Coinbase Shares Up 12% After Downsizing 20% in Wake of Large Settlement

We covered its large settlement backdated from a 2018 breach of regulatory policies on account creation best practices.

Now, Coinbase, a leading cryptocurrency trading platform, has announced plans to lay off approximately 20% of its workforce, or 950 employees, as it navigates the current economic conditions, banking recession, and disruptions within the cryptocurrency market.

In a statement on the company's website, CEO Brian Armstrong cited the recent collapse of rival cryptocurrency exchange, FTX, and the risk of “further contagion” in the sector. He also acknowledged that Coinbase had become “too focused on growing headcount as a metric for success”.

The cryptocurrency market has seen significant fluctuations over the past year, with Bitcoin experiencing a nearly 60% drop. These adverse conditions were further exacerbated by the bankruptcy of FTX in November after customers attempted to withdraw billions of dollars from the exchange due to questions about its financial stability.

The founder of FTX, Sam Bankman-Fried, has pleaded not guilty to charges of conning investors and stealing account funds on his platform.

This marks the second round of layoffs for Coinbase in less than a year, as the company previously announced the elimination of 1,100 jobs, or approximately 18% of its global workforce, in June. The company's shares dipped slightly before the opening bell on Tuesday.

The decision to cut jobs is a reflection of the challenging market conditions and the need for Coinbase to adapt and become more efficient in order to remain competitive in the rapidly changing cryptocurrency industry.

Market Responds Favourably to Coinbase Cuts With Shares Up 12%

Tuesday 12%

Shares of Coinbase (What is Coinbase? The Ultimate Guide), a leading cryptocurrency exchange, surged by 12% following the announcement of a significant reduction in its workforce. The company is planning to cut 20% of its employees, which totals about 950 jobs. 

This move comes as a surprise, especially after the company had already made cuts of 18% back in June during the market downturn. According to the CEO, Brian Armstrong, the company aims to return to its “start-up roots” and focus on building smaller, nimble teams. 

This decision is in contrast to the earlier plans of adding 2000 jobs in product, engineering, and design. This move by Coinbase aligns with the trend of tech companies that had gone on a hiring spree during the pandemic but are now facing financial pressures and economic uncertainty. 

Other companies such as Amazon, Salesforce, Meta, and Twitter have also reduced their workforce. However, despite the job cuts, Coinbase recently received regulatory approval to run cryptocurrency-related services in Singapore, which is a significant achievement for the company as it continues to expand internationally despite the ongoing challenges in the crypto market.

Wednesday 5%

On Wednesday, Coinbase experienced a further increase in its stock price, rising by over 5%. The cryptocurrency exchange has been under scrutiny for its compliance practices and recently reached a settlement with the New York State Department of Financial Services (NYDFS) over allegations that it failed to properly verify customer accounts.

As part of the agreement, Coinbase will pay a $50 (£41) million fine and invest an additional $50 million in improving its compliance procedures over the next two years. The NYDFS found that Coinbase's practices violated anti-money-laundering regulations and appointed an independent monitor to work with the company beginning in 2022.

Coinbase has been authorized to operate as a virtual currency and money transmission company in New York since 2017. However, the NYDFS had concerns about the company's compliance with know-your-customer and transaction monitoring rules.

In a statement, Coinbase's Chief Legal Officer Paul Grewal acknowledged that the company had failed to implement a robust compliance program in the past, but emphasized that it has taken steps to address these shortcomings and is committed to being a leader in the crypto industry, including working closely with authorities on compliance matters.

This settlement came to light in a New York Times post, and Coinbase is currently the second-largest crypto exchange by trade volume.

Takeaway: Era of Resilience, Coinbase Should Survive

Coinbase's stock continued to rise on Tuesday, building on Monday's rally when shares of the cryptocurrency exchange skyrocketed after analysts from JMP Securities expressed their belief in the company's potential for long-term success.

The analysts kept their positive rating on the stock and highlighted the ongoing “real-world innovation” happening in the crypto industry. They acknowledged that the recent failure of the crypto exchange FTX in November has dealt a blow to the industry, possibly pushing it back by several years.

However, the analysts noted that the crypto asset class is still in its early stages and cautioned against making definitive judgments at this point. Despite the current challenges faced by the industry, analysts believe that the most resilient companies, such as Coinbase, have the potential to not only survive but flourish in the long term.

Binance, one of the leading cryptocurrency exchanges, has seen a notable spike in withdrawals recently. Despite this, the company still holds a significant amount of assets, valued at over $58.9 (£49) billion, mostly consisting of Binance's own stablecoin BUSD, Bitcoin, Ethereum, and Tether.

However, in a short period of time, Binance's overall portfolio has experienced a drastic decline, losing $3.6 (£29) billion in just the last eight hours, according to data from Nansen's portfolio tracker.

Coinbase, a remote-first company that was established in 2012 and operates without a physical headquarters, has announced plans to incur significant restructuring costs.

The company estimates that these costs will range between $149 (£122) million and $163 (£130) million, with a significant portion of these costs, approximately $58 (£46)  million (£46 million) to $68 (£54) million, related to employee severance and other termination benefits.

Coinbase went public in April 2021 via a direct listing, bypassing the traditional method of hiring underwriters. Despite the challenges currently faced by the company and the broader crypto industry, financial analysts anticipate that Coinbase will weather the storm, with some ups and downs meanwhile.