House Majority Leader Scalise sidesteps debt ceiling questions

US House Majority Leader Steve Scalise, Republican of Louisiana, speaks alongside House Republican Conference Chair Representative Elise Stefanik (L), Republican of New York, as they speak during a press conference on Capitol Hill in Washington, DC, January 10, 2023.

Saul Loeb | Afp | Getty Images

House Republican Majority Leader Steve Scalise sidestepped thorny questions Tuesday on whether Congress would allow the U.S. to default on its debt after lawmakers adopted new rules making it more difficult to raise federal limits.

The U.S. is perilously close to hitting its debt ceiling of about $31.4 trillion, the legal limit set by Congress of how much the federal government can borrow. It includes the total amount of federal debt outstanding, about $24.5 trillion, as well as the nearly $6.9 trillion the government has borrowed from itself. If Congress doesn’t soon raise the debt ceiling, it would inevitably trigger a default on U.S. Treasury bonds — an unprecedented event that would plunge the nation into financial crisis.

“America over time occasionally hits the debt ceiling because it’s like a credit card limit,” Scalise, R-La., said at a press conference in the Capitol building. He was responding to a reporter who asked him to outline what lawmakers agreed to on the debt ceiling and whether he could “guarantee” the U.S. wouldn’t default.

“And if you’re going to ask for an increase in the limit, at some point in time, you’ve got to sit down and say why are we hitting the limit? Why are we maxing out the credit card? Because this is the nation’s credit card,” he added.

It will be much more difficult for lawmakers to raise the debt limit under the new Congress since House Speaker Kevin McCarthy, R-Calif., agreed to a rules package that requires any increases in the debt limit to be paired with spending cuts. It was one of several concessions he made to win support from a group of conservative Republicans that had been blocking his speakership.

The debt ceiling debate is already raising questions on Wall Street. Citing McCarthy’s hard-fought battle and 15 rounds of voting, Goldman Sachs economists cited the rules changes as cause for concern on whether Congress would lift the debt ceiling, saying in a research note Monday that it would likely be a “close call.”

“The debt limit is going to be a problem,” the report read. “Fiscal deadlines will pose a greater risk this year than they have for a decade.”

The U.S. last raised the debt ceiling in December 2021, by $2.5 trillion. The increase is expected to last until at least July 2023, according to the watchdog group the Committee for a Responsible Federal Budget.

Lifting the debt limit does not authorize any new spending; it allows the government to borrow more money to cover existing commitments. And since the federal government consistently spends more than it takes in in tax revenue, lawmakers have to periodically raise the debt ceiling. Failing to lift the debt ceiling could lead to a government default on its debt and halt daily operations, causing potential turmoil to markets and the economy.

The last major rift over the debt ceiling was in late 2011, driven by holdout from a newly elected Republican congressional majority. Even though the U.S. ultimately did not default on its debt, the havoc led to Standard & Poor’s issuing its first ever downgrade of the government’s credit rating.

A Moody’s Analytics report from September 2021 said a default on Treasury bonds could throw the U.S. economy into a tailspin as bad as the Great Recession. Moody’s projected a 4% GDP decline and the loss of nearly 6 million jobs if the U.S. defaulted.

In the immediate term, defaulting on the debt could delay Social Security and Medicare benefits, salaries for government employees, military personnel and contractors as well as other spending already authorized by Congress.

The process of increasing the debt limit was routine for Congress for decades. Lawmakers have permanently raised, temporarily extended or somehow changed the definition of debt limit to avoid a default 78 times since 1960, according to the U.S. Treasury.

More recently, some House Republicans, including McCarthy, have come to use it as a negotiating tactic to reduce spending. Scalise used this line of reasoning Tuesday, telling reporters the government needed to review how much money it was doling out.

“At the same time you’re dealing with the debt limit, you’re also putting mechanisms in place so that you don’t keep maxing it out,” Scalise said, “because if the limit gets raised, you don’t go to the store the next day and just max it out again. You start figuring out how to control the spending problem. And this has been going on for way too long. And we’re going to confront this and I think the American people have called on us to confront this.”

