WEBVTT - What Will Coinbase’s Earnings Call Reveal? 0:00:01.160 --> 0:00:04.880 This is Bloomberg Crypto Daily, Bloomberg ID Podcast, and I'm 0:00:04.960 --> 0:00:08.480 Philip lagger Crantzler, Senior crypto editor for Bloomberg News. In 0:00:08.520 --> 0:00:25.520 today for Stacy Marie Ishmael, it is Wednesday, January. All right, folks, 0:00:25.680 --> 0:00:30.240 let me state the obvious here. Two was not a 0:00:30.320 --> 0:00:33.479 good year for crypto, from the Terra Lunar collapse to 0:00:33.520 --> 0:00:36.560 the Celsius and three a C bankruptcies to the ft 0:00:36.800 --> 0:00:40.640 X implosion last November. The end of Sam Bank Manfred's 0:00:40.680 --> 0:00:45.120 Empire created a contagious effect that was especially felt by 0:00:45.159 --> 0:00:50.440 crypto exchanges like publicly traded coin Base. In early January, 0:00:50.760 --> 0:00:54.200 the exchange settled with New York regulators who accused it 0:00:54.320 --> 0:00:58.240 of significant compliance program failing, and that wasn't the end 0:00:58.280 --> 0:01:02.040 of coin Bass troubles. Later in January, coin Base also 0:01:02.080 --> 0:01:06.640 said it's laying off its workforce and closing the bulk 0:01:06.720 --> 0:01:10.360 of its Japan operations. And the picture may be equally 0:01:10.400 --> 0:01:14.240 dim for other global exchanges. Users are nervous and in 0:01:14.280 --> 0:01:17.959 many cases they're pulling funds from the exchanges. And joining 0:01:17.959 --> 0:01:20.960 me today to talk about this are Bloomberg Senior editor 0:01:21.720 --> 0:01:24.680 Anna Era. If volumes are down and you have this 0:01:24.880 --> 0:01:27.640 customers and people are just holding, are scared or withdrawing 0:01:27.680 --> 0:01:30.319 even worse, with drawing the crypto they have on your platform. 0:01:30.600 --> 0:01:32.760 You cannot go on survival mode. And one thing we 0:01:32.800 --> 0:01:34.520 know of coin bas is that they're pretty good at 0:01:34.520 --> 0:01:40.000 survival mode, right, and Bloomberg reporter Uhan Moving forward the exchanges, 0:01:40.040 --> 0:01:43.080 they really have to be more transparent. They have to 0:01:43.800 --> 0:01:47.800 prove that they're not misusing customer funds. That's no longer 0:01:47.880 --> 0:01:58.120 taken as granted. Coin Base is having a bad month. 0:01:58.360 --> 0:02:01.760 Coin Base has reached a one hundred million dollars settlement 0:02:01.800 --> 0:02:04.280 with New York regulators. Half of the money is a fine. 0:02:04.600 --> 0:02:07.800 Regulators found that the crypto exchange violated anti money launching 0:02:07.880 --> 0:02:11.880 laws and letting customers basically open accounts from insufficient background checks. 0:02:12.040 --> 0:02:13.840 The other fifty million, but what it's going to be 0:02:13.919 --> 0:02:16.760 used to improve compliance? She has climbed up with It 0:02:17.000 --> 0:02:21.040 started in early January with a settlement worth about a 0:02:21.120 --> 0:02:24.639 hundred million dollars with New York. You can you tell 0:02:24.720 --> 0:02:26.760 us a little bit about what happened there and what 0:02:26.840 --> 0:02:31.040 were the allegations against coin base. The acquisitions from the 0:02:31.080 --> 0:02:36.280 regulator is that coin bas treated customer onboarding process as 0:02:36.440 --> 0:02:39.640 a simple check the box exercise and failed to conduct 0:02:39.880 --> 0:02:43.680 due diligent and in the the order dimensioned examples of 0:02:43.720 --> 0:02:47.519 for example, coin base Latin individuals who are faking to 0:02:47.639 --> 0:02:50.680 be employee of a company to open an account on 0:02:50.840 --> 0:02:53.919 behalf of that company in an effort to steal funds 0:02:53.960 --> 0:02:58.079 