Disappointing Record: Coinbase Warns Users May Lose Their Crypto Assets In Bankruptcy | news

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Coinbase with disappointing results for the first quarter
In the event of insolvency, users may lose claims on their crypto assets
CEO Armstrong says risk is ‘unlikely’

At the Milken Institute’s Global Conference 2022, Brian Armstrong, head of the cryptocurrency exchange Coinbase, was still very optimistic about the development of the crypto market. He euphorically expressed his belief that the number of people who have used or tested cryptocurrencies will increase from about 200 million today to one billion by the end of this decade. On the one hand, he based this positive view on the fact that he expects rapid legislative progress. In return, he sees a wide range of applications for digital currencies, which is why he assumes that the cryptocurrency world will make a crucial contribution to the overall economy in the future.

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However, the balance sheet of the largest US crypto trading exchange for the first quarter speaks a completely different language. Coinbase had to cope with a marked decline of 19 percent in monthly users, leading to a decline in quarterly revenue from $ 1.80 billion to just $ 1.17 billion. Coinbase also had a loss of $ 1.98 per share after posting a plus of $ 3.05 per share a year ago. Analysts’ expectations were clearly overlooked with these figures.

Users can lose crypto deposits

In its quarterly report, Coinbase, which celebrated a strong NASDAQ premiere via direct placement in mid-April 2021, also pointed out a risk that many of its users may not even be aware of. In the event of Coinbase’s insolvency, they could lose their assets – after all, $ 256 billion in customer assets under management in fiat and cryptocurrencies, according to the latest quarterly report.

“The cryptocurrencies we have for our customers could become part of the bankruptcy process,” Coinbase warned, according to Fortune. Users could become “ordinary unsecured creditors”, which means that they would not be entitled to any specific ownership of the crypto exchange and thus would not have access to their crypto deposits.

This risk exists because users who create a Coinbase account often store their cryptocurrencies in a wallet controlled by Coinbase. The advantage of this is that they do not even need a complicated key to access their money, just a relatively simple password, while Coinbase has the key. While this is a relief for users, it also means that they sometimes relinquish control of their investments.

How big is this danger?

However, founder and CEO Brian Armstrong quickly tried to reassure users. In a tweet, he stated that there was “no risk of bankruptcy” for the crypto exchange. The warning was due only to a new regulation from the SEC.

The background is that so far there has simply been no legal precedent for such a scenario. It is therefore possible, albeit unlikely, that a court in the event of bankruptcy may decide to regard clients’ crypto assets as belonging to the stock exchange.

After all, this warning from Coinbase makes a clear distinction between a deposit in a traditional bank and a cryptocurrency exchange clear: While in a traditional bank, customer funds are protected up to a certain maximum limit by the FDIC deposit protection system, this protection does not apply to crypto trading platforms.

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