You know how coffee is best when it’s either hot or iced, but once it becomes lukewarm nobody wants anything to do with it? That’s about where the crypto markets are right now. Like a fresh cup of coffee, in late 2017 to early 2018 the crypto markets were hot and the more people indulged in them, the more excited – even borderline euphoric – they got about what seemed to many at the time to be a potentially limitless number of new opportunities for finance and technology through the magic of distributed ledgers and digital assets. Now, it’s 2019 and the caffeine buzz is wearing off, causing many companies to rethink their business models. Coinbase, which operates the second-largest U.S.-based crypto exchange in the world, is no exception.
Coinbase announced April 23 that it is closing its Chicago branch after one year in operation. The company opened the office in April 2018 to serve as a back office development hub for some of its newer projects, including a high-frequency, low-latency matching engine most likely aimed at institutional investors. The company also sought to hire local talent from Chicago, according to a Chicago Tribune article published in May of last year. Coinbase hired Eris Exchange and CME Group veteran Paul Bauerschmidt as product lead for the office.
Coinbase also said the company would maintain a presence in Chicago, “as we have other Coinbase employees who are not working on the matching engine.” However, a cursory search on LinkedIn for the former employees of the Chicago office reveals that the majority of the people working there were engineers and programmers. With them gone, there aren’t many people left to maintain much of a presence. An article published in Fortune said the majority of these employees are most likely members of Coinbase’s remote sales team.
Why pull the plug on a brand new office after just a year? According to a Coinbase representative, closing the office was part of an attempt to consolidate its development efforts for the new matching engine by folding members of its Chicago team into its San Francisco branch. The representative also said that the San Francisco branch had recently made “enormous” progress scaling its existing matching engine and that a small number of its Chicago team would be relocated to San Francisco. Nonetheless, the representative also described the decision to consolidate the two teams as a “difficult” one. Bauerschmidt declined to comment.
It’s also possible that the closure was more about Coinbase trying to stay ahead of the game rather than business not being good enough to justify keeping the doors open in Chicago. In an emailed statement, Coinbase said, “Coinbase moves quickly to build new products and offerings to meet the rapidly evolving crypto ecosystem. We’re proud of our speed of execution.” The company plans on increasing its total worldwide staff to over 800 employees by the end of 2019 and says the company’s current growth is being driven by demand from institutional customers.
Based on Coinbase’s statement, it appears the company viewed the new branch as something of an “experiment” from the beginning, one that may not have paid off. “Coinbase has a culture that is committed to repeatable innovation, by continually reinventing ourselves and moving forward,” it said. “We try new experiments, and celebrate thoughtful failure, salvaging the lessons at each step. We are proud that we are making bigger bets as a company, knowing full well that not all of them succeed.”
Since early 2018, the total market cap of the crypto markets has decreased by over 75 percent. In addition, a lot of companies in the space have seen some major setbacks lately – in December 2018, Blythe Masters stepped down as CEO of Digital Asset (formerly Digital Asset Holdings), which then made its software open source. Recently, Bittrex has been making news again for allegedly treating Tether’s cash stores like a personal piggy bank in order to cover up the loss of corporate and customer funds numbering in the hundreds of millions. Now, Coinbase is closing its Chicago location.
A year ago, JLN’s Jim Kharouf wrote a story describing a busy Bauerschmidt running from meeting to meeting, powering through long work weeks to make sure the office had everything it needed to churn out products that institutional customers were clamoring for. The Chicago Tribune published a story around the same time saying that the office planned on continuously growing its team over the next three years – in fact, it planned on more than tripling the size of the team over that period. At the time, it seemed like the Chicago branch was on track to becoming a major hub for Coinbase. Now, things seem to have gone the opposite way.
I suppose you could compare the crypto markets to the weather of the Windy City itself: as soon as you think you know what’s going to happen, you’re usually already wrong.