from the company, and coin bas Um said that they're 0:02:58.080 --> 0:03:03.000 taking substantial measures to correct these short shortcomings. They highlighted 0:03:03.040 --> 0:03:06.200 that these were all historical issues and they're ready to 0:03:06.240 --> 0:03:09.880 move forward. This was one of the events that coin 0:03:09.919 --> 0:03:13.120 base has been grappling with, as well as other major 0:03:13.200 --> 0:03:19.520 exchanges including Finite and um ftx before it's collapsed. Yeah, 0:03:19.680 --> 0:03:22.880 I want to touch on that because um in no 0:03:23.080 --> 0:03:25.920 way it is coin based alone and being a crypto 0:03:25.960 --> 0:03:31.440 exchange that has fallen a foul of regulators and you know, 0:03:32.200 --> 0:03:38.160 gotten in trouble over limits or shortcomings in KYC. I mean, Anna, 0:03:38.240 --> 0:03:40.920 you've covered this for years. How has it been over 0:03:40.920 --> 0:03:44.080 the years when it comes to crypto exchanges and you 0:03:44.160 --> 0:03:47.560 know the various blow ups and shortcomings in that regard. Yeah, 0:03:47.600 --> 0:03:50.440 So KYC has always been a big issue for crypto 0:03:50.560 --> 0:03:53.160 in general and for crypto exchanges. At the beginning there 0:03:53.200 --> 0:03:56.800 were you know, exchanges that famously never actually asked for 0:03:56.840 --> 0:03:59.360 any documentation for you to trade on them. I remember 0:03:59.400 --> 0:04:03.440 there was a famous testimony I think it was by 0:04:03.760 --> 0:04:07.040 someone who's now a vc UM who said, and it 0:04:07.120 --> 0:04:09.320 was a sort of prosecutor before and said that they 0:04:09.320 --> 0:04:12.120 asked some exchange to provide documents and because they didn't 0:04:12.160 --> 0:04:15.840 never check them. They had clients with names Mickey Mouse 0:04:15.880 --> 0:04:18.720 who lived in Main Street. So it's an issue, and 0:04:18.760 --> 0:04:20.840 you know some of them have opped obviously their game 0:04:20.920 --> 0:04:24.080 for because you know, regulators are breathing down their neck. 0:04:24.200 --> 0:04:26.839 But you know, it's it's always been a challenge and 0:04:26.880 --> 0:04:29.120 it may may remain a challenge for a while, in 0:04:29.320 --> 0:04:31.680 part because you know, you can ask for documents, it 0:04:31.680 --> 0:04:34.320 depends how much you're checking right. And you know, ky 0:04:34.360 --> 0:04:36.000 C and a m L, to be fair a big 0:04:36.040 --> 0:04:38.159 problem in finance in general as well. You know we've 0:04:38.200 --> 0:04:40.320 had banks that got in trouble for it too, But 0:04:40.360 --> 0:04:46.760 in crypto has always been like a recurring issue. You 0:04:46.800 --> 0:04:48.960 make a good point there. I mean, if you if 0:04:48.960 --> 0:04:51.239 you look at the banking industry, it wasn't many years 0:04:51.240 --> 0:04:54.560 ago that some of the private banks got into major 0:04:54.600 --> 0:04:58.120 troubles over ky c or you know, even looking the 0:04:58.160 --> 0:05:01.920 other way. So should be fair crypto to point out 0:05:01.960 --> 0:05:05.280 that it has happened in other corners of the financial 0:05:05.360 --> 0:05:08.120 universe as well. I want to come back to coin 0:05:08.160 --> 0:05:12.040 based because they, as we alluded to at the very start, 0:05:12.160 --> 0:05:16.080 that the bad January didn't really end there UM. And 0:05:16.200 --> 0:05:21.240 this last week we got another bombshell UM and this 0:05:21.320 --> 0:05:24.719 time it was job cuts. You as she you cover 0:05:24.880 --> 0:05:29.200 that what and how significant were the cuts that they announced? 