Popular crypto exchange Coinbase gave its users quite a scare the other week when it issued a statement explaining that the crypto assets stored on its platform are not protected through standard bankruptcy proceedings. Thus, if the company were to ever declare bankruptcy in the future, those assets would become the property of the exchange and the people who hold them would likely lose out.
Coinbase Sparks Concern in Its Customers
This caused quite a stir given that Coinbase is in a bit of hot water as of late. The company recently reported quarter one earnings of roughly $430 million less than what was anticipated. The company is suffering financially because of the lack of earnings and because bitcoin – along with many other digital currencies at the time of writing – appear to be falling deeper and deeper into a black hole.
However, Brian Armstrong – the CEO of Coinbase – came out not long after to calm investors who were worried about losing their money. He claimed that the enterprise is in no danger of bankruptcy, and thus all money will remain with their owners. He also verified that the bankruptcy mentions had less to do with the company’s plans and much more to do with a new requirement set forth by the Securities and Exchange Commission (SEC).
The financial agency is requiring all crypto exchanges and other platforms holding customer crypto funds to inform them of appropriate risk factors. The order is through a requirement being referred to as SAB 121. In its SEC filing, Coinbase wrote:
Because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors.
Armstrong is assuring users that the exchange is not in trouble and that they will not lose their money. He explained in a message on the company’s website:
TLDR: Your funds on Coinbase are protected, secure, and yours. You may have heard some noise recently about who owns your assets and what claims Coinbase creditors may have to them. The reality is that your assets are… your assets. Not ours or anyone else’s.
No Need to Worry?
Coinbase stock shares have taken a huge beating in recent weeks now that bitcoin and many other digital currencies are seeing their prices dip. Overall, as much as $1 trillion has been wiped from the crypto slate over the past few months, and some analysts think the drop is going to continue from here.
Some companies that have inadvertently tied themselves to the world’s leading digital currency by market cap – such as MicroStrategy – are also seeing their balance sheets take mega hits.