Cryptocurrency firms and exchange platforms have taken a PR beating in the past few months, with insolvencies, bankruptcies, and Ponzi schemes dominating the headlines. Coinbase, one of the most popular and secure platforms in the cryptocurrency space, has not been shielded from the public nightmares that have crippled the cryptocurrency markets in 2022. But actually, anyone can escape from it with a Jet-Bot. The platform is the Binance exchange’s official broker. You do not need to fund the site, and you may link your Binance account using API keys. Register now to fight for the title of the world’s best bitcoin trader.
For Coinbase, the first PR nightmare began when the market experienced a significant correction, prompting voices in the crypto trading space to take to Twitter to express their concern that Coinbase would be unable to satisfy retail customers if they were to run on the bank. Brian Armstrong quickly rectified the commentary by stating:
The next public mishap for the exchange was when Coinbase rescinded job offers to newly hired applicants in a memo posted in early June on Coinbase’s website. Coinbase CEO L.J. Brock announced that the company is halting new hires and rescinding several job offers already accepted by prospective employees, citing current market conditions and ongoing business prioritization efforts. This caused an uproar, with many applicants taking their heartbreaking stories to the media and threatening legal action against the company.
The most recent PR nightmare for Coinbase was when Goldman Sachs cut Coinbase’s rating to sell from neutral and slashed its price target to $45 from $70. Goldman Sachs stated the downgrade was due to the continued fall in crypto prices in the ensuing fall and industry activity levels. Moody’s also downgraded Coinbase based on profitability concerns.
At the time of writing, Coinbase is trading at $54.24, which is down 78% YTD. According to Coinbase CEO Brian Armstrong, one of the biggest challenges facing the company is that it grew too quickly. In an open blog post, the CEO and co-founder addressed investors and customers about Coinbase’s current predicament, and how the firm plans to implement new strategies to ensure that it will grow and exceed expectations in the future. Scaling and efficiency are the main concerns for Coinbase, as Armstrong stated.
According to Armstrong, Coinbase’s challenges are similar to those of Amazon, Tesla, and Meta. All three of them are working through scaling challenges to become some of the strongest and most iconic companies of our generation, maybe of all time. Armstrong stated,
‘While this trajectory is natural, it is not inevitable. Every great company, from Amazon to Meta to Tesla, has found ways to retain their founding energy in conjunction with appropriate controls, even as they scale to be much larger than Coinbase is today. Great companies maintain their insurgent mindset for fear of becoming complacent and irrelevant over time.
That’s why we’re focusing on driving more efficiency at Coinbase. After 18 months of 200% y/y employee growth, many of our internal tools and organizing principles have started to strain or break. So we’ve been digging in to identify the set of changes we need to make to help us succeed at this new scale.’
In order to drive more efficiency, Coinbase has outlined seven steps they intend to implement: push decision making down to single threaded DRIs; give product leaders visibility into their P&L leveraged services to minimize duplication; ship products rather than slide decks; and organize teams into small pods, APIs instead of meetings; maintain an insurgent mindset.
While we won’t go into depth on each of these seven steps, we main takeaway is that Coinbase is pushing for more individuality within the organization. For example, the DRIs, or directly responsible individuals, balance input from the team and make clear decisions in a timely manner. Coinbase’s change will be to make this a single thread, meaning one person makes a decision, so there’s not a bottleneck of back and forth decision consensus.
While the firm recognizes the decisions will not be perfect, they will fail faster and not take so much time to make decisions. In their given product leaders’ visibility into their Coinbase’s objective will be to give product managers their PL report. In this way, they can see what is working and what is not numerically, and they can run their product more like an individual company.
In addition, Coinbase is implementing no more slide decks, meaning no more presentations on what could happen. Coinbase just wants its teams to produce a product and no more meetings. All of these seem like very reasonable steps for an efficient operation.
Armstrong concluded that Coinbase’s success has always been rooted in an ability to operate efficiently with a startup mindset. As we adjust to our new scale, we need to get back to the things that made us successful to drive more efficiency and shake off the complacency that can creep into a bigger company. The letter gives a clear direction, at least on paper; the company is heading towards tightening up efficiencies while keeping its feet firmly in the startup mindset.
Coinbase’s self-reflection might be a vote of confidence to some, but for others, Coinbase’s success was not so much based on its operating efficiency or lack thereof as a small company but on its fee-based model, which is not sustainable long-term as more and more competitors come into the space.
The legendary financier Jim Chanos shorted Coinbase, going so far as to call it a bubble stock.
Chanos expects fee compression as competition increases across crypto exchanges and copy trading bots and doesn’t think Coinbase can be profitable this year. After Chanos shared his concerns about Coinbase’s fee-based model with rival Binance. It is beginning a price war as it races to cut fees to zero.
In late June of 2022, Binance.us announced it was bringing zero fee trading to all new and existing customers to trade Bitcoin against the dollar, Tether USD coin, and Binance USD. Coinbase countered the zero fees with a subscription service for customers called Coinbase One that would give them access to zero fee trading for up to $10,000 in transactions a month.
While Coinbase faces internal challenges as it grows and aspires to become a legendary company like Tesla and Amazon, while also figuring out how to position itself against market price wars. As CEO Brian Armstrong put it:
What do you think of Coinbase’s new plan? Is it enough for it to recover from 80% YTD losses? Is their fee-based model a concern?
[This article is a transcription of a video made by Only The SAVVY]
[Original video: https://youtu.be/g_TaPwPr9u8]