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Topic: Coinbase warns users about bankruptcy risks (Read 154 times)

legendary
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It is just like if you have assets at a US Bank - although purportedly not at a Swiss bank.
If by "assets" you mean cash on deposit, the FDIC insures those deposits up to a certain amount in case of a bank failure.  Coinbase isn't a bank, and their customers' coins aren't insured (unless Coinbase does it by some other means).

Their stock is at all times low
First of all, they've only been a public company for just over a year, and their stock started dropping almost immediately after it was issued--no doubt because investors thought there was going to be much more demand for it than there turned out to be.  I just took a look at the stats on my brokerage account, and their P/E is 6.47 right now.  That's well below the general market, but for a financial institution that's about what you'd expect.  Plus if their earnings keep dropping, that ratio is probably going to increase--and that's what I'm assuming investors are expecting.

Other than that, warning of risks in SEC filings is par for the course for any company.  Just look at the annual reports of any company you can think of that's publicly traded.  They list off all the risk factors that might put them out of business, no matter how unlikely.
legendary
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It's one thing for Coinbase to remind its clients regarding bankruptcy warning; it's quite another to make it appear as though Coinbase is about to face, or on the brink of, bankruptcy. The former is a requirement from the SEC; the latter is obviously a FUD.

That Coinbase stocks are plunging is no huge surprise in the face of a plunging Bitcoin and other top altcoins. To report as if Coinbase is near its end is nothing but a malicious attempt to sow confusion.
hero member
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Holding your cryptocurrency exchanges is having the same level of risk all the time because you can completely lose your assets for multiple reasons that is why you need to hold funds in the wallet and use exchanges for trading purposes. Investing into their stocks is different which is what many of us are confusing and also this is same risk as investing on any stocks as well.
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I agree that in many ways this has been blown out of proportion. However I do think that there is value in this article reminding people that you don´t strictly own the money on sites such as Coinbase. Mostly I think that some people live under the impression that sites like Coinbase etc are similar to a bank in sense that yes - Coinbase and bank could go under, but it´s purely theoretical.

As far as bankruptcy proceedings are concerned, crypto exchanges are not treated in the same way as banks. Banks are usually in the "too big to fail" category and that owes to the fact that most people use banks. So the government would usually step in to save the banks from bankruptcy & liquidation as in the case of Fannie and Freddie.
In much of the world, banks are insured by some kind of insurance fund. Banks will pay a portion of their deposits into the insurance fund and will guarantee customer deposits, up to certain limits. This gives confidence to deposit holders of banks, even when the bank is doing badly financially. It also effectively socializes losses that banks incur after the bank goes bankrupt among all banks in proportion to their size.

There is no similar insurance fund for crypto exchanges. Although some exchanges are starting to offer deposit-like products that pay interest, whose deposits are used to provide loans, most exchanges do not make loans with deposits intended for trading. This means that exchange losses will typically come from hacks/exploits, which is difficult to insure against.
legendary
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That is just the way it works when you trust centralized financial organizations like Banks. My government does not give any guarantees for deposits at Banks, so you are on your own if they fail. (A lot of governments do step in with bailouts, if that happens... but it depends on the financial situation)  Roll Eyes

In that case, you have one more reason not to keep your money in the bank, but to be your own bank. I can't say if this is the case across the EU, but I have deposit insurance of up to €100 000 guaranteed by the state - although for me personally, it's just a promise that doesn't mean I get my money in case the bank goes bankrupt.

As for CEX like Coinbase, such warnings should be prominent and clearly visible to anyone who registers and decides to trade. Of course, it is not in CEX's interest to encourage customers to withdraw their coins, we all know that they want to position themselves not only as a place of exchange, but also as crypto banks.
legendary
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Well, it is the same with every deposit that you have with a Bank, so why should it be any different for a financial exchange like Coinbase? I have had a few cases in my past where the Banks where I had deposits.. filed for Bankruptcy and in the end.. I got a fraction of my deposits back. (Something like 23cent per Dollar)

That is just the way it works when you trust centralized financial organizations like Banks. My government does not give any guarantees for deposits at Banks, so you are on your own if they fail. (A lot of governments do step in with bailouts, if that happens... but it depends on the financial situation)  Roll Eyes
legendary
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I agree that in many ways this has been blown out of proportion. However I do think that there is value in this article reminding people that you don´t strictly own the money on sites such as Coinbase. Mostly I think that some people live under the impression that sites like Coinbase etc are similar to a bank in sense that yes - Coinbase and bank could go under, but it´s purely theoretical.

