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Coinbase CEO Brian Armstrong: Interview with CNBC

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Coinbase CEO Brian Armstrong: Interview with CNBC

As a crypto exchange Coinbase in the face of industry challenges and economic headwinds, the company is looking closely 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 grapples with a “crypto winter” linked to the fall in bitcoin and ethereum. Armstrong said the downturn was not unusual, as Coinbase has gone through four down cycles in the 10 years since he started the company.

Coinbase faces inflationary pressures and a potential recession, but Armstrong said the macro environment is reminiscent of what the company has faced in the past.

“We have this saying internally, I like to repeat a lot, which is, it’s never as good as it looks, it’s never as bad as it looks,” said he declared. “I think one of the reasons Coinbase has been so successful over the past 10 years is that we just try not to focus on short-term ups and downs.”

Coinbase cut 18% of its workforce in June, and Armstrong previously awarded layoffs a possible recession and the need to manage the company’s burnout rate and increase its efficiency.

Armstrong said the layoffs were meant to be a one-time event, but “anything could happen.”

“I can’t tell you what the world will look like in a year,” he said. Armstrong said Coinbase is looking closely at cutting costs related to marketing, external vendors, and Amazon Web services.

He added that the company seeks to convert as many fixed costs into variable costs as possible. This could mean that Coinbase Super Bowl ads are a thing of the past, although Armstrong said there will always be a “variety of Coinbase ads.”

The bearish case for Coinbase relates to the potential pressure on trading fees, which represented more than 80% of turnover in the second quarter. Famous short seller Jim Chanos is among those bet versus Coinbaseclaiming that it earns too much on fees and that “competition between exchanges is increasing, you’re going to see fee compression”.

Armstrong said fees will eventually erode like they have in the stock brokerage industry. But Coinbase does not yet see price sensitivity.

“I think there’s going to be some margin squeeze, eventually it has to happen at some point because whatever we build, you know, others, eventually you’re going to build it and it will become a bit more commoditized” , Armstrong said. “I would like to get to a place where more than 50% of our revenue comes from subscriptions and services.”

This part of the activity, subscription and services, rose to around 18% of turnover, against 4% a year earlier. It includes interest income, premium Coinbase membership, blockchain rewards, and fees for storing crypto on the platform on behalf of customers.

Coinbase and the SEC

Coinbase has also come under scrutiny from the SEC in recent months. The an agency accused a former Coinbase product manager of fraud and launched an investigation to find out if the the platform illegitimately authorizes users to trade digital assets that have not been registered as securities.

Determining how to classify cryptocurrency tokens is controversial, and Armstrong said he expects the company to receive some regulatory clarity after the midterm elections. If cryptocurrencies are considered commodities like other types of currencies, they would be regulated by the Commodity Futures Trading Commission. But many crypto projects are funded by selling speculative tokens.

SEC President Gary Gensler stated that “many of these underlying tokens have the attributes of securities” and should be regulated as such to protect investors.

Armstrong said he was happy to work with the SEC.

“You know, we actually engaged with regulators and I actually think that’s a good thing,” Armstrong said. “And our overall goal is really to contribute to regulatory clarity globally.”

Corporate culture and remote work

Although Coinbase was launched in San Francisco, it has no official headquarters and none of its employees are required to work in an office.

Armstrong said he thought the remote-first structure had been positive for the company’s recruiting, but eroded some of the learning and development, creativity and confidence. As a result, he said the company tries to reunite employees 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 attracted a lot of attention from CEOs in Silicon Valley and beyond for a blog post he wrote in 2020, stating that political debates about the candidates are prohibited.

Armstrong said he was “shocked” by the type of leaders talking to him, but thinks the company has become almost too well known for its mission statement.

“I just want to turn the page on it,” Armstrong said. “I’d rather be better known for our products and all the cool innovations we do, but, you know, in a way, it was nice that other companies found something interesting in it.”

“I think it’s net positive,” he said. “It gave us access to a wealth of talent in small towns in various countries.”

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