Brian Armstrong is being patted down with a make-up sponge as a giant inexperienced display looms behind him.
“Coinbase is an organization with an formidable imaginative and prescient: to create extra financial freedom,” he reads off a teleprompter, however flubs the ultimate a part of the road. “We’ll attempt that one once more.”
The stoic, bald Armstrong, clad in a favourite black jacket, is standing on an empty stage, reciting traces about Coinbase, the corporate he based, for a promotional video for buyers. A self-described introvert, Armstrong is notoriously averse to media appearances, besides in the precise context—together with taping the 88-minute-long documentary COIN, which the corporate commissioned.
The movie, launched in early October, paperwork Coinbase’s scrappy beginnings as a Bitcoin change in 2012 throughout its public direct itemizing in 2021. Nevertheless it wraps up earlier than the turmoil of the present 12 months, which has seen Coinbase wrestle with lackluster product rollouts, bungled launches in new nations, and grim earnings.
These current occasions have prompted withering media accounts concerning the firm as an entire and, by implication, Armstrong’s management. This crested in June when Coinbase slashed headcount by 18%—a transfer that got here simply days after Armstrong printed an inflammatory Twitter thread by which he chastised dissatisfied workers for criticizing executives and instructed they “give up.”
The query as we speak for Coinbase workers and buyers alike is whether or not Armstrong, who based the corporate a decade in the past, continues to be one of the best match to be CEO.
“There’s all the time going to be a query when you have got the founding father of an organization, the one who establishes the imaginative and prescient, about whether or not that particular person is one of the best particular person to really execute towards that imaginative and prescient. And I believe that that’s what we’re dealing with proper now,” says BTIG managing director and analyst Mark Palmer, who covers Coinbase.
Fortune spoke with former workers, analysts, early buyers, and others, who described a methodical and devoted CEO typically admired by his workers—however whose selections have positioned Coinbase in a precarious place.
Coinbase’s rocky 12 months
The historical past of Coinbase and its CEO is well-known: Brian Armstrong grew up as a self-described “shy” child in San Jose. After discovering the Bitcoin white paper in 2010, Armstrong began Coinbase and enrolled it within the well-known Silicon Valley Y Combinator program in 2012. He had a easy however compelling imaginative and prescient: make it straightforward for anybody to purchase and promote Bitcoin.
Since these early days, the corporate has grown dramatically and as we speak affords companies like staking (the crypto model of interest-bearing time period deposits), a platform for non-fungible tokens, or NFTs, and a chief brokerage enterprise. It turned the primary well-known crypto firm to go public and now has practically 5,000 world workers.
However as Armstrong’s firm ballooned in measurement and recognition, some insiders counsel it misplaced focus. In line with a former senior-level worker, Coinbase “overgrew, overhired, tried to do an excessive amount of within the final 12 months. And I believe they’re paying the value for that slightly bit proper now,” the particular person tells Fortune.
Coinbase’s current misfires embody teasing an NFT market to compete with business chief OpenSea for months solely to roll out a lackluster launch in May. A much-hyped entry to India likewise fizzled as the corporate pulled back in response to pressure from native regulators. In the meantime critics have questioned Coinbase’s determination to spend money and time on ventures past the scope of its core enterprise, together with numerous movie tasks. When the corporate launched a short-film collection about NFTs in July, dubbed The Degen Trilogy, a Twitter consumer described the endeavor as “Cringebase.”
“It’s been a giant drawback. And realistically, none of that was free,” Morningstar analyst Michael Miller, who covers Coinbase, informed Fortune of the India launch specifically.
In the meantime, the return this Could of Crypto Winter—the business time period for the extended and painful downturns that recur in crypto—has harm Coinbase’s earnings and led its inventory to crater over 70% to date in 2022.
Nonetheless, some analysts notice that Coinbase properly didn’t become involved in among the riskier elements of the business, like high-yield lending, which triggered a lot of the ache within the crypto market earlier this 12 months. And a great chunk of Coinbase’s $1.1 billion loss within the second quarter was truly the results of quirky accounting guidelines that require companies to e book a loss when the value of crypto falls however not when it rises. (Coinbase’s precise Q2 working loss was closer to $640 million.)
Armstrong has mentioned Coinbase’s path ahead will embody attaining its long-stated objective of diversifying its income past retail buying and selling charges. “We’re realizing that buying and selling charges…[are] nonetheless gonna be a significant a part of our enterprise 10 years from now, even 20 years from now, however I’d prefer to get to a spot the place greater than 50% of our income is subscription and companies,” he mentioned throughout a uncommon public interview in August. Armstrong declined to be interviewed for this story.
