Coinbase Announces More Layoffs as Armstrong Warns of ‘Further Contagion’
Coinbase (NYSE: COIN) has announced that it would lay off around 950 people as it battles the continued crypto winter. The company’s CEO Brian Armstrong warned of further pain for COIN as well as the crypto industry.
Coinbase had around 4,700 employees at the end of September and the company did mass layoffs last year as well. To be sure, COIN is not the only crypto exchange that is laying off employees and it has pretty much been an industry-wide phenomenon.
Genesis recently announced that it would lay off around a third of its workforce while Huobi intends to lay off around 20% of its employees.
While cryptocurrency prices have been sliding since the market peak in November 2021, the sell-off only deepened after the FTX fiasco. In an apparent reference to FTX, Armstrong wrote in a blog post that “We also saw the fallout from unscrupulous actors in the industry, and there could still be further contagion.”
Notably, Coinbase did not have much exposure to FTX but the market sentiments soured after the fiasco. The bankruptcy and financial irregularities at the world’s second-largest cryptocurrency exchange dampened market sentiments.
Many have called the collapse of FTX the “Lehman moment” for the cryptocurrency industry.
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Coinbase Announces Mass Layoffs amid Crypto Winter
Along with lowering its workforce, Coinbase said that it would be “shutting down several projects where we have a lower probability of success.” Armstrong added, “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.”
While many predict the demise of the crypto industry amid the turmoil, Armstrong struck a defiant tone on both the outlook for the industry as well as Coinbase.
He said, “Coinbase is well capitalized, and crypto isn’t going anywhere. In fact, I believe recent events will ultimately end up benefiting Coinbase greatly (a large competitor failing, emerging regulatory clarity, etc.), and they validate our long term strategy.”
Notably, there is a global chorus to better regulate cryptocurrencies. Market participants agree that better regulatory oversight of digital assets would help the market in the long term. There is a beginner’s guide to trading in cryptocurrencies.
Armstrong meanwhile emphasized that these changes would take time and in the meantime, the company needs to be agile and efficient to not only survive the slump but also capitalize on any opportunity that might emerge.
Wall Street Analysts Are Mixed on COIN Stock
While almost all the analysts have lowered COIN’s target price, their opinion is divergent when it comes to the company’s outlook. This year only many brokerages including Cowen and JMP have lowered Coinbase’s target price. Jefferies also initiated coverage on the stock with a hold rating and a $35 target price.
KBW went a step further and listed COIN stock as among the best short trade ideas for 2023. Notably, as US stock markets plummeted last year, short sellers netted billions of dollars betting against once red-hot names like Tesla, Apple, and Amazon.
Meanwhile, some others see an opportunity in Coinbase. Being a listed company, Coinbase’s finances are quite transparent, unlike the privately held and unregulated exchanges.
Coinbase had around $5 billion as cash and cash equivalents on its balance sheet at the end of December which provides it with a cushion amid the continued crypto winter.
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Oppenheimer Finds Coinbase Stock a Good Buy
Oppenheimer echoed similar views and advised buying Coinbase stock. Analyst Owen Lau said, “While painful near term, Coinbase can be one of the few long-term survivors in this space, which we think makes it attractive.” There is a guide on buying Coinbase stock.
Meanwhile, Coinbase estimates that it would incur a charge of between $149-$163 million from the restructuring. This would include $58-$68 million towards severance benefits. Armstrong said that the company would provide a minimum of 14 weeks of base pay to US employees which would rise by two additional weeks for every year worked.
COIN stock is trading sharply higher in early price action today after previously whipsawing in the premarket price action. Gold has also surged to multi-month highs as investors seek solace in safe-haven assets.
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