Wells Fargo, once the No. 1 player in mortgages, is stepping back from the housing market

Wells Fargo to significantly step back from housing market

Wells Fargo is stepping back from the multi-trillion dollar market for U.S. mortgages amid regulatory pressure and the impact of higher interest rates.

Instead of its previous goal of reaching as many Americans as possible, the company will now offer home loans to existing bank and wealth management customers and borrowers in minority communities, CNBC has learned.

The dual factors of a lending market that has collapsed since the Federal Reserve began raising rates last year and heightened regulatory oversight — both industrywide, and specific to Wells Fargo after its 2016 fake accounts scandal — led to the decision, said consumer lending chief Kleber Santos.

“We are acutely aware of Wells Fargo’s history since 2016 and the work we need to do to restore public confidence,” Santos said in a phone interview. “As part of that review, we determined that our home lending business was too large, both in terms of overall size and its scope.”

It’s the latest, and perhaps most significant, strategic shift that CEO Charlie Scharf has undertaken since joining Wells Fargo in late 2019. Mortgages are by far the biggest category of debt held by Americans, making up 71% of the $16.5 trillion in total household balances. Under Scharf’s predecessors, Wells Fargo took pride in its vast share in home loans — it was the country’s top lender as recently as 2019, according to industry newsletter Inside Mortgage Finance.

More like rivals

Third-party loans, servicing

More layoffs

Last changes?

Wells Fargo said it was investing $100 million towards its goal of minority homeownership and placing more mortgage consultants in branches located in minority communities.

“Our priority is to de-risk the place, to focus on serving our own customers and play the role that society expects us to play as it relates to the racial homeownership gap,” Santos said.

The mortgage shift marks what is potentially the last major business change Scharf will undertake after splitting the bank’s operations into five divisions, bringing in 12 new operating committee members and creating a diversity segment.

In a phone interview, Scharf said that he didn’t anticipate doing other major changes, with the caveat that the bank will need to adapt to changing conditions.

“Given the quality of the five major businesses across the franchise, we think we’re positioned to compete against the very best out there and win, whether it’s banks, non-banks or fintechs,” he said.

The rise and stall of Wells Fargo

Ex-Trump Org CFO Allen Weisselberg sentenced to jail

Former Trump Organization Executive Allen Weisselberg arrives for a sentencing hearing at Manhattan Criminal Court on January 10, 2023 in New York City.

Michael M. Santiago | Getty Images

Former Trump Organization Chief Financial Officer Allen Weisselberg was sentenced Tuesday to five months in jail after pleading guilty to multiple tax crimes as part of an investigation of former President Donald Trump’s business empire.

But Weisselberg, who fully cooperated with prosecutors and testified against his longtime employer, could get out sooner, factoring in time off for good behavior.

The 75-year-old former CFO was handcuffed and led out of a Manhattan courtroom shortly after 2:30 p.m. ET, after a brief sentencing hearing before state Judge Juan Merchan. He will be immediately transported to Rikers Island jail to begin serving his sentence.

Weisselberg has already paid more than $2 million in taxes and penalties as part of his plea agreement, prosecutors said in the hearing, according to NBC News.

“He satisfied the conditions of his plea agreement,” said assistant district attorney Susan Hoffinger, according to NBC.

Weisselberg was also sentenced to five years on probation.

Weisselberg pleaded guilty to 15 counts last August, more than a year after he and several of Trump’s business entities were charged in what prosecutors called a “systematic” scheme to defraud state and federal tax authorities spanning more than 15 years.

The Manhattan district attorney’s office accused Weisselberg of receiving more than $1.7 million in secret compensation as part of that tax avoidance scheme.

“In Manhattan, you have to play by the rules no matter who you are or who you work for,” DA Alvin Bragg said in a statement after Weisselberg’s sentencing Tuesday afternoon.

