In late 2017, with prices of cryptocurrencies like bitcoin surging, Coinbase CEO Brian Armstrong faced a tough choice: Would his company, the leading U.S. cryptocurrency exchange, become more like a traditional financial services company or would it lean into the industry’s wild side?
In the end, Mr. Armstrong hired deputies who pursued both paths, a decision that divided the company’s leadership into competing camps. The clash came to a head in May of this year, when the two deputies—President and Chief Operating Officer Asiff Hirji and Chief Technology Officer Balaji Srinivasan—left the company within a month of each other.
At times, the conflict between the two men, which hasn’t previously been reported, became so intense that their interactions devolved into shouting matches, according to two people who observed the episodes and others who were told about them. Mr. Hirji, a former executive from stock brokerage TD Ameritrade who was accustomed to working in large organizations, lobbied for Coinbase to prioritize attracting financial institutions to its services. Meanwhile, Mr. Srinivasan, an experienced Silicon Valley startup founder, wanted Coinbase to cater more to individuals by aggressively expanding the types of digital currencies in its exchange, including some that occupy a regulatory gray area.
• Coinbase executives Asiff Hirji and Balaji Srinivasan clashed over strategy
• Conflict played out over a year, leading to executive departures
• Mr. Hirji left after CEO asserted greater oversight of product efforts
The infighting at Coinbase highlights the challenges of building a business in an industry that has attracted everyone from Wall Street executives to anarchist programmers. At least 10 executives have left the company in the last year, with several of those departures coming as a result of the competing visions of Messrs. Hirji and Srinivasan, two people familiar with the matter said.
The tensions also reflect the choices facing well-funded cryptocurrency startups as they seek to meet investor expectations amid a tougher environment for the industry. With lower cryptocurrency prices and increasing pressure from regulators, startups like Coinbase will have to choose between adopting a more conservative approach to their business models or experimenting with novel products and features in an effort to keep revenue growth up.
This account is based on conversations with eight people who have been involved with the company and who spoke on condition of anonymity to discuss sensitive information. Messrs. Hirji and Srinivasan didn't respond to multiple requests for comment for this article. A spokesperson for Coinbase said, “We will decline comment altogether.”
Courting Wall Street
Coinbase, which was valued at $8 billion in October, operates an exchange that lets customers buy and sell a wide array of cryptocurrencies. It earns most of its revenue from fees it charges on transactions. It also charges large clients fees to store their cryptocurrency—providing greater security and insuring them against theft—while offering other products that allow customers to use cryptocurrency. Last year, Coinbase projected revenue of around $1.3 billion, despite a slump in cryptocurrency trading volume.
In December 2017, Coinbase hired Mr. Hirji to manage the company’s day-to-day operations, a step toward the goal of making the crypto exchange more like a traditional financial services firm. Mr. Hirji, a skilled operator who built TD Ameritrade into the largest online stock brokerage in the world in the early 2000s, was tasked with leading a push to attract Wall Street clients, which Coinbase believed would soon form an important part of its business.
In the months after Mr. Hirji joined, he recruited a team of experienced executives from tech and finance who shared his vision, most of whom reported to him rather than Coinbase’s CEO. Among them were vice president of communications Rachael Horwitz, vice president of operations and technology Tina Bhatnagar, Chief Financial Officer Alesia Haas and vice president of business, data and international Emilie Choi.
Soon afterward, in May 2018, Coinbase outlined a new strategy that included ambitious expansions into products that would mirror institutional offerings at large financial services firms like Fidelity. The company planned to upgrade its exchange software to reduce delays in transmitting information over its network, which would make it suitable for high-speed traders and other institutions, in addition to hiring a team of salespeople to onboard institutional clients. As part of the push, Coinbase opened new offices in Chicago and New York and staffed each with dozens of new employees.
Mr. Hirji’s vision for Coinbase quickly clashed with that of Mr. Srinivasan, who joined Coinbase as CTO in April 2018, people familiar with the matter said. Mr. Srinivasan arrived at the company after it paid $100 million to acquire his startup, Earn.com, which allows users to earn cryptocurrency in exchange for performing tasks. Coinbase’s main motivation for the deal was to hire Mr. Srinivasan, a successful entrepreneur who is considered a visionary in the cryptocurrency industry, people familiar with the matter said.
Coinbase, in Mr. Srinivasan’s view, should focus on listing as many new cryptocurrencies as possible on its exchange and building novel products such as “staking,” a way for customers to generate a return on their cryptocurrency holdings.
“Balaji came in with a completely different perspective,” said one person familiar with the situation.
“Anything that was considered Wall Street-y, or regulated or structured in the way that the current things work, was the antithesis of what he believed in,” another person said.
Mr. Armstrong allowed Mr. Srinivasan to take greater control over the company’s strategy. Within months of his arrival, he was influencing most of Coinbase’s priorities and had taken a greater role in overseeing the company’s product initiatives, multiple people said. “By August, he was driving the ship,” one of those people said. “He completely ignored organizational structure and lines. No one made him stop doing that.”
In the meantime, a serious competitor to Coinbase had begun to cut into the exchange’s revenue. Binance emerged last year as the most widely used exchange in the world, with growth driven primarily by individuals, rather than institutions. The exchange is domiciled in Malta and has practically no U.S. presence, which it believes allows it to list hundreds of cryptocurrencies without violating U.S. securities regulations. In contrast, Coinbase had taken a more conservative approach to listing new assets, for many years supporting only four tokens—bitcoin, bitcoin cash, ether and litecoin.
