Coinbase Is Losing A Few Team Members

If it seems like less than two weeks ago when Coinbase’s Chief People Officer, L.J. Brock, blamed “current market conditions” in the cryptosphere for a hiring freeze, that’s because it was.

In a memo posted to the company’s public blog, Brock also said Coinbase was poised to rescind some existing offers. It’s “not a decision we make lightly, but is necessary to ensure we are only growing in the highest-priority areas,” Brock explained. At the time, Bitcoin was trading around $30,000.

11 days and roughly $150 billion in Bitcoin market cap later, Coinbase said it’s laying off 18% of its “team.” This time, CEO Brian Armstrong spared his HR department the annoyance of breaking the news. “I want to start by taking accountability for how we got here,” he said, in a note to employees. “I am the CEO, and the buck stops with me.”

Armstrong went on to explain that, over the course of “many conversations” with executives and the company’s board, “several realities” became clear to him.

First, Armstrong said the US economy “appears to be entering a recession,” which could entail the onset of an “extended” crypto winter. Crypto winters, he noted, are associated with “significant” declines in crypto trading revenue, which is problematic for Coinbase, because that’s how they make money.

Second, Armstrong said that surviving crypto winters demands cost discipline. Employees are a cost. One way to cut costs is to cut employees. He didn’t put it quite that way, but that was the gist of it.

Third, Coinbase expanded too fast. They over-hired. As Armstrong wrote,

At the beginning of 2021, we had 1,250 employees. At the time, we were in the early innings of the bull run and adoption of crypto products was exploding. There were new use cases enabled by crypto getting traction practically every week. We saw the opportunities but we needed to massively scale our team to be positioned to compete in a broad array of bets.

Let’s be clear about a couple of things. Armstrong, like any crypto proponent, uses the terms “adoption” and “use cases” very loosely. Use cases for crypto weren’t “getting traction practically every week” in early 2021 if “use cases” means proven, scalable, real-world applications. In early 2021, Bitcoin was in the process of going parabolic, in part thanks to Elon Musk, who simultaneously became the champion of meme tokens via an absurd fling with Dogecoin. That farcical episode even found its way onto Saturday Night Live, where Musk jokingly (or not) called it “a hustle.”

Subsequently, alt coins like Avalanche and Solana exploded in value, NFTs took the world by storm and decentralized finance became a multi-hundred-billion dollar ecosystem.

By November of 2021, cryptocurrencies had a $3 trillion market cap. As of this week, that figure was below $1 trillion for the first time since — you guessed it — January of 2021, when Armstrong claims crypto adoption “was exploding” alongside “use cases” (figure below).

Forgive me, but what was “exploding” early last year wasn’t “adoption” and “use cases,” it was the number of gamblers willing to roll the dice on cryptocurrencies. Coinbase was (and still is) among the most readily accessible casinos. I doubt that’s what Armstrong meant when he said Coinbase hired rapidly to participate in a “broad array of bets,” but at least on that point, the language he employed was apt, if accidentally so.

Coinbase, by Armstrong’s admission, grew its team by 4x in 18 months. Now, he conceded, “costs are too high to effectively manage [an] uncertain market.” He went on to say that the company is becoming less efficient the more employees it adds.

Needless to say, the losses for Coinbase shares are egregious. So much so, in fact, that I’ve deliberately avoided mentioning the stock while documenting crypto’s implosion because it felt gratuitous. On Tuesday, though, I’ll indulge (figure below).

Coinbase has fallen 20% or more (in some cases much more) in five of the last seven months. This time last year, the stock was trading near $250. It was at $52 when Armstrong announced the staff cuts on Tuesday.

At the same time, one broad measure of decentralized finance bets was on the brink of dipping below $80 billion, down from a peak of $254 billion on December 2. The dollar-implied floor price for Bored Ape Yacht Club NFTs, poster children for the mania, was below $100,000 for the first time since August, down 54% in a month and more than 75% from the highs hit just six weeks ago.

Affected Coinbase employees will receive a minimum of 14 weeks of severance plus an additional two weeks for every year of employment beyond a year, as well as four months of health insurance in the US and “mental health support” for global staff.

“If you are affected, you will receive [a] notification in your personal email, because we made the decision to cut access to Coinbase systems for affected employees,” Armstrong went on to say, in his companywide letter. “I realize that removal of access will feel sudden and unexpected, and this is not the experience I wanted for you,” he added, before noting that “given the number of employees who have access to sensitive customer information, it was unfortunately the only practical choice.”

Hopefully, they didn’t fire Eric Dale.