For analysts like Palmer, such adjustments can’t come quickly sufficient. “It’s crucial that Coinbase administration pushes ahead with a few of these initiatives, makes some needed adjustments within the coming months, to raised place the corporate and the inventory for the present market,” he says.
That present market has additionally seen fast-growing opponents nipping at Coinbase’s heels. These embody crypto change FTX, headed by eccentric billionaire Sam Bankman-Fried, which has taken benefit of Crypto Winter by snapping up weakened companies—an M&A method Coinbase hasn’t replicated. In the meantime, mainstream companies like PayPal and Robinhood have additionally joined the rising listing of firms providing crypto companies.
In contrast with some opponents, Armstrong’s Coinbase has been extra conservative and U.S.-centric in its technique, making the corporate “type of just like the Chevy of the crypto business,” in keeping with early Coinbase investor Greg Kidd (Kidd has additionally invested in its rivals).
However in the case of keeping off its largest opponents, Binance and FTX, Coinbase might have a reputational edge: Belief and safety are much more essential within the present atmosphere, Bank of America funds and crypto analyst Jason Kupferberg says.
Different analysts like BTIG’s Palmer argue it’s essential for Coinbase to bolster its institutional platform to raised stability its enterprise, however notice the corporate’s progress has been slower than he would have anticipated, particularly in areas like derivatives, the place FTX and Binance dominate.
“To his credit score, [Armstrong] takes a long-term view of the enterprise,” Palmer notes. However “as a publicly traded firm, you understand, the funding horizon of lots of the hedge funds and others which can be buying and selling shares like Coinbase just isn’t as long-term in lots of instances.”
In the meantime, Morningstar’s Miller affords measured assist for Armstrong: “I believe, broadly talking, there’s been missteps. However I believe he may have finished a considerably worse job.”
Whereas most market watchers seem prepared to provide Armstrong some respiration room in the case of enterprise technique, the CEO additionally faces a extra refined problem: displaying he can proceed to encourage the rank-and-file of an organization that’s a lot bigger and really totally different from the one he based in 2012.
“It’s a distinct firm, like, 10 instances over,” the previous senior-level worker says of adjustments which have taken place at Coinbase lately.
In Fortune’s conversations with present and former Coinbase workers about Armstrong and his management, some phrases got here up time and again: “introvert,” “methodical,” “rigorous,” “calm,” “stoic,” and “considerate.” However a few of his behaviors have raised eyebrows.
One among Armstrong’s challenges as a frontrunner, in keeping with a former govt who labored intently with him, is his emotional intelligence (EQ), and with the ability to acknowledge how different persons are feeling, including that Armstrong has typically struggled to empathize with these removed from the C-suite. Armstrong himself is conscious of how he can come throughout.
“I do really feel feelings; I don’t categorical them the identical manner as different individuals. I most likely have Asperger’s, like, someplace on the spectrum,” he says within the Coinbase documentary.
Throughout his decade-long tenure as CEO, Armstrong has struggled with inside and exterior communications, and because the former govt places it, he’s not all the time adept at “studying the room.”
Coinbase’s president and chief working officer, Emilie Choi, tells Fortune Armstrong might inadvertently trigger offense however that she is going to flag such incidents and encourage him to achieve out to individuals and convey his true intent.
One current instance of this occurred when Armstrong penned a Twitter thread about Coinbase needing a head of communications whereas discussing the shortcomings of the corporate’s public relations—which evidently didn’t go unnoticed by those that labored on the group. Choi says she responded by telling Armstrong the group’s efficiency had been excellent and that the shortcomings lay with Coinbase executives for not taking extra of an exterior position earlier within the 12 months.
“And he was like, ‘Oh, yeah, in fact—did that not come throughout in my tweet storm? That, like, I used to be proudly owning the accountability for that?’ And I used to be like, ‘No, I believe truly they may have perceived it as, like, some failing or one thing.’ And he was like, ‘Oh, God, no, that was me,’” she recollects.
The anecdote helps the evaluation of some former workers who say Armstrong’s communications blunders are as a result of he’s oblivious, not insensitive. Choi argues: “It’s slightly bit excessive to say he has unhealthy EQ, as a result of I believe he truly works on it actively.”
In the meantime, reports of Armstrong’s alleged quirks could also be overstated, in keeping with former workers who know him. These embody his observe of conducting conferences the place attendees would kind in lieu of speaking—at the least for a portion of the assembly—a conduct they are saying isn’t peculiar however somewhat common in engineering culture and the tech industry. A Coinbase spokesperson denied such conferences happen, though two sources with direct data inform Fortune they’ve occurred.