0:05:30.200 --> 0:05:33.960 So Queinbays announced that they're doing another round of layoff, 0:05:34.080 --> 0:05:38.480 this time affecting about nine hundred and fifty employees, or 0:05:38.520 --> 0:05:42.760 about of his workforce. And we know that Quein based 0:05:42.920 --> 0:05:46.159 UM even last year they've they've done layoff already. In 0:05:46.279 --> 0:05:50.080 June they laid off eighteen percent of his workforce, roughly 0:05:50.720 --> 0:05:54.400 UM twelve hundred people were affected, and then they did 0:05:54.440 --> 0:05:59.400 a smaller round UM in November affecting sixty positions UM. 0:05:59.480 --> 0:06:03.320 So Brian Armstrong in his letter to employees he said 0:06:03.360 --> 0:06:06.000 that this is really the first time coin base has 0:06:06.000 --> 0:06:10.719 seen a crypto cycle, coinside was a broader economic downturn, 0:06:10.839 --> 0:06:13.520 and then he admitted that when he did the head 0:06:13.640 --> 0:06:17.400 on layoff UM last year in hindsight, he should have 0:06:17.440 --> 0:06:21.520 cut even further at that time. So UM so because 0:06:21.600 --> 0:06:25.440 quin Bass is the publicly treated company UM, I think 0:06:26.080 --> 0:06:30.080 that the layoff and the general UM cost cutting measures 0:06:30.120 --> 0:06:34.000 were not a total surprise to analysts and investors. The 0:06:34.040 --> 0:06:38.279 company UM do have to cut off, cut off more 0:06:38.400 --> 0:06:44.640 expenses to to really survive to this UM prolonged crypto downturn. 0:06:44.880 --> 0:06:47.160 And then obviously coin bas was not the only one 0:06:47.240 --> 0:06:51.360 doing UM layoff in the in the industry. Remember coin 0:06:51.400 --> 0:06:54.320 basis just the latest company to announce another round of 0:06:54.360 --> 0:06:57.880 job cuts this month. Genesis, the troubled crypto brokerage under 0:06:57.880 --> 0:07:01.040 Berrysober Digital Currency Group, cut about thirty percent of its 0:07:01.080 --> 0:07:04.360 workforce who will be is cutting jobs, while silver Gate 0:07:04.440 --> 0:07:11.160 laid off forty percent of its staff. There is one 0:07:11.200 --> 0:07:16.200 thing that that and this is something that Armstrong pointed out. UM. 0:07:16.240 --> 0:07:20.200 They are cutting also some of these projects that maybe 0:07:20.520 --> 0:07:25.360 aren't close to generating revenues or profits. But I mean, 0:07:25.400 --> 0:07:30.960 in your views and also Anna by all means, you know, 0:07:31.040 --> 0:07:33.200 when you cut like this, and you cut this deeply, 0:07:33.200 --> 0:07:36.679 aren't you risking a little bit that you do away 0:07:37.000 --> 0:07:42.800 with things that might generate a lot of future potential. Yes, 0:07:43.120 --> 0:07:46.320 UM during the Bowl market coin Bass was really trying 0:07:46.320 --> 0:07:50.560 to position itself as this bridge to the broader website 0:07:50.640 --> 0:07:54.480 economy and instead of just focusing on providing a trading 0:07:54.560 --> 0:07:58.000 platform for clients. But we know that since the Market 0:07:58.160 --> 0:08:01.560 Downtown started last year, Point Based has been course correcting. 0:08:01.600 --> 0:08:05.960 They're returning back to focus on their core revenue generating 0:08:06.320 --> 0:08:10.280 services UM trading and staking namely, and then they're cutting 0:08:10.320 --> 0:08:14.280 back on some of these other projects that don't immediately 0:08:14.320 --> 0:08:18.800 seem to benefit and financially and this is something that 0:08:18.840 --> 0:08:20.720 they have to do to cut costs, but then it 0:08:20.840 --> 0:08:25.360 also will jeopatize their their future potential when it comes 0:08:25.400 --> 0:08:29.200 to diversifying their business beyond just trading. I think there's 0:08:29.240 --> 0:08:31.760 also an issue of like, you might not have a choice. 