On Tuesday (July 12), Brain Armstrong, Co-Founder and CEO of Coinbase, said that his firm has identified “the set of changes” they need to make in order to continue to be successful at the new scale they have reached.
In a blog post (titled “Operating efficiently at scale”) published earlier today, Armstrong started by saying that “after 18 months of ~200% y/y employee growth,” many of their “internal tools and organizing principles” have “started to strain or break.”
The Coinbase CEO then said that the first step was to “significantly” slow their growth, which led them to “the difficult decision” to reduce their employee count, which is something that was announced last month.
Next, he gave a list of other changes they are going to introduce in order to drive efficiency at his firm:
- “Push decision making down to single-threaded DRIs” (DRI stands for “directly responsible individual”)
- “Give product leaders visibility into their P&L”
- “Leverage shared services to minimize duplication”
- “Organize teams into small pods”
- “Ship products not slide decks”
- “APIs instead of meetings”
- “Maintain an insurgent mindset”
Finally, it is worth mentioning the names of three books that helped to educate Armstrong on this topic: “Amp It Up: Leading for Hypergrowth by Raising Expectations, Increasing Urgency, and Elevating Intensity“; “Turn the Ship Around!: A True Story of Turning Followers into Leaders“; and “The Founder’s Mentality: How to Overcome the Predictable Crises of Growth“.
Last Tuesday (July 5), Cesare Fracassi, Chief Economist of the Coinbase Institute, explained the “recent decline in crypto markets” in a research report titled “Coinbase Institute Research: Crypto Prices and Market Efficiency”.
Fracassi’s report, which was published earlier today on the Coinbase blog, started by saying that “over the last eight months, the market capitalization of all cryptocurrencies went from a peak of $2.9T to a current level of less than $1T, a decline of over two thirds.”
He then went on to say that “examining the crypto markets based on an understanding of market efficiency can help us interpret the data.”
Fracassi noted that currently crypto is behaving very similar to tech stocks:
“In particular, crypto assets today share similar risk profiles to oil commodity prices and technology stocks. Beta is a typical measure of systematic risk for financial assets. A beta of zero means that the asset is uncorrelated with the market. A beta of one means that the asset moves together with the market.
“A beta of two means that when the stock market rises or falls by 1%, the asset increases or decreases by 2%. The animation below shows that the betas of bitcoin and ethereum have jumped from 0 in 2019, to 1 in 2020–2021, and to 2 today — they are now very similar in risk profile to a more traditional asset, technology stocks.“
Next, he pointed out that although it is clear that the Fed tightening of monetary policy has hurt the prices of both tech stocks and cryptoassets, we cannot say that 100% of the decline in crypto prices is due to the worsening macro environment:
“It might be useful to consider how much of the current decline is due to worsening macroeconomic conditions, as opposed to souring outlook specifically for cryptocurrencies, especially considering the crypto market cap declined over 57% year-to-date in 2022. It’s worth noting that during the same time, the S&P 500 declined 19%, and if macroeconomic conditions were the only cause of the decline, we would have expected crypto assets, with a beta of 2, to drop by about 38%.
“We can thus roughly estimate that two-thirds of the recent decline in crypto prices can be attributed to macro factors, and one-third to a weakening of the outlook solely for cryptocurrencies. This is similar to what happened during the 2000–2001 dot-com recession, where the S&P 500 declined 29%, and the Nasdaq composite index (composed heavily of tech stocks), with a beta of 1.25, declined 70% from peak to trough.“
Finally, Fracassi noted that “the market-efficiency view” cannot predict “the direction of crypto prices in the future,” and ended his blog post by saying that “according to the market-efficiency view of crypto markets, only changes in the outlook of the crypto industry relative to what is already expected will bring changes to prices.”
In May, the Coinbase CEO commented on the crypto market, NFTs, and layer 2 scaling solutions.
Below, we highlight some of the most interesting comments made by Armstrong during Coinbase’s First Quarter 2022 Earnings Call.
“So before we dive into our results this quarter, I think it’s worth just addressing the elephant in the room, which is that, of course, the broader markets are down. We’re seeing a down market for growth tech stocks and risk assets. And of course, Coinbase and crypto is no exception to that…
“54% of our active users now are doing something other than just trading crypto. They’re actually using crypto in a variety of ways. And so our thesis about moving away from just being a trading 2 platform to enabling the entire cryptoeconomy and being that primary financial account people, it’s really starting to work. The majority of our active users are now doing something other than trading…
“But for now, regardless of whether the market is up or down, we’re going to keep building. And I think the real key is to mentally flip from seeing down markets as being scary to actually being our opportunities to pull ahead. And that’s exactly what we’re going to be doing in this environment…“
“But I can just say that there’s a lot to build and the opportunity in the NFT space is enormous, so there’s a lot of features we’re plenty to add – the ability for people to do NFT drops, mint their own NFT tokens, there’s token-gated communities we want to support, and even the option to buy NFTs just directly with your credit card or any funds that you currently have in your main Coinbase account, which isn’t possible today in the app.
“We also want to support more chains over time. People are minting NFTs across more and more chains. And we want to continue to decentralize the NFT experience and really embrace the onchain native protocols and make sure NFTs don’t become a centralized experience...
“We’ve only built a small fraction of what we’re gonna do in the NFT space. It’s probably worth mentioning also that just reminding everyone, I think NFTs, it’s not just artwork or collectibles, digital collectibles. I think NFTs are going to play a big role in gaming, in music, in the metaverse, decentralized identity, and even in the real world, items like tickets to events, proof of attendance, and maybe even digitizing real estate in the real world…“
“… – 54% of our active users are now doing something other than trading with crypto. And if you’re wondering what are they doing? It’s all the things you would use money for and more. They’re earning money with crypto, they’re spending it with merchants using Coinbase Card. They’re earning yield on their assets.
“There’s borrowing and lending opportunities, and increasingly, there’s this huge ecosystem of third party applications or ‘dapps’ – decentralized apps – probably over 1,000 of them now that people are creating all kinds of new stuff with – games and social and art and music and all kinds of things.
“So in my mind, this is a little bit like the early days of the Internet where you saw the birth of e-commerce in the late 90s, early 2000s, and now fast forward 20 years, e-commerce is something like 15% of global GDP. And I think if you fast forward 20 years from here, the cryptoeconomy is going to represent probably a large portion like that, 15% or so of global GDP. And so Coinbase can help create that vision and make it a reality in the world.“
Layer 2 Scaling Solutions
“So, Lightning Network – for those who don’t know, Lightning Network is a layer two solution for Bitcoin which lowest fees and improves payment capabilities. And we think it’s a really important innovation that we would like to support. There’s of course, Layer two solutions across a variety of block chains.
“And so Ethereum has some layer two solutions as well. And just broadly, I’d say we’re seeing a lot of interest from customers in layer two solutions. You can think of it as, I think it could be as important as the Internet moving from dial-up to broadband in terms of the new applications and utility that it will unlock. So we’re working really hard to integrate every layer two solution out there that our customers want. Have a specific date to share with you about the Lightning Network specifically, but it’s certainly one of the ones on our roadmap.“