The collapse of exchange platform FTX and the highly publicized prosecution of Sam Bankman-Fried, the company’s former chief executive, has produced hesitancy toward cryptocurrency products in recent months. Coinbase CEO Brian Armstrong said in a message to employees that “unscrupulous actors in the industry” and the potential of “further contagion” are presenting near-term difficulties for the company, which in turn necessitate cost reduction measures through which 950 employees will be dismissed.
Armstrong said that the failure of a “large competitor” and the increased “regulatory clarity” that will emerge from the collapse of FTX would produce long-term benefits for his company.
“But it will take time for these changes to come to fruition and we need to make sure we have the appropriate operational efficiency to weather downturns,” he remarked.
Armstrong added that Coinbase had survived multiple bear markets in the sector over the last decade, noting that the most recent selloff is the first in the company’s history to occur amid broader macroeconomic pressures.
“As we examined our 2023 scenarios, it became clear that we would need to reduce expenses to increase our chances of doing well in every scenario,” he continued. “While it is always painful to part ways with our fellow colleagues, there was no way to reduce our expenses significantly enough, without considering changes to headcount.”
The layoffs occur after Coinbase dismissed 18% of workers in June over concerns that the economy would enter a recession. The exchange rate for bitcoin, the digital asset with the largest market capitalization, has fallen from $22,500 in June to $17,400.
Armstrong said last year that past “crypto winters” have decreased trading volume and thereby impacted Coinbase’s primary source of revenue. Though the company had grown 200% year-over-year since the beginning of 2021, Armstrong concluded that he “over-hired” during the boom in popularity of digital currency products and services.
More recently, however, exposure of commingled funds between FTX and Alameda Research, a trading firm controlled by Bankman-Fried, prompted consumers to withdraw their assets from cryptocurrency platforms, inducing multiple liquidity crises. BlockFi, a lending platform, filed for bankruptcy days after FTX was rendered insolvent; firms such as Genesis indicated the looming possibility of bankruptcy, while Voyager and Celsius had already declared bankruptcy months earlier.
A survey conducted by CNBC and Momentive found that 60% of Americans see the risk of cryptocurrency investments as “high.” Another 26% see cryptocurrencies as moderately risky, while only 10% say the assets carry “little” or no risk.
Bankman-Fried, whose various connections in the federal government rose to public consciousness following the collapse of his companies, pleaded not guilty last week to eight charges, which include conspiracy to commit wire fraud, conspiracy to commit securities fraud, and conspiracy to defraud the Federal Election Commission through campaign finance violations.
Mark Cohen, a lawyer for Bankman-Fried who formerly defended Jeffrey Epstein confidant Ghislaine Maxwell, successfully requested that U.S. District Judge Lewis Kaplan permit the sealing of the names and addresses of two unknown individuals who secured a $250 million bond for Bankman-Fried.