Mr. Hirji favored growing Coinbase’s institutional business more quickly, while Mr. Srinivasan wanted to be more like Binance and attract more retail investors to the platform. The disagreement between the two men played out over months in long meetings among the exchange’s top executives during which little was resolved, one person said.
Mr. Srinivasan—who displayed an assertive managerial style, according to people who have worked with him—added to the friction by being harshly critical of other executives whose initiatives he thought were a waste of resources, especially those who reported to Mr. Hirji. Mr. Hirji would defend his lieutenants in meetings, which sometimes escalated into shouting matches, said the same person, who witnessed the interactions.
“It felt like you were constantly fighting and maneuvering and trying not to get your head chopped off,” said another person, a former Coinbase executive.
Mr. Armstrong, meanwhile, allowed the power struggle to carry on between Mr. Hirji and Mr. Srinivasan, two people said. “Brian doesn’t like conflict,” one person said. “He’ll just sit there and let it play out. Eventually he’ll say, ‘We’re not going to solve this here. Let’s get together after the meeting.’”
Mr. Srinivasan’s vision for Coinbase began to materialize toward the end of 2018. In December, it said it was considering adding 30 new assets to its exchange, including many lesser-known tokens, suggesting Coinbase was willing to enter a regulatory gray zone. While U.S. regulators have had fewer concerns about startups allowing customers to trade bitcoin and ether, which they have said aren’t securities, the regulatory status of the other tokens Coinbase wanted to add was less certain.
The move came as public interest in cryptocurrency showed signs of waning. Bitcoin’s price hit its lowest point of the year on Dec. 14, and trading activity was far lower than it had been at the start of 2018, cutting into revenue earned from fees. Coinbase was losing customers to Binance, which offered more assets for customers to trade. Offering more assets was one way for Coinbase to make up for the trading volume it had lost since the start of the year.
Mr. Srinivasan was the driving force behind the plan to list the new tokens, three people familiar with the matter said, a process that requires significant engineering work to integrate different cryptocurrency networks with Coinbase’s exchange.
The shift in resources came at the expense of Coinbase’s efforts to court institutional investors. Jonathan Kellner, the former CEO of financial services company Instinet, was set to begin at Coinbase in January to lead institutional sales. He never joined.
It didn’t help the cause of Mr. Hirji’s camp, which favored the institutional initiatives, that big banks still hadn’t warmed up to cryptocurrency trading products. Last October, Coinbase shut down an index fund product, which required a minimum investment of $250,000, after poor demand. Seeing a lack of interest from Wall Street firms, Coinbase in January said it was shifting its focus to serve more specialized customers like cryptocurrency hedge funds.
Further wins piled up for Mr. Srinivasan. In April, Coinbase shut down its Chicago office, laying off 30 employees that for the last year had been working on upgrades to Coinbase’s exchange software to facilitate institutional trading. The decision to scrap the expensive effort was largely driven by Mr. Srinivasan, according to two people familiar with the matter. “He hated the Chicago office,” one of those people said.
Despite his seeming ascendance at Coinbase, Mr. Srinivasan stunned many of his colleagues a few weeks later—a little over a year after he joined—by leaving the company. It couldn’t be learned exactly what prompted Mr. Srinivasan’s departure, but a person familiar with the matter speculated that he grew tired of the conflict and had earned a substantial payout just days before he left.
Mr. Srinivasan’s departure suggested that Mr. Hirji had prevailed in the power struggle with Mr. Srinivasan, even though Coinbase had called off the bulk of the institutional initiatives for which Mr. Hirji had advocated.
Mr. Armstrong had other ideas though. In the wake of Mr. Srinivasan’s departure, the Coinbase CEO told others he planned to hire a replacement for Mr. Srinivasan who would report directly to Mr. Amstrong, giving the CEO greater oversight of product initiatives. That plan grated on Mr. Hirji, who believed such an arrangement would undercut him.
“Asiff said, ‘No, you can’t take a big chunk of my responsibility away. If you do that, I’m out of here,’” a person familiar with the situation said.
Soon Mr. Hirji, too, was gone, leaving in late May as a result of the disagreement with Mr. Armstrong, the same person said. Mr. Hirji’s move sent further ripples throughout Coinbase’s leadership. Ms. Bhatnagar, the vice president of operations and technology—unwilling to work under Ms. Choi, who replaced Mr. Hirji as COO—announced plans to leave her role as well, according to two people.
For his part, Mr. Armstrong viewed Mr. Hirji’s departure as an opportunity to heal some of the fractures in the company’s leadership in 2018, people familiar with the matter said.
It remains to be seen how the executive departures will affect Coinbase’s strategy. The company has seen traction with its products for storing cryptocurrency for large clients, and remains one of the most popular crypto exchanges in the world. But it has failed to match Binance’s trading volumes, which are typically double those of Coinbase in a given day, according to Bitwise, a company that develops crypto trading products for institutions.
Meanwhile, other exchanges are moving into the institutional trading market that Coinbase has moved away from. Since Coinbase shut down its Chicago office, several of its former engineers have been hired by Gemini, a cryptocurrency exchange founded by the Winklevoss brothers, as that company seeks to build a greater presence in the city.
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—Zoë Bernard and Amir Efrati contributed to this article.