What is happening at Coinbase? Another 20% of employees laid off

An oh. COINBASE announced today that it is once again reducing many of its staff. A blog post announced Tuesday morning's reductions, representing an additional 950 jobs. 18 per cent of the company's workforce had already been laid off in June. That means that over the past six months, 35 per cent of its employees have lost their jobs.

“With perfect hindsight, looking back, we should have done more. The best you can do is react quickly once information becomes available, and that’s what we’re doing in this case” – CEO Brian Armstrong in an interview with CNBC.

Why does Coinbase continue to lay off workers?

I wrote a deep dive on the state of the exchange in October, after it was revealed that CEO Armstong was selling 2% of his stake. Coinbase traded for $63 on that day. Today, it is at $38. If you thought Bitcoin was bad, Coinbase has been worse. It has now decreased by more than 90 per cent from the price at which it was released.

It currently has a market capitalization of less than $10 billion, with a brief market capitalization of $86 billion on its first trading day.

Coinbase stated that lay-offs will reduce operating costs by 25%, if taken together with other restructuring. However, there will be an increase in operating expenditures from $149 million to $163 million for the first quarter due to cutbacks.

"it has become clear that we should cut spending to increase our chances of getting it right in all scenarios.", armstrong added, before claiming that it was "impossible" to do so without the dismissal of employees, and adding that a number of projects with a "lower likelihood of success" will be closed.  

Could the situation worsen in cryptography?

While crypto markets have got off to a hot start this year thanks to positive macro and inflation data, Armstrong ominously warned that there is “still a lot of market fear” in crypto following the FTX collapse, and that there are likely “more shoes to drop” when it comes to contagion spiralling through the industry.

Of course, dismissals were not confined to the crypto market. Technology companies like amazon, salesforce and meta have reduced their workforce by thousands in recent months. Technology is notoriously volatile and with low earnings the norm, with valuations derived from discounting future pledges, high interest rates have punished the industry.

But the coins did something wrong. An apparent lack of risk management with respect to the Bitcoin price, given how correlated the fortunes of the business are to the crypto market, has cost them. A quick look at the graph above shows that the Bitcoin price and the basic stock of currency very well move in tandem.

The first wave of layoffs in June took place just four months after the company spent $14 million on a super bowl ad, which, in hindsight, pointed to the very poignant summit of the cryptography market. Ftx and CRYPTO.COM also spent millions on high-profile advertisements in the great game. Armstrong also admitted during the first round of layoffs that the business had grown too fast.

What is the next step regarding cryptography?

For cryptography, this new take alone means little. This is just an anecdote that highlights the extent of the devastation of the past year. Coinbase was the industry's barometer, the first high-level cryptography firm to go public, at a time when most expected a large number of firms to follow.

But the market has undergone a complete transformation. And bounce it off, There is no other way of saying this: the macroeconomic climate must be relaxed in such a way that the climate of interest rate tightening can be eased. Cryptography trades as a high-risk asset, which is why weak monetary policy and subsurface interest rates over the last decade have driven it into a frenzied state.

That is the end of it. But with inflation seemingly easing at the beginning of the year, there is renewed hope that the Federal Reserve could return to a "normal" monetary climate earlier than initially expected. Then, and only then, can crypto investors start to think of moving vertically on the graphics.

For the time being, this is a wait-and-see approach, with the next big data on inflation on Thursday.