The announcements of various US crypto exchanges worry investors globally. Coinbase is cutting spending on new projects and staff in these difficult times, Gemini will lay off 10% of its workforce, and FTX is diversifying into equity trading. Does their business model work in troubled markets?
Both Gemini and Coinbase are downsizing their teams. In addition, they are cutting expenses to wait out a looming "crypto winter." This follows a difficult quarter with significantly lower revenues for crypto exchanges around the globe, attributed to collapsing volumes.
Reduction to the essentials
In addition to plans to lay off about 10% of its workforce, Gemini will only focus on projects that are essential to its mission and vision. It is unclear exactly how many employees will be laid off. About 100 employees are expected to be affected by the cuts. In a memo to employees, the Winklevoss brothers in charge justified the layoffs by citing turbulent market conditions that could continue for a while. But Gemini is not alone in its need for scalability.
Using the same reasoning, Coinbase states that current market conditions are causing the company to extend its hiring freeze for new employees, halting its plans to triple its headcount by the end of 2022. Additionally, work on a number of planned offerings will be suspended before they have effectively begun. The company has indicated that these changes are being made in an effort to preserve the company and make it stronger in the long run. One thing seems certain among many executives: The market is not likely to recover anytime soon. Workforce management is cited as the main focus for cost reduction.
"In response to current market conditions and ongoing efforts to prioritize the business, we will extend our hiring freeze for both new and backfill positions for the foreseeable future and withdraw a number of accepted offers." - L. J. Brock, Chief People Officer at Coinbase
Less trading, less profit
Crypto exchanges make most of their profit from trading fees. The massive downturn in crypto markets this year has affected those transaction fees, as was evident in Coinbase's annual report in May. The crypto industry's biggest earnings report looked bleak. Coinbase Global Inc. was unable to even come close to the revenue numbers the company reported for Q4 2021. Revenues declined from $2.49 billion to $1.16 billion, while increased expenses even led to a loss of $430 million.
The downturn has apparently not affected all exchanges and crypto companies. FTX, one of the largest cryptocurrency exchanges in the world, is going in the opposite direction. The company recently expanded into equity trading to diversify their business. While others are looking to downsize, FTX is looking to expand further. And the young crypto exchange is not alone either; the digital arm of multinational financial services firm Fidelity plans to double its staff this year to meet growing demand from institutional crypto investors.