All of this portrays an introverted CEO targeted on attaining a long-term imaginative and prescient for his firm, however who continues to wrestle with each day interactions and administration abilities. Like different massive firms, Coinbase imposes authorized strictures that forbid present and former employees from disparaging the corporate, so it may be troublesome to acquire a real gauge of worker sentiment. Some disgruntled staff, although, have shared their complaints on nameless office overview web site Glassdoor.
“You’re dropping the highest expertise by way of attrition. It’s already hurting…Quickly the one individuals left are probably the most cult-y, whether or not blindly worshipping crypto or [Coinbase]/Brian Armstrong. And people persons are of the mindset if/whenever you converse up or query something, ‘then simply go away’?” wrote one such worker in September.
A notable management blunder, in keeping with some, was the CEO’s response to a petition from nameless workers at Coinbase calling for the ouster of prime executives—although not Armstrong himself. The petition, amongst different issues, criticized the corporate’s aggressive hiring plan as unsustainable and complained of the “over-prioritization” of sure merchandise.
In response, Armstrong didn’t flow into an inside reply by way of Coinbase’s HR division, as many firms would have finished, however as an alternative took to Twitter to denounce the petition as “actually dumb.” The staff, he scolded, ought to “quit and find a company to work at that you just imagine in,” and said criticism must be directed at him as an alternative.
In response, workers lit up a Slack channel with feedback that the tweet was a “unhealthy search for [the] firm,” in keeping with David Visini, a former Coinbase buyer assist analyst who was laid off in June.
When layoffs occurred simply 4 days after Armstrong’s controversial Twitter thread, Coinbase’s chief individuals officer, L.J. Brock, acknowledged within the layoff e mail—which was despatched to workers’ private inboxes since their entry to the corporate’s system was lower off—that workers might have been “feeling shocked and unsettled proper now,” in keeping with the e-mail, which was seen by Fortune.
Even Armstrong supporters like SkyBridge Capital founder and former White Home communications director Anthony Scaramucci informed Fortune back in June: “Ought to he have grown slower? Ought to he have made totally different selections? Positive. That’s hindsight, although.”
A Coinbase spokesperson says the corporate takes worker suggestions significantly, and has the “utmost confidence in our govt group,” although the corporate acknowledges that there’ll all the time be areas for enchancment.
In line with those that know him, one in all Armstrong’s most salient qualities is his dedication to steady self-improvement and suggestions. For example, he’s known for his insistence on placing every little thing in writing, and maintaining ongoing paperwork to trace everybody’s concepts and areas for enchancment. COO Choi says the 2 have a one-on-one assembly each week, the place they work by a extremely organized doc collectively, on the finish of which Armstrong provides a piece titled “juicy suggestions.”
“That could be a machine for each of us to have the ability to give one another very, very juicy suggestions. Possibly it’s, ‘I felt like in that assembly, you have been type of undermining what I used to be saying, and I wish to simply unpack what was behind that,’” says Choi. She provides that Armstrong views the tactic as a option to promote open and sincere conversations, noting it’s a “very engineering manner of type of approaching these things.”
These open conversations apparently lengthen past his exec group: One former worker famous that previous to the pandemic Armstrong would ceaselessly eat lunch with Coinbase staff as a part of an effort to hear and enhance as a CEO.
On a private degree, Armstrong’s quest for enchancment features a each day routine of doing cardio within the morning whereas listening to a podcast or audiobook, in keeping with the previous senior-level worker, who claims the CEO has learn “each enterprise e book you may think about.”
In line with Choi, most individuals don’t recognize that Armstrong is a “very warmhearted, caring particular person” who checks in on her private life. Different sources complimented Armstrong’s dedication to engaged on himself and soliciting suggestions, in addition to his engineering prowess.
Armstrong, like many CEOs, has needed to study on the job in the case of main workers and managing fast development. Prior to now, nonetheless, he has been accountable solely to staff and enterprise buyers whereas as we speak he should proceed discovering a brand new trajectory for the corporate whereas additionally answering to public shareholders—a formidable activity even for an skilled company CEO.
The founder CEO
The query dealing with Armstrong—whether or not because the founder he’s the precise particular person to information a public firm—isn’t a new one. There are actually high-profile examples of founders who proceed to guide the businesses they began for years after they go public: Assume Block CEO Jack Dorsey or Meta CEO Mark Zuckerberg.
Relating to studying to guide public firms, founder CEOs all face related challenges, in keeping with Michael Useem, a professor of administration on the Wharton College of the College of Pennsylvania.
“In case you’re public, you’ve bought all these fairness analysts, to not point out the individuals at BlackRock and Vanguard trying over your shoulder…They carry implicit guidelines or norms of anticipated conduct, to not point out expectations of outcomes,” he tells Fortune.