Weisselberg “used his high-level position to secure lavish work perks such as a rent-free luxury Manhattan apartment, multiple Mercedes Benz automobiles and private school tuition for his grandchildren — all without paying required taxes,” Bragg said.

“Now, he and two Trump companies have been convicted of felonies and Weisselberg will serve a jail sentence for his crimes,” the DA’s statement added. “These consequential felony convictions put on full display the inner workings of former President Trump’s companies and its CFO’s actions.”

Weisselberg was dressed in casual clothes when he arrived at a Manhattan courthouse Tuesday afternoon ahead of the hearing. He answered no questions as he and his attorney strode past reporters in a hallway outside the courtroom, photos and videos from the courthouse showed.

A prosecutor in Tuesday’s hearing had asked Merchan to sentence Weisselberg to six months behind bars, while Weisselberg’s attorney had asked for less than five, according to reports from the courthouse.

“Today is obviously a difficult day for him, but it is a day for which he has been preparing for many months,” Weisselberg attorney Nicholas Gravante said in a statement. “Mr. Weisselberg came to court today ready to begin his sentence, and he is grateful that it has now begun.”

Weisselberg “deeply regrets the lapse in judgment that resulted in his conviction” and caused pain to his wife and family, Gravante said. 

“Mr. Weisselberg also regrets the harm his actions have caused to the Trump Organization and members of the Trump family. He is grateful to them for their continued support throughout this difficult chapter of his life,” said the attorney.

Two Trump Organization subsidiaries were convicted last month of crimes including tax fraud and falsifying business records after a trial featuring testimony by Weisselberg, who agreed to cooperate with prosecutors as part of his plea deal.

Weisselberg had worked for Trump’s family since 1973. He reportedly testified in November that he is still being paid by the Trump Organization and that the company is paying his lawyers.

It is also paying a prison consultant to help prepare Weisselberg for jail, Reuters reported, citing a person familiar with the matter.

Trump himself was not charged in the case and has decried the guilty verdict against his company as “a continuation of the Greatest Political Witch Hunt in the History of our Country.”

That verdict came down just weeks after Trump announced his candidacy for president in 2024.

Amazon’s Buy with Prime is a positive step, but the stock is still expensive

Workers load packages into Amazon Rivian Electric trucks at an Amazon facility in Poway, California, November 16, 2022.

Sandy Huffaker | Reuters

Amazon‘s (AMZN) soon-to-be widely available Buy with Prime service, which allows Prime members to use their Amazon accounts to shop with other online merchants, could be a profitable revenue channel for the e-commerce giant. However, the Club holding’s stock is still expensive, a high multiple compared to the broader stock market.

Apple App Store revenue update shows slowing growth

Tim Cook at WWDC21 on June 7th, 2021.

Source: Apple

Every January, Apple releases the total amount of money that App Store developers have earned since 2008, a data point that allows analysts and Apple investors to get an idea of how much money the App Store makes.

This year’s disclosure suggests that Apple’s App Store growth has plateaued.

On Tuesday, Apple said it has paid $320 billion to developers, up from $260 billion as of last year, a jump of $60 billion. Developers receive between 70% and 85% of gross sales, depending on if they qualify for Apple’s reduced rate.

If all developers paid a 30% cut to Apple, Apple’s App Store grossed over $85 billion in 2022, based on CNBC analysis. If Apple’s commissions were all 15%, the App Store’s estimated gross would come in lower, around $70 billion.

It’s the same amount of sales as Apple suggested with its data point last year, when the company said it had paid developers $60 billion in 2021.

This is a rough estimation that could vary because it’s unclear how many developers pay the lower 15% cut, versus the 30% cut, and because the stats Apple shares are rounded.

Attempts to extrapolate the size of the App Store business from developer earnings are inaccurate, Apple said, because the commission ranges from 15% to 30%, and the vast majority of developers pay the lower commission under the App Store Small Business Program that gives a lower cut to app makers who gross under $1 million per year.

