Cryptocurrency exchange platform Coinbase is preparing to lay off 18% of its workforce amid a downturn in the digital asset market.
“We appear to be entering a recession after a 10+ year economic boom,” Coinbase CEO Brian Armstrong said in a Tuesday blog post. “A recession could lead to another crypto winter, and could last for an extended period.”
Bitcoin, the digital asset with the largest market cap, has plummeted from around $48,400 at the end of December to roughly $22,500 as of Tuesday — a 54% drop.
According to Armstrong, past “crypto winters” have decreased trading and thereby impacted Coinbase’s primary source of revenue. Although the company has grown 200% year-over-year since the beginning of 2021, Armstrong believes he “over-hired” amid the boom in popularity of digital currency products and services.
“While it’s hard to predict the economy or the markets, we always plan for the worst so we can operate the business through any environment,” he said. “Coinbase has survived through four major crypto winters, and we’ve created long term success by carefully managing our spending through every down period. Down markets are challenging to navigate and require a different mindset.”
Cryptocurrencies — forms of decentralized digital money that can be transferred between users’ virtual wallets — are especially popular among Millennials and members of Generation Z. The 2022 Investopedia Financial Literacy Survey revealed that 28% of Millennials — those between the ages of 26 and 41 — expect to use cryptocurrencies to support themselves in their retirements. Nearly 20% of Gen Z — those between 18 and 25 — said the same.
“For younger investors, cryptocurrency is clearly not just a fun asset to trade in order to make fast money,” Investopedia editor-in-chief Caleb Silver remarked. “They are depending on generating returns from cryptocurrency to build wealth and fund their retirement, which is concerning given the lack of education around investing in crypto, and the fact it is still not regulated by the industry.”
Indeed, just over one-quarter of American adults reported having “advanced” knowledge of cryptocurrency, while 49% have “beginner” knowledge.
The plummeting value of digital assets also impacts El Salvador, which became the first nation to adopt Bitcoin as a form of legal tender last summer. According to El Salvador’s government, the use of the cryptocurrency could fuel “financial inclusion,” noting that “70% of its population doesn’t have access to traditional financial services.”
Last month, however, El Salvador bought $15.5 million in Bitcoin at nearly $31,000 apiece — meaning that the nation lost over one-third of its investment amid the most recent selloff.
El Salvador’s use of Bitcoin as legal tender represents “the first domino to fall in broader global adoption,” according to an analysis from accounting firm PwC. Because over 20% of El Salvador’s gross domestic product (GDP) emerges from remittances — money sent to residents of the country from citizens working abroad — Salvadorans may benefit by using cryptocurrencies to avoid hefty transfer fees.
International financial institutions like the International Monetary Fund (IMF) and the World Bank have been hesitant to back El Salvador’s experiment over concerns related to macroeconomic stability and environmental implications.
Many economists and officials have been highly skeptical of cryptocurrencies and their surging popularity. IMF Managing Director Kristalina Georgieva said at the World Economic Forum last month that some forms of cryptocurrencies not backed by assets are a “pyramid” scheme, and Sen. Elizabeth Warren (D-MA) has repeatedly called upon regulators to crack down on the marketplace.