’t going anywhere. In fact, I believe recent events will ultimately end up benefiting Coinbase greatly….But it will take time for these changes to come to fruition and we need to make sure we have the appropriate operational efficiency to weather downturns in the crypto market, and capture opportunities that may emerge.”
In premarket trading, Coinbase stock dipped about three percent. By midday, the stock was trading up about four percent.