Apple said in its release that 2022 was a “record” year for the App Store, and revealed 900 million subscriptions, up from 745 million subscriptions last year. Apple’s stat includes anyone who subscribes to a service through Apple’s App store, not just its own first-party services like Apple TV+ and Music.

But Tuesday’s data point underscores that App Store growth slowed last year, which is important for investors because the App Store is a major part of Apple’s services business, and is a profit engine for the company.

Apple’s services business grew 14% in fiscal 2022 to $78.1 billion, a 14% increase. But that was a significant slowdown from the 27% growth rate the division posted in fiscal 2021.

Apple is dealing with tough comparisons to elevated 2021 and 2020 app use and sales as people bought games and software while riding out the Covid pandemic. Apple is also facing consumer uncertainty around the world as interest rates rise and economists worry about a possible recession.

Morgan Stanley analyst Erik Woodring has been following slowing App Store growth. App Store net revenue decreased for six straight months from June to November, according to his data, before growing again in December.

Woodring wrote in a note this month that app sales will grow in 2023 because the year-over-year comparisons will be easier and as some app price increases in international markets late last year will start to benefit Apple.

“While App Store growth remains near its lowest levels in history, and we acknowledge the global consumer remains challenged, we are encouraged to see growth trajectory continue to improve after bottoming in September,” Woodring wrote.

Capella Space raises $60 million from billionaire Thomas Tull’s fund

A satellite image taken at night on Nov. 14, 2022 of NASA’s Artemis I mission before launch from Cape Canaveral in Florida.

Capella Space

San Francisco-based satellite imagery specialist Capella Space raised $60 million in fresh capital, the company announced Tuesday.

Capella raised the equity from the U.S. Innovative Technology Fund, a recently established private investment vehicle of billionaire Thomas Tull. The investor is best known for his work in the film industry, having started the production studio Legendary Entertainment behind blockbuster movies such as “Dune” and “The Dark Knight.”

Capella is the fund’s first space investment, Tull told CNBC.

“It’s the combination of the best available imaging that we’re aware of … and other data tools” for analysis, Tull said, adding, “If you’re going to take a ton of images from space, you better be able to sort through them.”

The latest raise brings Capella to about $250 million in total equity and debt financing since its founding in 2016. The company declined to disclose its valuation after the new fund-raise.

“I’ve never celebrated any fundraisings that we’ve done – it was always sort of the thing that needed to happen for us to do other important things – and this is similar but, as you know, the market is crazy. So I think it validates all the good things that we’ve been doing, when [we] can raise capital from quality investors like Thomas,” Capella founder and CEO Payam Banazadeh told CNBC.

This video shows the Capella-3 satellite’s reflector deployment, using the its boom as a “selfie stick”. The reflector is folded and compact as it reaches space and expands to a 3.5 meter diameter object.

Capella Space

Capella’s business is focused on the satellite imagery market, with its satellites using a specialized technology known as synthetic aperture radar, or SAR. The advantage of SAR is its ability to capture images at any time, even at night or through cloud cover – which is often an impediment for traditional optical satellite tech.

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The company has grown its head count to just over 200 people – nearly doubling in size last year – and has seven satellites currently in orbit. While Banazadeh declined to specify how many more satellites Capella plans to deploy in orbit, he said, “we have quite a bit” of its next-generation Acadia satellites lined up to launch this year.

“There is more demand than there is supply, and that’s a good problem to have,” Banazadeh said.

The company doubled the volume of imagery it collected year over year, but revenue growth continues to be Banazadeh’s “north star.”

“We’re super focused on market adoption, and therefore revenue is the metric that we use … we had exceptional growth in 2022 … and we expect similar growth in ’23,” he said

Capella has also brought on a trio of executives: Chad Cohen joined as chief financial officer from Adaptive Biotechnologies; tech consultant Glen Elliott came on as chief human resources officer; and Paul Stephen, formerly of Zillow Group, joined as chief information security officer.

