Brian Armstrong, the CEO of the largest cryptocurrency exchange in the United States, traveled around the world in early April to make an announcement: Coinbase was bringing crypto to India.
In an auditorium in Bangalore, Armstrong, wearing a type of loose buttoned shirt popular in India, said that Coinbase plans to set up a center of 1,000 employees there by the end of this year. The company was investing in Indian startups and allowing local customers to buy and sell digital currencies on its exchange. For Coinbase, it was an opportunity to transform finance in a country of over 1 billion people and woo new customers from across Asia.
“Hello,” Armstrong announced. “We approach with humility and respect.”
But that week, Coinbase got some bad news. A government-backed group issued a statement saying the company would be unable to use a key payment platform – a system that used to allow Coinbase customers to convert their rupees into virtual currencies such as bitcoin and ether. Shortly after its grand opening, Coinbase halted most of its trading services in India.
Coinbase rose to prominence as one of the first major crypto companies, a gateway to the chaotic world of digital assets for amateur investors. But as it has grown from a plucky startup to a publicly traded company, its position as an industry leader is threatened by a number of missteps over the past six months and a massive slump in the crypto market.
Coinbase’s poor start in India, a largely untapped market for crypto, was a symbol of failures that upset employees and drove the company’s share price up. In June, Coinbase fired 18% of its employees.
Over the years, Coinbase has aspired to become the Google of crypto, as some employees have said, a world-changing business with global reach and a wide range of products. Instead, the company is at risk of ruining its head start, according to interviews with crypto experts and 23 current and former Coinbase employees, as Nimbler competitors like FTX and Binance continue to expand despite the downturn.
“It has become a chaotic situation for them,” said Dan Dolev, an analyst at Mizuho, the financial firm that tracks Coinbase. “It’s the perfect storm.”
Some insiders attribute Coinbase’s problems in part to strategic missteps by executives that Armstrong tapped to convert the company to cryptocurrency. As crypto prices increased, Coinbase hired thousands of new employees, leading to overspending and bloat.
Some of the recruits came from Silicon Valley giants such as Google and Meta, including top executives. Now employees say the company cannot be identified with the company that dominated crypto’s early years, with some leaders lacking deep experience in the industry.
Despite its early debut, Coinbase has never had a strong hold on the international market, which is dominated by Binance. The company moved to India despite widespread uncertainty about how the government would react, an approach considered unwise by industry experts.
Then, in the spring, Coinbase unveiled its most hyped product of the year, a marketplace for non-fungible tokens, the digital collectibles known as NFTs. But the market failed to capture much interest and was criticized by NFT fans.
Not all of Coinbase’s recent conflicts are of their own making. Trading has declined due to a sharp drop in crypto prices, which account for the vast majority of the company’s revenue. As the largest crypto company in the public market, Coinbase bears the brunt of wider industry problems, with its stock price fluctuating in parallel with bitcoin and other volatile cryptocurrencies. (The company got a boost this week when it announced a partnership with BlackRock, the world’s largest asset manager. Its stock was up nearly 5% at the close of trading Thursday.)
Armstrong declined to be interviewed. But five of his top executives defended the company’s performance. In a series of interviews, he stated that Coinbase was developing a range of crypto products, some of which may take time to catch on, and emphasized that the company has faced past recessions.
Chief Operating Officer Emily Choi said that Coinbase’s business model — in which trading fees keep the company running while other projects develop — is similar to the approach of major tech companies like Meta, which advertise for long-term bets. Depends on the dollar.
“The way we work, that’s how we’re always going to act,” Choi said. “Long-term focus on the future.”
Coinbase was founded in 2012 by Armstrong and Fred Ehrsam, a former Goldman Sachs trader who now runs a crypto investment firm. In an industry riddled with fraud, Coinbase has established a reputation as a secure, easy-to-use platform for buying and selling crypto. But as the business grew, Armstrong’s leadership sometimes attracted internal dissent: In 2020, black employees complained of discriminatory treatment.
In April 2021, Coinbase went public at a valuation of $86 billion, making Armstrong one of the wealthiest executives in crypto. The company became a household name, best known for its memorable Super Bowl ad featuring a bouncing QR code.
But as Coinbase grew, some employees worried that it was not doing enough to compete with FTX and Binance in the international market, especially as US regulators considered cracking down on the industry.
In 2019 and 2020, Coinbase executives discussed opening an international hub in Singapore, according to three people familiar with the conversation. The company recognizes the need to compete with Binance by offering a wider range of tokens as well as derivatives trading products that are banned in the United States, the people said. But this project never came to fruition.