0:08:31.960 --> 0:08:35.440 Things are going really badly for exchanges in general because 0:08:35.480 --> 0:08:37.199 you know, trading volumes are low, and in the end, 0:08:37.400 --> 0:08:40.120 exchanges in crypto have been relying on trading fees because 0:08:40.120 --> 0:08:42.160 I'm like, I mean, it's been changing a bit, but 0:08:42.240 --> 0:08:45.960 unlike something like equities, where fees have have been shrinking 0:08:46.000 --> 0:08:48.679 for years and they've had to become more data businesses 0:08:48.760 --> 0:08:52.200 or technology businesses, crypto exchange groups have been able to 0:08:52.240 --> 0:08:56.239 rely on like trading fees via trading fees on equities 0:08:56.360 --> 0:09:00.040 or um derivatives or whatever it is, and so you know, 0:09:00.320 --> 0:09:03.760 that's the way their business models were built. So if 0:09:03.960 --> 0:09:06.560 volumes are down and you have as customers and people 0:09:06.600 --> 0:09:09.560 are just holding, are scared or withdrawing even worse, withdrawing 0:09:09.600 --> 0:09:12.320 the crypto they have on your platform, you cannot go 0:09:12.360 --> 0:09:14.520 on survival mode. And one thing we know of coin 0:09:14.559 --> 0:09:16.560 bas is that they're pretty good at survival mode. Right, 0:09:16.559 --> 0:09:20.200 they've been around longer than many other platforms. Perhaps they 0:09:20.200 --> 0:09:23.120 haven't made any big splashy like moments like we could 0:09:23.120 --> 0:09:25.719 have thought of like FTX, or they're not, but they 0:09:25.800 --> 0:09:29.800 kind of have been in crypto somewhat reliably steady, and 0:09:29.840 --> 0:09:33.200 this is not their first winter. But as so sort 0:09:33.200 --> 0:09:36.400 of Armstrong was saying himself, the difference and fundamental difference here, 0:09:36.400 --> 0:09:38.319 I think is that you know, it's a crypto winter 0:09:38.440 --> 0:09:42.079 coupled with like a bad macro environment, and so maybe 0:09:42.120 --> 0:09:44.920 they're starting to think it's not gonna you know, it's 0:09:44.960 --> 0:09:47.720 not gonna end this year, and we have to preserve 0:09:48.000 --> 0:09:52.920 you know, resources even more. Up next, more with Bloomberg 0:09:53.000 --> 0:09:57.200 Senior crypto editor Anna Airera and Bloomberg reporter Ushang on 0:09:57.280 --> 0:10:11.800 the future of crypto exchanges will be right back. Obviously, 0:10:12.640 --> 0:10:15.520 that was the sort of cataclismic event for the market 0:10:15.559 --> 0:10:20.000 back in November when ft X filed for bankruptcy, and 0:10:20.040 --> 0:10:23.640 then it was, you know, the charges of fraud against 0:10:24.360 --> 0:10:27.200 the founder of Sam bankman Freed and two of his 0:10:27.480 --> 0:10:30.520 top of lieutenants. And we're now learning crossing the Bloomberg 0:10:30.600 --> 0:10:33.520 terminal that a judges at a trial date of October 0:10:33.640 --> 0:10:37.000 two of this year, So Sam bankman Fried's trial on 0:10:37.120 --> 0:10:40.720 those fraud charges are set to begin in October two. 0:10:42.200 --> 0:10:45.760 What did that mean for the crypto exchange sector as such, 0:10:46.280 --> 0:10:50.480 the sort of loss of confidence that followed ft ex's implotion. 0:10:51.160 --> 0:10:54.280 I think you made the exact right point with um. 0:10:54.679 --> 0:10:58.600 This is really a crisis of confidence for the entire industry. 