If Coinbase goes bankrupt, all of its users’ funds could disappear

If Coinbase goes bankrupt, all of its users’ funds could disappear

Coinbase, an online cryptocurrency holding and exchange company, warned that if it goes bankrupt, all of its users could lose all of their assets. Coinbase is the largest cryptocurrency exchange in the United States.

For its latest quarterly report, the company said it experienced a loss of $430 million and a 19 percent drop in monthly users. This represents a drop in activity by more than two million from the fourth quarter of 2021 to around 9.2 million active users remaining. (Related: Globalists could usher in Great Reset using state-owned BLOCKCHAIN infrastructure.)

The company added that crypto volatility continued to decline in April and is now at its lowest level since mid-2020. It predicts that the number of transacting users monthly and trading volumes will continue to decline in the second quarter.

Coinbase noted in its report that it still holds around $256 billion in both fiat money and cryptocurrencies on behalf of its customers. But in a risk disclosure, the company warned that in the event it ever declared bankruptcy, the crypto assets they hold in custody on behalf of their customers could be subject to bankruptcy proceedings.

If Coinbase goes bankrupt, its users would become “general unsecured creditors.” This means their funds held by Coinbase would become inaccessible as the courts might treat customer assets as company assets.

In this situation, Coinbase users would have no right to claim any specific property of the company and they would have to fight tooth and nail to get their assets back from the exchange.

The first to recover any assets from Coinbase during bankruptcy proceedings would be senior debt holders. It is estimated that Coinbase has around $2 billion of senior unsecured bonds outstanding. Next to them would be the company’s lawyers and any bankers that help the company navigate bankruptcy. The amount Coinbase would owe them would increase the longer the bankruptcy proceedings go on.

General unsecured creditors, the majority of the exchange’s users, would be the last to recover any assets. They would need to fill out paperwork demanding what they are owed, file it on time and wait potentially months or even years before payout. Low-ranking creditors are often only left with pennies on the dollar.

Coinbase users could end up losing everything

In a statement shared on his personal Twitter account, Coinbase CEO and founder Brian Armstrong clarified that the company has “no risk of bankruptcy.”

“Your funds are safe at Coinbase, just as they’ve always been,” he wrote. “However, we included a new risk factor based on an SEC requirement called SAB 121, which is a newly required disclosure for public companies that hold crypto-assets for third parties.”

“We believe our Prime and Custody customers have strong legal protections in their terms of service that protects their assets, even in a black swan event like this,” he continued. “For our retail customers, we’re taking further steps to update our user terms such that we offer the same protections to those customers in a black swan event.”

Nicholas Gordon, writing for Fortune, said the idea that general unsecured creditors would have to fight Coinbase to get their crypto assets is a situation that should never happen.

“An individual’s ownership of cryptocurrency is supposed to be immutable and absolute; that’s one of the key selling points touted by blockchain evangelists everywhere,” he wrote. “But when a user creates a Coinbase account, they often end up storing their cryptocurrency in a wallet controlled by Coinbase, which means the individual is giving away at least part of their control over their own funds.”

Bank accounts are insured by the Federal Deposit Insurance Corporation (FDIC). In the event a bank fails, the FDIC can protect deposits of up to $250,000, preventing depositors from losing all of their assets. Coinbase, being a cryptocurrency exchange, does not enjoy the same protections. This is why cryptocurrency experts advise newbie investors to hold their crypto assets in personal wallets rather than on exchanges.

Learn more about the state of the cryptocurrency market at CryptoCult.news.

Watch this episode of the “Health Ranger Report” as Mike Adams, the Health Ranger, tells his viewers that even though crypto may crash, people should still learn how to use it.

(Article by Arsenio Toledo republished from Citizens.news)

Planet Today

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