The Humbling of Coinbase

Brian Armstrong, the chief executive of the largest cryptocurrency exchange in the United States, traveled across the world to make an announcement in early April: Coinbase was bringing crypto to India.

In an auditorium in Bangalore, Mr. Armstrong, wearing a type of loose buttoned shirt popular in India, said Coinbase planned to set up a hub of 1,000 employees there by the end of 2022. The company was investing in Indian start-ups and allowing local customers to buy and sell digital currencies on its exchange. For Coinbase, it was a chance to transform finance in a country of more than 1 billion people and lure new customers from across Asia.

“Namaste,” Mr. Armstrong declared. “We come with humility and respect.”

But that week, Coinbase got some bad news. A government-backed group issued a statement suggesting that the company would be unable to use a crucial payments platform — a system that was supposed to allow Coinbase customers to convert their rupees into virtual currencies like Bitcoin and Ether. Not long after its grand opening, Coinbase halted much of its trading service in India.

Coinbase rose to prominence as one of the first major crypto companies, a gateway to the chaotic world of digital assets for amateur investors. But as it’s grown from plucky start-up to publicly traded company, its status as an industry leader has been threatened by a series of missteps and a steep decline in the crypto market over the last six months.

Coinbase’s fumbled start in India, a largely untapped market for crypto, was emblematic of failures that have unsettled employees and sent the company’s stock price spiraling. In June, Coinbase laid off 18 percent of its staff.

For years, Coinbase has aspired to become the Google of crypto, as some employees put it, a world-changing business with global reach and a wide range of products. Instead, the company is at risk of squandering its head start, as nimbler competitors like FTX and Binance continue expanding despite the downturn, according to interviews with crypto experts and 23 current and former Coinbase employees.

“It’s become a bit of a chaotic situation for them,” said Dan Dolev, an analyst at the financial firm Mizuho who tracks Coinbase. “It’s the perfect storm.”

Some insiders attribute Coinbase’s problems partly to strategic missteps by executives Mr. Armstrong tapped to turn the company into a crypto juggernaut. As crypto prices surged, Coinbase hired thousands of new employees, which led to overspending and bloat.

Some recruits came from Silicon Valley titans like Google and Meta, including top executives. Now employees say the company is unrecognizable from the one that dominated the early years of crypto, with some leaders who lack deep experience in the industry.

Despite its early start, Coinbase has never had a strong hold over the international market, which is dominated by Binance. The company went into India despite widespread uncertainty about how the government would react, an approach industry experts considered unwise.

Then, in the spring, Coinbase unveiled its most-hyped product of the year, a marketplace for nonfungible tokens, the digital collectibles known as NFTs. But the marketplace failed to draw much interest and was criticized by NFT aficionados.

Not all of Coinbase’s recent struggles are of its own making. The steep decline in crypto prices has led to a drop in trading, which accounts for the vast majority of the company’s revenue. As the largest crypto company on the public market, Coinbase bears the brunt of the broader industry’s problems, with its stock price fluctuating in parallel with Bitcoin and other volatile cryptocurrencies. (The company got a boost this week, when it announced a partnership with BlackRock, the world’s largest asset manager. Its stock rose 10 percent on Thursday.)

Mr. Armstrong declined to be interviewed. But five of his top executives defended the company’s performance. In a series of interviews, they said Coinbase was developing an array of crypto products, some of which may take time to catch on, and emphasized that the company had weathered past downturns.

Emilie Choi, the chief operating officer, said that Coinbase’s business model — in which trading fees keep the company running while other projects develop — resembles the approach of major tech companies like Meta, which relies on ad dollars to fund longer-term bets.

“The way that we operate is the way we’re always going to operate,” Ms. Choi said. “A long-term focus on the future.”

Coinbase was founded in 2012 by Mr. Armstrong and Fred Ehrsam, a former Goldman Sachs trader who now runs a crypto investment firm. In an industry rife with fraud, Coinbase established a reputation as a safe, easy-to-use platform for buying and selling crypto. But as the business grew, Mr. Armstrong’s leadership sometimes drew internal dissent: In 2020, Black employees complained about discriminatory treatment.

In April 2021, Coinbase went public at an $86 billion valuation, making Mr. Armstrong one of crypto’s wealthiest executives. The company became a household name, known for its memorable Super Bowl ad featuring a bouncing QR code.

But as Coinbase grew, some employees worried that it wasn’t doing enough to compete with FTX and Binance in the international market, especially with American regulators contemplating a crackdown on the industry.

In 2019 and 2020, Coinbase executives discussed opening an international hub in Singapore, according to three people familiar with the talks. The company recognized the need to compete with Binance by offering a wider array of tokens, as well as derivatives trading products prohibited in the United States, the people said. But the project never came to fruition.

More recent efforts at international expansion have foundered. In India, Coinbase said it would plug into a popular, government-backed payments system called Unified Payments Interface. But shortly after Coinbase’s announcement, the National Payments Corporation of India, a public-private group that runs U.P.I., tweeted that it was “not aware of any crypto exchanges using UPI.”

Soon Coinbase cut off access in India; local customers can still use the exchange to trade one type of crypto for another, but they can’t buy digital assets with traditional currency. In an earnings call in May, Mr. Armstrong said the company had faced “informal pressure” from the Indian authorities.

“Our preference is really just to work with them and focus on relaunching,” he said.

The fanfare of Coinbase’s launch struck others in the crypto industry as foolish. In private discussions with the industry, Indian regulators had suggested they were cautious about appearing to openly endorse crypto, according to someone involved in the talks, and would prefer for companies to take a more measured approach.

Coinbase “overestimated the government’s potential support,” said Prasanto Roy, a technology policy consultant in India. “It went overboard.”

In an interview, Nana Murugesan, a Coinbase executive who oversees international expansion, said the company went into India despite the uncertainty because it wanted to clarify the country’s regulatory posture.

“Action produces information,” Mr. Murugesan said. “We want to learn from this information and drive our decision making and next steps.”

Over the years, Coinbase has tried to expand in other ways, creating a suite of products and services. Still, in the first quarter of 2022, nearly 90 percent of its revenue came from trading fees.

Coinbase started work on the NFT marketplace last year, with a team that eventually grew to about 30 engineers, designers and other employees. Mr. Armstrong hyped the project,