Correction: Glen Elliott is joining Capella as chief human resources officer. An earlier version misspelled his name. Paul Stephen is joining the company as chief information security officer. An earlier version misstated his title. Capella’s head count is just over 200 people. An earlier version mischaracterized the number.

The 8 ‘rarest’ types of employees—they ‘simply outperform everyone else,’ says career expert

Your strengths are the foundation of your brand, and owning them is the key to making a mark in your professional life.

As a career and branding expert who has consulted CEOs and big companies like Google and Microsoft, I help people discover what differentiates them from their competitors.

Are you an innovator overflowing with creative ideas? Are you a leader who inspires people to exceed goals? Or are you a maverick — everything the traditional leader stands for, you stand for the opposite?

Based on my 40 years of experience, here are the rarest types of employees who simply outperform everyone else:

1. The Innovator

  • You see unique opportunities for innovation during times of crisis or change.
  • The more complicated a problem is, the more excited you get.
  • You’re the first to ask, “What if we tried doing this another way?”
  • You can be impulsive and change your mind a lot, which only serves to heighten your creativity.

Everyone talks about thinking outside the box, but innovators really do. They often diverge from the norm in their thinking, and they’re not hampered by what other people think.

2. The Leader

  • You have what it takes to motivate and lead people to achieve, and even exceed, their goals.
  • Solving problems and overseeing complex plans are in your DNA.
  • You always have a clear mission that unites the team around a common goal.
  • People see you as a big picture thinker and they respond to your call to action.

In a world clouded by conflict, leaders have never been more important. We admire them not just for their accomplishments and title, but for their ability to inspire us to tackle big challenges and achieve great things.

3. The Maverick

  • You’re confident enough to avoid following the established path.
  • Your outsider perspective and self‐sufficiency makes you an independent thinker.
  • You can be aggressive, egocentric and disagreeable, but you’re also extroverted, lively and spontaneous.
  • You know how to energize your message with unusual stories to captivate your audience.

Mavericks make bureaucrats nervous because of their philosophy, “If it ain’t broken, break it.” They are known for having contrary points of view, but they always have a loyal group of supporters.

4. The Engineer

  • You like to fiddle with objects, ideas or processes to see if you can make them better.
  • If things don’t meet your expectations, you criticize not only others but also yourself.
  • You tend to be an introvert and more of a loner than a party animal.
  • People see you as detailed-oriented yet creative.

Perhaps no other work personality is as methodical and process oriented as the engineer. Engineers use a consistent process that they apply, which includes phases, steps and procedures to solve a problem.

5. The Expert

  • Your special topic is your passion, and you stay in touch with new developments in your area of expertise.
  • Your goal is to make an important contribution to your field as an expert.
  • You make deliberate decisions based on intense research and analysis.
  • Reliability is part of your DNA.

People have trust in experts because they have credentials that demonstrate they know one thing really well. It could be education, job experience, projects, awards, research, certifications, apprenticeships and media recognition.

6. The Target Marketer

  • You not only understand your target audience, you connect with them deeply.
  • You’re always coming up with new ideas that will delight your users.
  • You’re a good listener, highly attentive, and considerate toward your clients.
  • In return, your clients trust that you have their interests foremost in your mind.

Target marketers identify with their audience and feel empathy toward them. Their goal is to know them better and solve their needs better than anyone else.

7. The Elite

  • You’re among the top tier in your line of work.
  • You’re sought after because of your connections.
  • You like luxury and buy only the top quality in everything to maintain a high standard of living.
  • You’ve never been accused of having imposter syndrome. You have high self‐esteem and self‐confidence.

Elites are ambitious and determined, and they know people. They’re proud of their achievements and are well-paid. In their minds, they earned it and are worth every penny.

8. The Cause

From food stamps to $1.6 million: 'I work just 5 hours a week'

Powell stresses need for Fed political independence on tackling inflation

Fed Chair Jerome Powell: Price stability is the bedrock of the economy

Federal Reserve Chairman Jerome Powell on Tuesday emphasized the need for the central bank to be free of political influence while it tackles persistently high inflation.

