Business management

Coinbase Layoffs: A Case Study of Crypto Firm Mismanagement

During the economic crisis, the volume of transactions in the crypto market decreased significantly. Many companies have had to cut staff in this downward trend, especially exchanges like Coinbase, Gemini, Crypto.com. These companies were too optimistic about the market and mass recruitment exceeded the business needs of the company.

However, other exchanges continue to recruit, such as CoinSpot, Binance or FTX, which shows differences in their visions, business management styles and recruitment strategies. This is evident in the case of Coinbase, one of the largest crypto exchanges with an IPO and is strictly regulated by US law. A company that sounds great but has many problems inside – Coinbase has unsurprisingly been forced to downsize.

Crypto Mid-Winter Shooting Trend

Gemini was the first exchange to announce that it would lay off 10% of its employees on June 2 and an additional 15% on July 19. Coinbase followed Gemini’s first announcement by canceling new hires on June 4. Crypto.com, Robinhood, Bitmex, BlockFi and Blockchain.com have each laid off some 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 course, many companies could announce layoffs or even close. The downtrend for most digital assets could worsen due to a stock market decline or a more volatile economic situation.

Coinbase and 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 its first day of trading, the exchange had a market value of $86 billion (fully diluted).

After 14 months, the company started to show cracks as the crypto winter undoubtedly arrived. The company announced its first-quarter 2022 results in May, showing a 27% drop in revenue from a year earlier and a net loss of $430 million. Retail monthly transaction users fell to 9.2 million from 11.4 million in the previous quarter.

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 workforce, will be made redundant. In a blog post on June 14, CEO Brian Armstrong struck an apologetic tone, saying the company was entering a recession after a more than 10-year economic boom and had to manage expenses and efficiency by cutting staff during a bull market.

CEO and co-founder of Coinbase, Brian Armstrong. Image: Techcrunch

Layoff notices were sent to individual email addresses. There may have been no better way to communicate with a remote workforce, as CEO Armstrong rejected the idea of ​​a previously designated headquarters as San Francisco. The mood was “anger, fury and sadness,” according to a story on The Block.

Employee discontent manifested itself in a petition calling for the dismissal of several senior executives. In early June, Armstrong tweeted, encouraging petitioners to “resign and find a business you believe in.”

Representative problems

Some of Coinbase’s problems are arguably the result of unforeseen market risks, while others are self-inflicted. While some observers believe Coinbase will overcome its difficulties as it has survived previous tumultuous cycles, others are quite critical of management and believe there are lessons to be learned. They claim that not only at Coinbase, but across the crypto, fintech, and startup scene, flaws in strategy and execution, corporate culture, and brand and reputation risk management necessitate special attention.

The obstacles encountered by Coinbase could be attributed to the young age of the company, the lack of enterprise risk management systems and the regulatory oversight of traditional financial institutions. Ironically, traditional businesses sometimes lament over-regulation. At the same time, Coinbase and many of its competitors have demanded greater legal certainty than that offered by the US Congress and federal regulatory agencies so far.

Coinbase tops crypto exchange job losses through July. Image: Exchange Invest Newsletter by Patrick L. Young.

“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 implications and the implications of their actions for stakeholders, as long as they’re making money…. But things can go wrong, like a market downturn, scandal or other external crises. Then they’re not equipped to handle this crisis and maybe even survive in the long run because they haven’t invested in those safeguards properly.

Opimas analyst Suzannah Balluffi, whose research reports include Will Coinbase Survive?, cites the “political and philosophical underpinnings” and “almost religious” fervor that have permeated the crypto industry, saying, “There is no is therefore not exempt from emotional decision-making”. Coinbase management “may have been distracted by lofty goals rather than focusing on customer service and business technology.”

User assets at risk

Scammers, fraudsters, and cybercriminals aggressively target Coinbase, in part because of its weak security measures and poor management.

According to a breach notice letter provided to affected customers of the Coinbase cryptocurrency exchange, between March and May 2021, hackers stole at least 6,000 Coinbase customers from accounts. Unauthorized parties gained access to accounts and transferred funds to cryptocurrency wallets not connected to Coinbase by exploiting a weakness in the company’s SMS account recovery process.

Recently, led by Georgia resident George Kattula, more than 100 Coinbase users filed a class action lawsuit against Coinbase in the U.S. District Court for the Northern District of Georgia. The complaint states, “Contrary to its representations, Coinbase does not properly employ standard practices to ensure the security of consumer accounts.”

“And Coinbase improperly and unreasonably prevents its consumers from accessing their accounts and funds, whether for long periods of time or permanently.” As digital assets are extremely volatile, with some losing up to 40% of their value daily, this can lead to substantial financial losses for users.

Worse still, the exchange has a reputation for not responding quickly to user complaints. Due to their inability to access their assets and customer support, users are placed in a difficult situation.

Along with Kattula’s lawsuit, Coinbase is also being sued for “gross mismanagement” by a shareholder, misrepresentation of its users in a class action lawsuit in New Jersey, and ongoing insider trading.

final verdict

Coinbase is an exemplary case study for corporate culture and risk in growing businesses where growth takes precedence over guardrails. Coinbase’s stock value continued to decline, and the exchange was the target of hacks and security-related lawsuits. Therefore, it is crucial for investors considering buying Coinbase shares to consider the potential risks. For users using Coinbase, be careful with your money in the Coinbase wallet.

Disclaimer: The above information is not intended to be and does not constitute financial advice. Any information available on this website is of a “general” nature and for informational purposes only.