The crypto-exchange giant Coinbase said Tuesday it was laying off nearly one-fifth of its workforce, a sobering sign that the challenges of the once blazingly hot industry go beyond those of troubled bank Celsius to the very heart of the crypto-investment world.
In an email to employees, Coinbase chief executive Brian Armstrong said the company would cut 18% of its workforce. The cuts will affect roughly 1,100 of its approximately 6,100 employees, he said. All were terminated immediately but will be given at least 14 weeks of severance.
The news follows developments late Sunday night in which the crypto bank Celsius said it was temporarily halting transactions, raising fears about the lender’s liquidity.
But with questions long mounting about that company’s solvency and business practices, Celsius can be written off by crypto boosters as an outlier. That is harder to do for Coinbase, a top barometer for the industry’s health. With a self-proclaimed 98 million users, the company is one of the main ways people buy and sell crypto assets, and warnings about its business augur darker messages about the fate of crypto as an investment class.
“A recession could lead to another crypto winter, and could last for an extended period,” Armstrong said in his email, referring to the period in 2018 when many cryptocurrencies plummeted in value before eventually regaining their losses and then some.
But the stakes are higher now than they were four years ago, as far more Americans have come aboard the crypto bandwagon. A study by Grayscale Investments found that 55% of all bitcoin holders bought the currency in 2021.
The Coinbase announcement comes as recession fears mount, tech stocks plunge and, most troublingly for the crypto world, the two leading coins plummet. As of Tuesday afternoon, bitcoin and ethereum had lost, respectively, 27% and 33% of their value over the previous five days. It follows the collapse last month of the financial products of Terra, which dragged down values for much of the market.
“How much worse can things really get anon? This is oof city,” wrote Larry Cermak, director of research for the crypto data company the Block Crypto, on Twitter on Tuesday. A moment later he posted, “Just remember, things can always get worse.”
At least one crypto veteran The Post spoke to, who spoke on the condition of anonymity to not appear to be criticizing a single company, suggested Tuesday’s news was Coinbase-specific. The person noted the company’s stock price had dropped 80% in the past six months.
But it’s unlikely that such significant challenges would plague a platform of that size without also affecting rivals like Binance and FTX. Both those companies are privately held and do not need to disclose financial performance.
The Federal Reserve is moving swiftly to hike interest rates with the goal of suppressing price inflation, but higher rates typically make investors more averse to riskier bets such as crypto and tech stocks.
Coinbase’s swoon has been dramatic.
In 2020, the year Coinbase went public, Armstrong made $60.5 million in total compensation, according to public securities filings, including a $1 million salary, $56.6 million in stock options and $1.8 million in “personal security” expenses.
Just four months ago, Coinbase had one of the hottest commercials on the Super Bowl, a minimalist spot involving a throwback DVR symbol and a QR code. The ad tripled installation of its app the day it ran and suggested a moment of cultural arrival. The company at that time said it would add 2,000 employees.
On Tuesday, Armstrong was humming a different tune. “It is now clear to me that we over-hired,” he wrote, as currency values continued to fall.
Still, despite popular perception of a crypto crater, a broad crash is more elusive. In the volatile world of crypto, a dip is often prelude to a resurgence, as investors thinking a bottom has been reached flood in, hoping for a score.
“Blood in the streets, that’s the time you pick up assets like bitcoin,” Cory Klippsten, the chief executive of SwanBitcoin, which offers products to facilitate bitcoin purchases for users, said in an interview Tuesday. He acknowledged Bitcoin’s plunge in recent months—about 65% since November—but said it had also dropped more than 80% in 2018 before hitting an all-time high last year.
Klippsten affiliates with a group known in crypto circles as the “Bitcoin Maxis.” Members of this informal clan (Twitter co-founder Jack Dorsey is one of its more famous adherents) believe that the early coin—with its more organic development and wider adoption—is vastly superior to all the other currencies, which they mostly deride. Klippsten has long called for accountability on Celsius and, as the company has unraveled in the past few days, has offered various promotions on Swan to those who suffered losses to attract those investors.
“This is a historically great time to get into bitcoin,” Klippsten said in the interview. “You’re somewhere near the bottom.”
Investors are aware of past major crypto rebounds—the price of bitcoin nearly sextupled from the fall of 2020 to the fall of 2021—and like a heist-movie character hoping to hit the big one, emerge once again.
They are fueled by social media, with its gold-rush talk as well as negative-reinforcement language. During periods of volatility, many crypto boosters go on the attack on Twitter with common evangelist refrains such as “Enjoy being poor” and “FUD”—crypto-shorthand that knocks skeptics for sowing “fear, uncertainty and doubt” for their own selfish reasons.
The goal at least partly is to create a frenzy that will prompt investors to buy or hold on to crypto at a moment they might stay away, ensuring the price stays high. If enough people act on such talk of a rebound, it can become a self-fulfilling prophecy.
Such assumptions have not been off-base: In the early hours of Tuesday, the price of bitcoin actually rose 9% before falling again.
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