In a speech delivered to Sweden’s Riksbank, Powell noted that stabilizing prices requires making tough decisions that can be unpopular politically.

“Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time. But restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy,” the chairman said in prepared remarks.

“The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors,” he added.

Powell’s remarks came at a forum to discuss central bank independence and were to be followed by a question-and-answer session.

The speech did not contain any direct clues about where policy is headed for a Fed that raised interest rates seven times in 2022, for a total of 4.25 percentage points, and has indicated that more increases likely are on the way this year.

While criticism of Fed actions by elected leaders is often done in quieter tones, the Powell Fed has faced vocal opposition from both sides of the political aisle.

Former President Donald Trump ripped the central bank when it was raising rates during his administration, while progressive leaders such as Sen. Elizabeth Warren, D-Mass., have criticized the current round of hikes. President Joe Biden has largely resisted commenting on Fed moves while noting that it is primarily the central bank’s responsibility to tackle inflation.

Powell has repeatedly said that political factors have not weighed on his actions.

In another part of Tuesday’s speech, he addressed calls from some lawmakers for the Fed to use its regulatory powers to address climate change. Powell noted that the Fed should “stick to our knitting and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities.”

While the Fed has asked big banks to examine their financial readiness in case of major climate-related events such as hurricanes and floods, Powell said that’s as far as it should go.

“Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public’s will as expressed through elections,” he said. “But without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not, and will not be, a ‘climate policymaker.'”

The Fed this year will launch a pilot program that calls for the nation’s six biggest banks to take part in a “scenario analysis” aimed at testing institutions’ stability in the event of major climate events.

The exercise will take place apart from the so-called stress tests that the Fed uses to test how banks would fare under hypothetical economic downturns. Participating institutions are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.

Microsoft to invest $10 billion in ChatGPT creator OpenAI, report says

OpenAI logo displayed on a phone screen and ChatGPT website displayed on a laptop screen are seen in this illustration photo taken in Krakow, Poland on December 5, 2022.

Jakub Porzycki | Nurphoto | Getty Images

Microsoft plans to invest $10 billion in OpenAI, the startup behind popular artificial intelligence tool ChatGPT, according to a report from Semafor.

The deal is part of a funding round with other investors involved that would value OpenAI at a whopping $29 billion, Semafor reported Tuesday, citing people familiar with the matter.

It isn’t clear whether the deal has been finalized but term sheets sent to prospective investors indicated the plan was to close the deal by the end of 2022, Semafor reported.

Microsoft will reportedly get a 75% share of OpenAI’s profits until it makes back the money on its investment, after which the company would assume a 49% stake in OpenAI.

Microsoft and OpenAI were not immediately available for comment when contacted by CNBC.

For several weeks, the tech world has been abuzz with chatter about ChatGPT. The tool is a natural language processing model, meaning it is designed to generate text that appears as though a human wrote it.

The AI model, itself a variant of the GPT-3 family of large language models, has been used for everything from developing code to writing college essays.

A bet on ChatGPT could help Microsoft boost its efforts in web search, a market dominated by Google. The company’s Bing browser has only a small share of the global search engine market, however it is hoped the deal could help the firm chip away at Google’s dominance by offering more advanced search capabilities.

In December, Morgan Stanley published a report examining whether ChatGPT is a threat to Google. Brian Nowak, the bank’s lead analyst on Alphabet, wrote that language models could take market share “and disrupt Google’s position as the entry point for people on the Internet.”

OpenAI, which was founded by Silicon Valley entrepreneur Sam Altman in 2015, launched its ChatGPT to the public in late November. Despite optimism over its potential, the project is burning through cash due to the overwhelming level of pressure on its servers arising from its virality. Five days after OpenAI released ChatGPT, Altman said that the chat research tool crossed 1 million users.

Read the full report on the Semafor website.

Coinbase to slash 20% of workforce in second major round of job cuts

Brian Armstrong, co-founder and chief executive officer of Coinbase Inc.

