The cryptocurrency crisis hits Coinbase, the main exchange platform for these assets. The company this Tuesday notified the United States Securities and Exchange Commission (SEC) of the implementation of a plan to lay off about 950 employees as part of a realignment of its workforce, which currently totals about 4,700 employees. The company had already announced job cuts of 18% in June. The new wave of layoffs will be completed in the second quarter of this year.
The company’s co-founder and CEO, Brian Armstrong, has detailed his decision on the company’s blog. “Coinbase is well capitalized and crypto is not going anywhere. In fact, I believe that recent events will ultimately greatly benefit Coinbase (bankruptcy of a major competitor, emerging regulatory clarity, etc.) and validate our long-term strategy. However, it will take time for these changes to bear fruit and we need to ensure we have the right operational efficiencies to weather the downturns in the cryptocurrency market and capitalize on any opportunities that may arise. As a result, I’ve made the difficult decision to cut our operating expenses by about 25% quarterly, which includes laying off about 950 employees. All affected team members will be informed today,” he wrote.
Coinbase was the lifeline that the desperate FTX tried to hold on to before going bankrupt. It is the premier cryptocurrency exchange market and was hit by the bursting of the bubble that had caused bitcoin and other cryptocurrencies to rise like foam. With his fall, several companies in the industry have filed for bankruptcy and created distrust among investors and customers. “We’ve seen the fallout from unscrupulous players in the industry, and there could be more contagion,” Armstrong points out, apparently referring to Sam Bankman-Fried, the founder of FTX, who has been charged with seven felonies for managing and bankrupting his market is accused.
Coinbase itself recently agreed to pay New York State a $50 million fine for significant failings in its regulatory compliance program, which violated state banking statutes and regulations on virtual currencies, money transmitters, transaction monitoring, and cybersecurity. These rulings left the Coinbase platform vulnerable to serious criminal behavior, including but not limited to examples of fraud, potential money laundering, alleged activity involving child sexual abuse material, and potential drug trafficking. In addition to the penalty, Coinbase agreed to invest an additional $50 million over two years to fix the issues.
With the new layoffs, the company estimates that it will incur total restructuring costs of between $149 million and $163 million, of which between $58 million and $68 million will be cash and other severance payments. Compensation spending will equate to between $91 million and $95 million in shares. The company expects to recognize virtually all of these expenses in the first quarter of 2023.
Armstrong points out that the reduction last year, when the market started to deflate, should have been larger in hindsight. “I want to make it clear that while some of the factors that have brought us to this point are beyond our control, the responsibility rests with me as CEO,” he said in his message to employees. “When looking at our scenarios for 2023, it became clear that we needed to reduce costs in order to increase our chances of being ahead in all scenarios. While it’s always painful to be apart from our colleagues, there was no way we could reduce our expenses enough without considering changes in the workforce,” he adds.
Coinbase employees in the United States receive a minimum of 14 weeks of base salary, plus two additional weeks for each year of service, health insurance, and other benefits. For those from outside, they will act in accordance with each country’s labor legislation.
At the same time, the company has informed the SEC that it expects to stay within the $500 million negative gross operating profit limit it announced in its letter to shareholders in early November.
Armstrong remains optimistic about the future: “Despite everything we’ve been through as a company and as an industry, I remain optimistic about our future and the future of cryptocurrency. Progress isn’t always a straight line, and sometimes it feels like we’re taking two steps forward and one step back. But just as we’ve seen with the internet, top companies not only survive, but thrive in bear markets by being rigorous in managing costs and continuing to innovate products.” “Better days are coming, and when they come, we will be ready” , he concludes.
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