0:10:58.880 --> 0:11:02.360 We've seen that following the FTX collapse. There's been concerned 0:11:02.400 --> 0:11:05.199 for other major exchanges as well, and in fact, all 0:11:05.240 --> 0:11:09.320 of these big exchanges, Finites included, they have to come 0:11:09.320 --> 0:11:12.120 out and say that they're different from FDx, and they 0:11:12.160 --> 0:11:15.160 try to use various ways to prove that they have 0:11:15.320 --> 0:11:19.400 the reserves that clients deposit their coins on ways on 0:11:19.480 --> 0:11:23.920 the on their platform. So I think moving forward the exchanges, 0:11:24.000 --> 0:11:27.000 they really have to be more transparent. They have to 0:11:27.720 --> 0:11:32.240 prove that UM they're not misusing customer funds. That's no 0:11:32.320 --> 0:11:36.439 longer taken as granted. UM. People have this distrust about 0:11:36.640 --> 0:11:39.840 putting their their tokens on the exchange, and we've seen 0:11:40.240 --> 0:11:44.719 deposits level falling from the exchanges as users take out 0:11:44.720 --> 0:11:48.040 their tokens and move into code storage, which they think 0:11:48.280 --> 0:11:51.400 UM would be safer and give themselves more control over 0:11:51.440 --> 0:11:59.760 their assets. So if you turn the f t X 0:12:00.559 --> 0:12:04.080 question on its head, it's also kind of an opportunity 0:12:04.120 --> 0:12:06.440 for a company like coin base to take the market share. 0:12:06.600 --> 0:12:09.640 Coin Base has been trying to distinguish itself as a 0:12:09.720 --> 0:12:13.319 trusted and compliant company amid all the recent crypto chaos. 0:12:13.360 --> 0:12:17.000 The CEO, Brian Armstrong, spoke with David Rubinstein in December. 0:12:17.320 --> 0:12:20.240 We show in our publicly audited financial statements that you know, 0:12:20.360 --> 0:12:23.280 corporate cash is separate from customer funds, and you don't 0:12:23.280 --> 0:12:25.240 have to take our word for it. You know, UM, 0:12:25.280 --> 0:12:29.000 you know a Big four accounting so far, and obviously 0:12:29.000 --> 0:12:32.320 it's early days, it looks like it's financed mostly that's 0:12:32.400 --> 0:12:35.600 kind of putting a strangle hole on the market. What 0:12:35.840 --> 0:12:38.559 is the Are there any indications where their indications from 0:12:38.880 --> 0:12:41.560 Armstrong about whether or not there is a void for 0:12:41.600 --> 0:12:44.200 coin based to be stepping into here, we have to 0:12:44.280 --> 0:12:47.640 look at it from two perspectives. On one hand, ftx 0:12:47.960 --> 0:12:51.120 was an up and coming strong composer into space, and 0:12:51.200 --> 0:12:55.840 the fact that FTS is gone that UM just left 0:12:55.840 --> 0:12:59.880 their customers migrating to other platforms. If they still choose 0:13:00.080 --> 0:13:03.600 stay in the space, finance will benefit from that. UM 0:13:03.640 --> 0:13:07.480 coin Based, being a US focused platform, will also benefit 0:13:07.559 --> 0:13:10.160 from that. But then at the same time, coin base 0:13:10.400 --> 0:13:14.000 is scaling back some of its overseas ambitions. We know 0:13:14.160 --> 0:13:17.240 that as part of the job cuts that's recently announced, 0:13:17.400 --> 0:13:21.199 they're winding down most of their operation in Japan for example. 0:13:21.720 --> 0:13:24.160 UM they are UM as an a mension. They don't 0:13:24.200 --> 0:13:26.920 have choice. They have to focus on their core market 0:13:26.960 --> 0:13:30.240 and core services. So finance is very good in the 0:13:30.320 --> 0:13:34.280 international market, and that's not something that coin base can 0:13:34.440 --> 0:13:38.000 entirely compete with. I think it's wiped out a competitor 0:13:38.040 --> 0:13:41.240 for sure. Like FTX, US was slowly gaining ground and 0:13:41.240 --> 0:13:44.520 they were spending a lot of money to get US 0:13:44.600 --> 0:13:48.840 customers and retail customers, as we've written before, So you know, 0:13:49.679 --> 0:13:54.040 definitely like there's more there's more space now there's one 0:13:54.120 --> 0:13:56.360 less player, but at the same