During the economic crisis, the trading volume of the crypto market decreased significantly. Many companies have had to cut down their staff in this downtrend, especially exchanges like Coinbase, Swyftx, Crypto.com. These companies were too optimistic in the market, and the mass recruitment exceeded the company’s business needs.
However, other exchanges continue recruiting, like CoinSpot, Binance or FTX, which shows the differences in their visions, business management styles and recruitment strategies. This clearly shows in the case of Coinbase, one of the largest crypto exchanges with an IPO and is strictly regulated by U.S. law. A business that sounds good but has many problems inside – Coinbase has been unsurprisingly forced to cut its workforce.
Firing Trend Amid Crypto Winter
Gemini was the first exchange to announce it would be laying off 10% of its employees on June 2 and another 15% on July 19. Coinbase followed Gemini’s first announcement by cancelling new hires on June 4. Crypto.com, Robinhood, Bitmex, BlockFi and Blockchain.com each laid off part of their employees; the rate was up to 25%. In July, NFT marketplace OpenSea laid off 20% of its staff.
Until the crypto markets reverse their course, many companies could announce layoffs or even shut down. The downtrend of most digital assets could worsen due to a decline in the stock market or a more volatile economic situation.
Coinbase & Its Massive Layoff
The launch of Coinbase on the Nasdaq in April 2021 was hailed as a turning point for cryptocurrency. With its stock price closing at $328.28 on the first day of trading, the exchange had a market value of $86 billion (fully diluted).
After 14 months, the corporation started to exhibit cracks as crypto winter unmistakably arrived. The company announced its Q1 2022 results in May, revealing a 27% drop in revenue from the prior year and a net loss of $430 million. Retail monthly transaction users decreased from 11.4 million the previous quarter to 9.2 million.
In line with other cryptocurrency companies, Coinbase declared a hiring freeze, including the cancellation of accepted job offers. 1,100 people, or 18% of its staff, will be laid off. In a blog post on June 14, CEO Brian Armstrong struck an apologetic tone, saying that the firm was entering a recession after a 10+ year economic boom and needed to manage expenses and efficiency by reducing its workforce during a bull market.
Notices of layoffs were sent to individual email addresses. There may not have been a better way to communicate with a remote workforce because CEO Armstrong rejected the idea of a headquarters previously designated as San Francisco. The mood was “anger, fury and sadness,” according to a story on The Block.
Employee dissatisfaction manifested itself in a petition calling for the dismissal of several top executives. Early in June, Armstrong tweeted, encouraging the petitioners to “quit and find a company to work at that you believe in.”
3/ Second, if you have no confidence in the execs or CEO of a company then why are you working at that company? Quit and find a company to work at that you believe in!
— Brian Armstrong (@brian_armstrong) June 10, 2022
Representative Problems
Some of Coinbase’s issues are arguably the result of unanticipated market risks, while others are self-inflicted. While some observers think Coinbase will overcome its difficulties as it has survived earlier tumultuous cycles, others are pretty critical of management and believe there are lessons to be learnt. They claim that not only at Coinbase but also across the crypto, fintech, and startup scene, flaws in strategy and execution, corporate culture, and brand and reputational risk management require attention.
The obstacles Coinbase is experiencing could be attributed to the company’s youth, the lack of enterprise risk management systems, and traditional financial institutions’ regulatory supervision. Ironically, traditional businesses occasionally lament their excessive regulation. At the same time, Coinbase and many of its competitors have demanded greater legal certainty than the U.S. Congress and federal regulatory agencies have so far offered.
“The Coinbase case is representative of many others,” says Andrea Bonime-Blanc, founder and CEO of GEC Risk Advisory. “It’s that kind of mentality, where leaders don’t really care about the regulatory and the stakeholder implications of their actions, as long as they’re making money…. But things can go wrong, such as a market downturn, scandal, or other external crises. Then they’re not equipped to manage that crisis and maybe even survive in the long run because they haven’t invested properly in those guardrails.”
Opimas analyst Suzannah Balluffi, whose research reports include Will Coinbase Survive?, cites the “political and philosophical underpinnings” and “almost religious” fervour that permeated the crypto sector, saying, “It is therefore not free from emotional decision-making.” Coinbase’s management “might have gotten distracted by lofty goals rather than focusing on customer service and trading technology.”
User Assets At Risk
Scammers, fraudsters, and cyber criminals have been aggressively targeting Coinbase, partly because of its weak security measures and poor management.
According to a breach notice letter provided to impacted clients by the cryptocurrency exchange Coinbase, between March and May 2021, hackers stole at least 6,000 Coinbase customers from the accounts. Unauthorised parties gained access to the accounts and transferred funds to cryptocurrency wallets not connected to Coinbase by exploiting a weakness in the company’s SMS account recovery process.
Recently, under the leadership of Georgia resident George Kattula, more than 100 Coinbase users filed a class action complaint against Coinbase in the U.S. District Court for the Northern District of Georgia. The complaint says: “Contrary to its representations, Coinbase does not properly employ standard practices to keep consumers’ accounts secure.”
“And Coinbase improperly and unreasonably locks out its consumers from accessing their accounts and funds, either for extended periods of time or permanently.” With digital assets being extraordinarily volatile and some losing up to 40% of their value daily, this can lead to substantial financial loss to the users.
Even worse, the exchange has a tracked record of not promptly responding to user complaints. Due to their inability to access their assets and customer support, users are put in a difficult situation.
Along with Kattula’s complaint, Coinbase is also being sued for “gross mismanagement” by a shareholder, misrepresenting its users in a New Jersey class action case, and ongoing insider trading.
Final Verdict
Coinbase is an exemplary case study for corporate culture and risks at rapidly expanding companies where growth takes precedence over guardrails. The value of Coinbase’s stock has continued to decline, and the exchange has been the target of hacks and security-related lawsuits. Therefore, it’s crucial for investors who plan to purchase Coinbase stock to take into account any potential hazards. For users using Coinbase, be careful with your money in the Coinbase wallet.
Disclaimer: The information above is not intended to be and does not constitute financial advice. Any information available on this website is ‘general’ in nature and for informational purposes only.
