“Today I am making the difficult decision to reduce the size of our team by about 18 per cent to ensure we stay healthy during this economic downturn,” Coinbase chief executive and co-founder Brian Armstrong said in an email to employees, which was posted on the company's blog on Tuesday.
“I take accountability for how we got here. I am the CEO, and the buck stops with me.”
Cryptocurrencies have recorded a steep decline amid negative investor sentiment over fears of bigger US Federal Reserve interest rate increases to tame rising inflation.
On Monday, Bitcoin shed as much as 10 per cent to reach $20,824, its lowest level since December 2020. Since then, it has pared some of the losses and was trading at $22,073 as of 5.45pm UAE time on Tuesday. Ether continues to nurse losses and was trading at $1,212.81, while tokens such as Solana, Cardano and Avalanche have returned to positive territory, according to Coinbase.com.
“Sentiment for cryptos is terrible as the global crypto market cap has fallen below $1 trillion,” said Edward Moya, senior market analyst at Oanda.
A drop below the $20,000 level could lead to “even uglier” price action, he added.
The move by cryptocurrency lender Celsius to freeze withdrawals on Monday exacerbated worries about the stress in the digital asset sector, which was already on tenterhooks after the collapse of the Terra/Luna ecosystem.
Mr Armstrong blamed fears of a looming recession, a need to manage spending and increase efficiency, and over-hiring as the main reasons to lay off Coinbase employees, after holding consultations with the executive team and board over the past month.
“We appear to be entering a recession after a 10-plus year economic boom. A recession could lead to another crypto winter and could last for an extended period,” Mr Armstrong said.
“In past crypto winters, trading revenue has declined significantly. While it’s hard to predict the economy or the markets, we always plan for the worst so we can operate the business through any environment.”
San Francisco-based Coinbase had 1,250 employees at the beginning of 2021 during “the early innings of the bull run and adoption of cryptocurrency products was exploding”, he said.
“We saw the opportunities, but we needed to massively scale our team to be positioned to compete in a broad array of bets. While we tried our best to get this just right, in this case it is now clear to me that we over-hired,” Mr Armstrong said.
He explained away laying off employees to “ensure we can successfully navigate a prolonged downturn”.
“Our team has grown very quickly [more than four times in the past 18 months] and our employee costs are too high to effectively manage this uncertain market. The actions we are taking today will allow us to more confidently manage through this period even if it is severely prolonged,” he said.
The resourcing changes being made will allow Coinbase to become more efficient, according to his email.
All affected employees will have their access to Coinbase networks cut off.
“Given the number of employees who have access to sensitive customer information, it was unfortunately the only practical choice to ensure not even a single person made a rash decision that harmed the business or themselves,” Mr Armstrong said.
Employees who were laid off will receive 14 weeks of severance pay and an additional two weeks for every year of employment beyond one year. They are also entitled to four months of health insurance in the US and four months of mental health support globally.
They will receive an invitation to have a direct conversation with an HR business partner and a senior leader in the organisation.
The employees will also have access to a talent hub to find new jobs in the industry, including Coinbase Ventures’ portfolio companies, the email added.
“I realise it may take longer in this environment to find new employment and so my hope is that this financial and non-financial assistance helps make this unexpected transition for you as seamless as possible,” Mr Armstrong said.
“To our colleagues who are departing, I want to say thank you for giving everything to this company and that I am sorry. I hope that as we grow again, we get a chance to hire you back. We would not be where we are today without your hard work and dedication.”
He told existing employees that the company “made these hard decisions” to ensure their future is bright.