time, like the pie 0:13:56.440 --> 0:13:59.800 sort of shrunk for everyone. So it makes it, you know, 0:14:00.240 --> 0:14:04.240 quite hard. And I just want to finish off by 0:14:04.280 --> 0:14:06.840 talking about I mean, as we we talked a little 0:14:06.840 --> 0:14:09.560 bit about earlier, it's not just going based. Pretty much 0:14:09.600 --> 0:14:13.760 everybody is cutting jobs. You've watched this industry on for 0:14:14.200 --> 0:14:17.200 a good couple of years now, and this is obviously 0:14:17.280 --> 0:14:21.560 like just very significant retrenchment across the board. Yeah, I 0:14:21.920 --> 0:14:26.560 think it's it's becoming quite protracted, and you know, I'm wondering, 0:14:26.600 --> 0:14:29.160 like where many of these people are going. We had 0:14:29.160 --> 0:14:31.560 a story earlier this year about how banks were hiring 0:14:31.600 --> 0:14:33.960 some of the staff, but now I'm thinking, you know, 0:14:34.120 --> 0:14:36.560 some banks are also letting off people. Tech firms I've 0:14:36.600 --> 0:14:39.240 had hiring freezes. It's quite interesting to see where where 0:14:39.280 --> 0:14:41.200 some of the talent will be. There are firms that 0:14:41.200 --> 0:14:44.440 are still hiring, we're hearing, but you know, clearly, like 0:14:44.600 --> 0:14:49.320 if fifty people get fired from one firm, only you 0:14:49.360 --> 0:14:51.880 know who has this support now to hire? And you know, 0:14:51.960 --> 0:14:54.480 one big thing is that I imagine some of the 0:14:54.520 --> 0:14:58.600 companies are still waiting for the situation to like finish unraveling, 0:14:58.680 --> 0:15:01.240 Like maybe you are waiting to see who have the 0:15:01.320 --> 0:15:03.280 excess creditors are to know if any of them are 0:15:03.320 --> 0:15:06.520 your counterparties, and then if more dominoes will fall, and 0:15:06.520 --> 0:15:08.600 if you'll be exposed more so maybe you're not inclined 0:15:08.640 --> 0:15:11.640 to make any big investments now. It is quite quite stark, 0:15:11.720 --> 0:15:14.000 Like the situation has changed a little bit. The easy 0:15:14.080 --> 0:15:17.520 money has has stopped, and so you know, it'll be 0:15:17.560 --> 0:15:20.120 interesting to see where people end up. And you know, 0:15:20.680 --> 0:15:23.160 like if some of them go back to traditional finance 0:15:23.200 --> 0:15:26.480 and do like finance jobs. If it's it's it's very interesting, 0:15:27.640 --> 0:15:29.760 all right, Thank you, Anna and you ah That was 0:15:29.800 --> 0:15:33.520 Bloomberg Senior Crypto editor Anna Arera and Bloomberg reporter you 0:15:33.680 --> 0:15:36.560 Ah Yang. You can find more of their reporting on 0:15:36.600 --> 0:15:39.400 the Bloomberg Terminal and on Bloomberg dot com. For more, 0:15:39.840 --> 0:15:43.320 be sure to check out our viice weekly newsletter, Bloomberg Crypto. 0:15:49.240 --> 0:15:52.400 This is Bloomberg Crypto, a daily podcast from Bloomberg and 0:15:52.440 --> 0:15:55.400 I Heart Radio. For more shows from I Heart Radio, 0:15:55.640 --> 0:15:58.920 visit the iHeart Radio app, Apple Podcasts, or wherever you 0:15:58.960 --> 0:16:02.960 get your podcasts. Send us your comments, questions, or suggestions 0:16:03.000 --> 0:16:08.680 for the show to Crypto at Bloomberg dot net. The 0:16:08.680 --> 0:16:12.640 supervising producer of Bloomberg Crypto is Vicky Verglina. Our senior 0:16:12.680 --> 0:16:16.280 producer is Janet Babin. Our producers are Mohammed Faruk and 0:16:16.320 --> 0:16:20.040 Sharon Barriro. Our associate producers are Ty Butler and Moses 0:16:20.040 --> 0:16:24.360 on Them. Desta wonder At is our engineer. Original music 0:16:24.480 --> 0:16:29.240 by Leo Sidrn. I'm Stacy Marie Schmal. We'll be back tomorrow.