Recent attempts at international expansion have been established. In India, Coinbase said it will plug in a popular, government-backed payment system called the Unified Payments Interface. But soon after Coinbase’s announcement, the National Payments Corporation of India, a public-private conglomerate that runs UPI, tweeted that it was “not aware of any crypto exchanges using UPI.”
Soon, Coinbase cut off access to India; Local customers can still use the exchange to trade one type of crypto for another, but they cannot buy digital assets with traditional currency. In an earnings call in May, Armstrong said the company had faced “informal pressure” from Indian authorities.
“Our priority is to really work with them and focus on the relaunch,” he said.
The fanfare of the launch of Coinbase fooled others in the crypto industry. In private discussions with the industry, Indian regulators suggested they were cautious about openly endorsing crypto, according to someone involved in the conversation, and would prefer companies to take a more measured approach.
Coinbase “underestimated the potential support from the government,” said Prashanto Roy, a technology policy advisor in India. “It went overboard.”
In an interview, Coinbase executive Nana Murugesan, who oversees the international expansion, said the company moved to India despite the uncertainty as it wanted to clarify the regulatory situation in the country.
“Action produces information,” Murugesan said. “We want to learn from this information and advance our decision making and next steps.”
Over the years, Coinbase has tried to expand in other ways by creating a suite of products and services. Still, in the first quarter of this year, nearly 90% of its revenue came from trading fees.
Coinbase began working on the NFT marketplace last year, with a team that eventually grew to around 30 engineers, designers, and other employees. Armstrong promoted the project, saying that NFTs are “as big or as big as they can be” compared to Coinbase’s cryptocurrency business.
But according to three people familiar with the situation, market development was a painful process, slowed down by disagreements about what the product should look like and what types of customers it should target.
The project was led by Sanchan Saxena, a recent recruit from Airbnb, who envisioned an Instagram-style site built to showcase users’ NFT collections. Some employees working at the marketplace were skeptical that the idea would go ahead, two people said, as NFT traders often treat commodities as vehicles for speculative bets rather than digital art.
Saxena said in an interview that Coinbase expects to unveil the market in the first quarter of this year. But it got delayed till the end of April. By that time, the broader NFT market had collapsed: more than 80% had been driven by a drop in sales.
After its release, the market received scathing reviews. In the last week of July, it generated about $24,000 in trades per day; Its main competitor, OpenSea, which acts as a sort of eBay for NFTs, generated 600 times that amount.
Saxena said the Instagram-style approach was aimed at creating the type of crypto community that exists on sites like Twitter and Discord.
“We are still pursuing this product. We are not going to throw in the towel,” he said. “We probably could have done a better job of explaining that ‘Hey, our focus is Web3 Social first and foremost. .'”
In the 18 months before the crypto market crash, Coinbase’s workforce more than quadrupled, growing from 1,250 to 6,100. (A spokesperson said the company placed “a lot of emphasis” on hiring employees with strong crypto backgrounds, particularly those in key product development roles.)
But according to five people familiar with the company, as Coinbase grew, projects began to feel overstuffed and the decision-making process slowed amid layers of bureaucracy. “Longtime employees were concerned that new hires felt “rudderless,” one person said, and joked that you can tell the length of someone’s tenure at Coinbase by how often new recruits turn to them for help. Returns.
Even the Super Bowl ad didn’t come nearly as well: As the game drew to a close, Coinbase hadn’t settled on an idea and employees balked at the possibility of selling the airtime back, according to two people familiar with the matter. discussed.
The bloat was particularly severe on Coinbase’s customer-service team. New staff members often felt they didn’t have enough to do. “I got maybe four calls a day for a while,” said David Visini, a customer-service employee. “It was dead, dead, dead.”
Chief Operating Officer Choi acknowledged that Coinbase was “overhired” during the pandemic, adding that it was difficult to integrate new recruits in remote environments.
“I don’t know if we had exactly the right tools to set them up for success,” she said.
The crypto market crashed in May, causing Coinbase’s share price to drop nearly 60%. In the first quarter, Coinbase’s revenue fell 27% from a year earlier to $1.17 billion, even as its spending more than doubled to $1.72 billion.
Its competitors seem to be doing well. FTX CEO Sam Bankman-Fried said in an email that their financial results were the same “ballpark” as last year, when the company reported profits of nearly $350 million. Binance, the world’s largest exchange, declined to reveal revenue figures. But in June, the company’s founder and CEO Changpeng Zhao announced that he was recruiting for 2,000 open positions.
That month, Coinbase employees circulated a petition demanding the removal of several top executives. Armstrong responded aggressively on Twitter, calling for disgruntled employees to step down. But at a staff meeting, he and other executives struck a more conciliatory note, saying that employees should keep faith in crypto, and that the company will emerge stronger from the turmoil, according to two people.
A few days later, the company laid off 1,100 employees.