Within the case of Armstrong, he’s below even better scrutiny than his crypto friends given that he’s the one CEO of a widely known public crypto firm. Certainly, the risk disclosures Coinbase printed earlier than going public notice, “Our administration group has restricted expertise managing a publicly traded firm [and] interacting with public firm buyers.”
For founder CEOs like Armstrong to persevere, Useem argues, they need to hunt down recommendation from others who’ve gone by related experiences and enlist govt coaches to develop.
Armstrong could also be forward of the curve on that entrance. Choi says Armstrong consults leaders like Zuckerberg and Tobias Lütke, cofounder and CEO of Shopify (who can be on Coinbase’s board), and has govt coaches.
Certainly, the COIN documentary reveals scenes of Armstrong working with a coach previous to the corporate going public. In a single frank change, the coach tells him, “The elephant within the room is that you just don’t like to handle individuals, and my prediction subsequently is that you just’re not good at it.”
Though it’s normal observe for public firm CEOs to interact with the press, Armstrong largely eschews conventional media shops in favor of blogs, podcasts, and Twitter. In a recent podcast discussing the documentary, Armstrong candidly said: “I used to be anxious that someone was going to go attempt to inform the story; I had seen that film, The Social Community…nevertheless it was type of a detrimental movie on Facebook. Sooner or later in my thoughts I used to be pondering, ‘I hope someone doesn’t go and do a success piece story on us, so perhaps if I am going and inform the genuine story first, it’ll negate a few of that.’”
When requested for touch upon Armstrong’s reservations about talking with the press, Coinbase directed Fortune to his uncommon CNBC interview in August, and a current podcast look.
No matter what others, together with the media, might imagine, Armstrong holds majority voting energy within the firm and may hold the highest job at Coinbase if he so chooses. This would be the case even after Armstrong goes ahead with a plan to sell round 2% of his shares over the subsequent 12 months to donate to scientific analysis.
Whereas Armstrong’s voting energy means nobody can push him out, there seems in any case to be little assist for doing so. Nearly all of those that spoke to Fortune argue that he stays the precise particular person to guide Coinbase.
If Armstrong didn’t have a “sharp focus,” it could be time to exchange him, argues early investor Kidd, who added that even when Armstrong is conservative in contrast along with his rivals, bringing in a company CEO wouldn’t essentially enhance the corporate’s threat urge for food.
And supporters like Ryan Selkis, founder and CEO of crypto analysis agency Messari, which has enterprise ties to Coinbase, imagine “it’s nearly all the time a mistake when tech firms change visionary founders with non-founders.” He notes there’s numerous innovation occurring within the firm outdoors of simply the change, and maintains that bringing in a non-founder to the highest job means you “lose numerous that.”
The upshot is that, whereas Armstrong has shortcomings in his management type and eschews among the conduct anticipated of public firm CEOs, crypto firms might finest thrive with a distinct type of chief—together with somebody who’s comfy being unconventional.
Armstrong himself seems to be entertaining no ideas of quitting. He reaffirmed in a June weblog put up asserting the layoffs that the buck stops with him, and declared in a recent Twitter thread that “I intend to be CEO of Coinbase for a really very long time.”
For Armstrong, which means navigating the corporate out of its precarious state of affairs. To that finish, he and his group have been betting extra closely on their institutional enterprise, together with asserting liquid staking in August, a device that may let customers switch tokens whereas nonetheless with the ability to stake them. They’ve additionally been focusing extra on constructing out their Web3 ecosystem instruments, like Coinbase Cloud and its developer platform, and Coinbase Pockets, the agency’s self-custodial crypto pockets.
“Long run, there’s logic there; it’s simply not going to actually repair their present issues,” Morningstar analyst Miller suggests of the agency’s Web3 investments.
Nevertheless some analysts level to the greater than $6 billion in money on Coinbase’s stability sheet, and its partnership with BlackRock, the world’s largest asset supervisor, as constructive indicators. BTIG analyst Palmer believes the agency’s subscription method with its Coinbase One enterprise, which affords subscribers numerous advantages like $0 buying and selling charges and 24/7 buyer assist, could also be its finest technique shifting ahead.
Although analysts like Palmer are involved concerning the timing of the corporate’s new initiatives, he argues administration at the least acknowledges there are areas for enchancment. Different parts, like Armstrong’s usually brash tweeting type, may benefit from slightly “extra tact,” Miller argues, particularly in the case of criticizing regulators on Twitter. He provides although that Armstrong’s outbursts are unlikely to have significantly harmed the corporate, particularly given the rough-and-tumble perspective of the crypto business.
The talk over Armstrong’s management might flare up once more on Nov. 3, when Coinbase experiences its third-quarter earnings. However for now, the Road is ready to see if Armstrong’s fixations on self-improvement will enhance the remainder of his firm.