Coinbase (NASDAQ: COIN) shares are down nearly 80% YTD as the crypto exchange business continues to struggle from falling digital assets prices and lower trading volumes.
Layoffs Needed to Cut Costs
Coinbase announced this week that it plans to cut about 18% of its workforce amid a sharp economic downturn and a potential recession. The crypto exchange employs around 5,000 full-time employees, meaning that the reduction will amount to 1,100 workers.
In an email to employees, Coinbase’s Chief Executive Brian Armstrong said the move comes due to a possible recession and the need to boost the company’s efficiency. He also noted that Coinbase grew “too quickly” amid the prior bull market.
“We appear to be entering a recession after a 10+ year economic boom. A recession could lead to another crypto winter, and could last for an extended period,” Armstrong wrote, pointing out that previous crypto winters substantially hurt trading activity.
“While it’s hard to predict the economy or the markets, we always plan for the worst so we can operate the business through any environment.”
Before announcing the layoffs, Coinbase first said it plans to temporarily halt hiring, which it later prolonged for the “foreseeable future.” The crypto exchange said its staff costs are too high to efficiently navigate the current market conditions, adding that the company is clearly “over-hired.”
Coinbase President and COO Emilie Choi said the workforce cut was a very difficult decision to make but the move felt like the wisest thing to do given the current economic and market environment.
Choi said the affected employees will still be able to access the talent hub to look for new jobs in the sector such as in Coinbase Ventures’ portfolio companies. On the other hand, the crypto exchange still plans to reinforce some of its areas like security and compliance and could be also redirecting some of its workforce towards short-term revenue drivers, added Choi.
Crypto Winter is Here
In its most recent fiscal quarter, Coinbase reported a decline in the number of active users and a 27% drop in its revenue year-over-year. The exchange earns most of its revenue from transaction fees, which are heavily dependent on trading activity.
Coinbase’s decision to reduce the workforce comes after a difficult year for the company’s stock, which remains down almost 80% year-to-date. The company made its public debut through a direct listing in April 2021 amid a strong bull market for crypto and tech stocks, which have made a sharp U-turn in 2022.
Shares of Coinbase slumped more than 11% earlier this week after Bitcoin plummeted to its lowest mark since 2020, below $20,000.
One of the main drivers behind the decline was crypto lending platform Celsius, which announced it was halting all withdrawals and transfers between accounts, citing “extreme market conditions.”
Coinbase’s rival Binance also paused BTC withdrawals earlier this week due to a stuck transaction that caused a backlog. Crypto lender BlockFi also announced layoffs due to the current market turmoil.
The total crypto market cap fell below $1 trillion Monday for the first time in more than a year, indicating a significant fall in investors’ confidence in riskier assets due to concerns over a potential recession as global central banks raise interest rates to curb the record-high inflation.
“What you’re seeing in the market is … fear, uncertainty and doubt. Technically, markets look oversold and there has to be some floor that we’re going to hit in bitcoin in the coming future,” said Nirmal Ringa, head of trading and technical analysis at ZebPay.
Bitcoin and S&P 500 are down 54% and 21% this year, respectively.
Shares of Coinbase are trading sharply lower this week after the company announced it is forced to cut roughly 18% of its workforce to fight plunging crypto prices and falling trading volumes on its platform.