David Paul Morris | Bloomberg | Getty Images

Coinbase is cutting about a fifth of its workforce as it looks to preserve cash during the crypto market downturn.

The exchange plans to cut 950 jobs, according to a blog post published Tuesday morning. Coinbase, which had roughly 4,700 employees as of the end of September, already slashed 18% of its workforce in June citing a need to manage costs and growing “too quickly” during the bull market.

“With perfect hindsight, looking back, we should have done more,” CEO Brian Armstrong told CNBC in a phone interview. “The best you can do is react quickly once information becomes available, and that’s what we’re doing in this case.”

Coinbase said the move would result in new expenses of between $149 million and $163 million for the first quarter. The layoffs, along with other restructuring measures, will bring Coinbase’s operating expenses down by 25% for the quarter ending in March, according to a new regulatory filing. The crypto company also said it expects adjusted EBITDA losses for the full year to be within a prior $500 million “guardrail” set last year.

After looking at various stress tests for Coinbase’s annual revenue, Armstrong said, “it became clear that we would need to reduce expenses to increase our chances of doing well in every scenario” and there was “no way” to do so without reducing head count. The company will also be shutting down several projects with a “lower probability of success.”

Cryptocurrency markets have been rocked in recent months following the collapse of one of the industry’s biggest players, FTX. Armstrong pointed to that fallout, and increasing pressure on the sector thanks to “unscrupulous actors in the industry” referring to FTX and its founder, Sam Bankman-Fried. 

“The FTX collapse and the resulting contagion has created a black eye for the industry,” he said, adding there’s likely more “shoes to drop.”

“We may not have seen the last of it — there will be increased scrutiny on various companies in the space to make sure that they’re following the rules,” Armstrong said. “Long term that’s a good thing. But short term, there’s still a lot of market fear.” 

Cryptocurrencies have suffered alongside technology stocks as investors flee riskier assets amid a broader economic downturn. Bitcoin is down 58% in the past year, while Coinbase shares are off by more than 83%.

End of a growth era

Coinbase joins a chorus of other tech companies cutting jobs after going on a hiring binge during the Covid pandemic. Last week, Amazon said it would cut 18,000 jobs, more than the online retailer initially estimated last year, while Salesforce reduced its head count by more than 7,000, or 10%. Elon Musk slashed about half of Twitter’s workforce after taking the helm as CEO last year, and Meta cut more than 11,000 jobs, or 13%. Crypto companies Genesis, Gemini and Kraken have also reduced their workforces. 

“Every company in Silicon Valley felt like we were just focused on growth, growth, growth, and people were almost using their headcount number as a symbol of how much progress they were making,” Armstrong said. “The focus now is on operational efficiency — it’s a healthy thing for the ecosystem and the industry to focus more on those things.”

Early last year, Coinbase had said it planned to add 2,000 jobs across product, engineering and design. Armstrong said he’s now trying to shift the culture at Coinbase to “get back to its start-up roots” of smaller teams that can move quickly. 

Coinbase went public in April 2021 and has seen its share price plummet since. The stock is trading below $40 after surging to $341 on its public debut. Coinbase debt that’s maturing in 2031 continues to trade at roughly 50 cents on the dollar. The company still had cash and equivalents of roughly $5 billion as of the end of September. 

Coinbase said it would email affected employees on their personal accounts, and revoke access to company systems. Armstrong acknowledged the latter “feels sudden and harsh” but “it’s the only prudent choice given our responsibility to protect customer information.”

Despite the industry’s domino effect of bankruptcies and a marked drop in trading volume, Armstrong was steadfast in arguing that the industry isn’t going away. He said the demise of FTX would ultimately benefit Coinbase, as their largest competitor is now wiped out. Regulatory clarity may also emerge, and Armstrong said it “validates” the company’s decision of building and going public in the U.S. The CEO likened the current environment to the dot-com boom and bust.

“If you look at the internet era, the best companies got even stronger by having rigorous cost management,” he said. “That’s what’s going to happen here.”