As crypto exchange Coinbase faces industry challenges and economic headwinds, the company is taking a close look at where it can cut costs, CEO Brian Armstrong told CNBC’s Kate Rooney.
Coinbase shares have lost more than 70% of their value this year as the company has grappled with a “crypto winter” tied to the plummeting of bitcoin and ethereum. Armstrong said the downturn is not unusual, as Coinbase has been through four down cycles in the 10 years since he started the company.
Coinbase is facing inflationary pressures and a potential recession, but Armstrong said the macro environment is reminiscent of what the company has dealt with in the past.
“We have this saying internally, I like to repeat a lot, which is you know, it’s never as good as it seems, it’s never as bad as it seems,” he said. “I think one of the reasons Coinbase has been so successful in the last 10 years is we just we try not to get focused on short-term ups and downs.”
Coinbase cut 18% of its workforce in June, and Armstrong previously attributed the layoffs to a possible recession and a need to manage the company’s burn rate and increase efficiency.
Armstrong said the layoffs were meant to be a one-time event, but that “anything could happen.”
“I can’t tell you what the world’s going to be like a year from now,” he said. Armstrong said Coinbase is looking closely at reducing costs related to marketing, external vendors and Amazon Web Services.
He added that the company is looking to convert as many fixed costs into variable costs as possible. That could mean Coinbase Super Bowl ads are a thing of the past, though Armstrong said there will still be a “variety of Coinbase ads out there.”
The bear case for Coinbase has been around potential pressure on trading fees, which accounted for more than 80% of revenue in the second quarter. Noted short seller Jim Chanos is among those betting against Coinbase, claiming that it over earns on fees and as “competition increases amongst the exchanges, you’re going to see fee compression.”
Armstrong said fees will eventually erode as they have in the stock brokerage industry. But Coinbase is not yet seeing price sensitivity.
“I do think there’s going to be margin compression, eventually it has to happen at some point because everything that we’re building, you know, others, eventually you’re going to build it and it’ll become a little bit more commoditized,” Armstrong said. “I’d like to get to a place where more than 50% of our revenue is subscription and services.”
That part of the business, subscription and services, has grown to roughly 18% of revenue from 4% a year earlier. It includes interest income, Coinbase’s premium membership, blockchain rewards and fees for storing crypto on the platform on behalf of customers.
Coinbase has also dealt with SEC scrutiny in recent months. The agency charged an ex-Coinbase product manager with fraud and launched a probe into whether the platform is illegitimately allowing users to trade digital assets that haven’t been registered as securities.
Determining how to classify cryptocurrency tokens is controversial, and Armstrong said he expects the company will receive some regulatory clarity after the midterm elections. If cryptocurrencies are considered commodities like other kinds of currency, they would be governed by the Commodity Futures Trading Commission. But many crypto projects are funded by the sale of speculative tokens.
SEC Chair Gary Gensler has said that “many of these underlying tokens have the attributes of securities” and need to be regulated as such to protect investors.
Armstrong said he’s happy to be working with the SEC.
“You know, we’ve been in actually engaging with regulators and I actually think it’s a good thing,” Armstrong said. “And our overall goal is really to help drive regulatory clarity on a global scale.”
Though Coinbase was started in San Francisco, it has no official headquarters and none of its employees are required to work in an office.
Armstrong said he thinks the remote-first structure has been positive for the company’s recruiting but that it has eroded some of the learning and development, creativity and trust. As a result, he said the company is trying to get employees together with some of their teammates in person at least once a quarter.
Coinbase’s mission statement says the company strives to be a “refuge from division” and does not “engage in social or political activism.” Armstrong gained a lot of attention from CEOs in Silicon Valley and beyond for a blog post he wrote in 2020, declaring that political debates about candidates are off limits.
Armstrong said he was “shocked” by the types of leaders who were reaching out to talk to him about it, but that he thinks the company has become almost too well known for its mission statement.
“I kind of want to just turn the page on it,” Armstrong said. “I’d rather be better known for our products and all the cool innovation that we’re doing, but, you know, in a way it was good that other companies found something interesting in it.”
“I think it’s net positive,” he said. “It’s given us access to a wealth of talent in small towns in various countries.”