- It was announced on Jan. 10, 2022 that Coinbase would be slashing its workforce by about 20% (which translates to 950 employees) in an effort to reduce overall operating expenses by 25%.
- This is the second round of layoffs for the crypto exchange, as they laid off 18% of the workforce last June as the crypto winter sets in and the space attempts to recover from the disastrous year.
- Many analysts feel that we’re in for a long crypto winter after the collapse of Luna and the FTX implosion. The recent layoffs indicate that it could take significant time for the crypto space to rebound to the levels it reached in 2021.
Coinbase has once again announced that staff layoffs are coming. This isn’t the first round of layoffs the crypto exchange has announced. As the crypto winter continues and the market continues to deal with the aftermath of the collapse of Luna and the FTX implosion, there are fears that we could be in for more tough times in this space.
We’re going to look at the latest Coinbase layoffs and what they mean for investors as the crypto industry struggles to bounce back—plus, how Q.ai can help.
Coinbase announces additional layoffs
Coinbase CEO Brian Armstrong confirmed in a released statement on January 10 that the company would be reducing operating expenses by 25%, which involves laying off another 950 employees.
The layoffs are believed to cost the exchange between $149 million and $163 million in expenses. All laid-off employees will get at least 14 weeks of base pay, health insurance coverage and assistance with finding a new job. The memo concluded with the following statement:
“Dark times also weed out bad companies, as we’re seeing right now. But those of us who believe in crypto will keep building great products and increasing economic freedom in the world. Better days are ahead, and when they arrive, we’ll be ready.”
Timeline of Coinbase layoffs
Unfortunately, this isn’t the first announcement from Coinbase that layoffs were coming. Last June, the company announced that it was laying off 18% of its workforce due to the upcoming crypto winter, a period where crypto prices decrease and remain low for an extended period of time.
Why is Coinbase laying off employees?
We’ve seen headlines over the past few months of layoffs across numerous industries. The layoffs are often tied to the same macroeconomic headwinds. With soaring inflation and aggressive rate hikes from the Fed, consumer spending has shifted, and investors are skeptical about investing in speculative assets. With consumers spending less money on specific categories, companies have to report lower earnings, leading to them cut expenses by laying off employees.
This excerpt from Armstrong’s memo summarizes everything that’s causing the crypto exchange to struggle heading into 2023:
“In 2022, the crypto market trended downwards along with the broader macroeconomy. We also saw the fallout from unscrupulous actors in the industry, and there could still be further contagion.”
The pandemic growth era has ended
During the pandemic months, tech companies went on a hiring spree as consumer spending habits shifted and more people were spending time online. Some of the biggest companies in tech and crypto have now started to announce layoffs as consumer spending habits have shifted in the post-pandemic era. Coinbase announced in February that they were planning on adding 2,000 jobs, only to start cutting employees a few months later.
Brian Armstrong mentioned in his memo how the company may have grown too quickly in 2021. This holds true for many other pandemic darlings we’ve covered here, like Stitch Fix and Carvana. These companies weren’t prepared for the eventual economic downturn that would come after record-setting revenue periods.
The crypto contagion continues after the FTX implosion
Last year, the collapse of Luna took down crypto exchanges and lenders. Then, as the market was struggling, the FTX implosion occurred in November. The comment about the unscrupulous actors likely refers to SBF and his cohorts and how they mishandled the funds of the FTX exchange. We’re still feeling the effects of this as attorneys try to figure out what will happen with creditors and consumers.
What made the FTX implosion worse is that a crypto winter was already setting in before the exchange worth $32 billion earlier in the year suddenly collapsed and took many casualties with it.
How’s Coinbase performing financially?
How did Coinbase get to this position? Before we look at the current financial performance of Coinbase, it’s important that we take a step back to see how it got here. Coinbase had a full-year revenue of $7.84 billion in 2021, a 500% year-over-year growth from the previous year, where they brought in $1.27 billion. When the overall crypto market skyrocketed from $192 billion in 2019 to its peak of almost $3 trillion in 2021, Coinbase was able to take advantage of this as new investors flocked to crypto exchanges in hopes of getting in on the action.
Coinbase shared its third-quarter earnings report on November 3, and the results caused the stock to drop at the time. The crypto exchange reported revenue of $590 million, below the analyst expectation of $654 million. This revenue drop presented a 50% drop from the previous year. The company also had a loss of $545 million, which was a steep drop year over year from the profit of $400 million. The exchange also mentioned that it had 8.5 million transacting users, down from 9.2 million users in the first quarter of the year.
Investors shifted away from this speculative asset class when the crypto market dropped, and due to various contributing factors, Coinbase has cut 2,100 employees since June 2022. Coinbase has yet to share a date for when they will deliver the 2022 fourth-quarter earnings. The exchange had $5 billion in cash and cash equivalents at the end of the third quarter, so there should be no concerns about bankruptcy or dire financial issues.
What’s next for Coinbase stock?
Coinbase Global Inc. (COIN) is currently trading at $49.98, which means that the stock price is down about 78% from one year ago. Coinbase shares have gone up in 2023 on the news of the cost-cutting measures, along with the positive news from the FTX hearing, where advisers announced that they had recovered about $5 billion in crypto and cash that could potentially be used to repay creditors. This positive news has led to the stock price going up about 48% in 2023.
It’s also worth noting that Cathie Wood’s ARK Innovation ETF (ARKK) had added 74,792 shares of Coinbase, according to an investor email. This is a positive sign as it indicates investor confidence in the exchange heading into 2023.
Should you invest in Coinbase?
The biggest issue with investing in a crypto exchange is that the price depends on the overall crypto market. Some analysts feel that the crypto winter is going to drag on. Here are two important considerations before investing in Coinbase right now.
Overall macroeconomic factors
When it became evident last year that inflation wasn’t transitory, the Fed started to raise rates, which led to sell-offs in the stock market and the crypto space on fears that the monetary policy tightening could tip us into a recession. While the recent CPI inflation data showed that inflation is easing up, we still have to see how the Fed will react after the next FOMC meeting later in the month.
Crypto investor confidence
It’s difficult to quantify this factor, but it’s evident that investor confidence has sunk in the crypto space after the scandals and bankruptcies that have wiped out billions of dollars. For the crypto exchange to increase its revenue, investors have to return to this space, which could be challenging as the FTX situation shakes out.
How should you be investing?
As the crypto market struggles to recover, it’s riskier than ever to be investing your money in digital assets. While the crypto space had plenty of highs in the last few years, the prices of every form of cryptocurrency have plummeted in the past year.
If you’re looking to invest in cryptocurrency, you may want to consider our Emerging Tech Kit, which helps spread risk across the industry rather than investing in a single coin or company. If you’re looking for something more stable, less speculative, and even less affected by the current volatility in the market, check out the Large Cap Kit.
Q.ai takes the guesswork out of investing. Our artificial intelligence scours the markets for the best investments for all manner of risk tolerances and economic situations. You can activate Portfolio Protection at any time to protect your gains and reduce your losses, no matter what industry you invest in.
The bottom line
We’ve seen the price of ether and bitcoin go up in 2023 as the crypto market reacts favorably to the news of FTX advisers finding about $5 billion in crypto and cash, along with the positive CPI inflation data that just came out.
However, bitcoin has fallen from its all-time high of around $69,000 in late 2021, and over $2 trillion has been wiped out from the crypto space. Crypto fanatics are no longer calling for bitcoin to reach $100,000; many are just hoping we get through this crypto winter. There seems to be optimism regarding Coinbase as the stock price has gone up based on the recent cost-cutting measures, but time will tell what this means for the long term.
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