As far as bankruptcy proceedings are concerned, crypto exchanges are not treated in the same way as banks. Banks are usually in the "too big to fail" category and that owes to the fact that most people use banks. So the government would usually step in to save the banks from bankruptcy & liquidation as in the case of Fannie and Freddie.

But crypto exchanges are not put in that category so they are usually allowed to be liquidated. Partially because the emergance of so many scam exchanges made regulators turn their eyes away from the subject.
legendary
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IIRC another thing that was mentioned was that this has never been tested in court, so they really don't know what could happen. People might get their crypto back or the bankruptcy court could order it to be liquidated.

I heard something about it being that way but was at a client and could not really pay attention.

-Dave
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I don't think Coinbase is at any real risk of bankruptcy. According[1] to Brian Armstrong, CEO of coinbase, the disclosure was something that is required by new SEC regulations. Armstrong also said that Coinbase's institutional customers have certain protection in their TOS that should protect their assets held by coinbase in the event of a bankruptcy, and that they are working on getting their TOS updated for retail customers to protect/segerate funds held by coinbase.



[1] -  https://twitter.com/brian_armstrong/status/1524233480040710144
hv_
legendary
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https://edition.cnn.com/2022/05/11/investing/coinbase-stock-bitcoin-cryptocurrencies/index.html and https://fortune.com/2022/05/11/coinbase-bankruptcy-crypto-assets-safe-private-key-earnings-stock/ are the articles I'm refering to.

It seems that Coinbase is having hard time currently. Their stock is at all times low and at a time like this the company started reminding users that all the currency stored on Coinbase may be part of the bankruptcy pool. Since I am assuming that at least some amount of people hold their crypto on that platform I would suggest looking for alternatives as you really don't own your money there.

I think the articles are blowing the statement out of proportion.  Yes, it is in the Coinbase SEC filings etc, but it is somewhat obvious that if you don't control the private keys, the bitcoin are not your's.  You are just a creditor.  That has been known all along and is nothing new.  It is just like if you have assets at a US Bank - although purportedly not at a Swiss bank.

To me it sounds like FUD spread by people who want people to be scared and panic.

Informing investors of the risks is a lot of CYA, the reporting on it is FUD.

I agree that in many ways this has been blown out of proportion. However I do think that there is value in this article reminding people that you don´t strictly own the money on sites such as Coinbase. Mostly I think that some people live under the impression that sites like Coinbase etc are similar to a bank in sense that yes - Coinbase and bank could go under, but it´s purely theoretical.
legendary
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https://edition.cnn.com/2022/05/11/investing/coinbase-stock-bitcoin-cryptocurrencies/index.html and https://fortune.com/2022/05/11/coinbase-bankruptcy-crypto-assets-safe-private-key-earnings-stock/ are the articles I'm refering to.

It seems that Coinbase is having hard time currently. Their stock is at all times low and at a time like this the company started reminding users that all the currency stored on Coinbase may be part of the bankruptcy pool. Since I am assuming that at least some amount of people hold their crypto on that platform I would suggest looking for alternatives as you really don't own your money there.

I think the articles are blowing the statement out of proportion.  Yes, it is in the Coinbase SEC filings etc, but it is somewhat obvious that if you don't control the private keys, the bitcoin are not your's.  You are just a creditor.  That has been known all along and is nothing new.  It is just like if you have assets at a US Bank - although purportedly not at a Swiss bank.

To me it sounds like FUD spread by people who want people to be scared and panic.

Informing investors of the risks is a lot of CYA, the reporting on it is FUD.
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https://edition.cnn.com/2022/05/11/investing/coinbase-stock-bitcoin-cryptocurrencies/index.html and https://fortune.com/2022/05/11/coinbase-bankruptcy-crypto-assets-safe-private-key-earnings-stock/ are the articles I'm refering to.

It seems that Coinbase is having hard time currently. Their stock is at all times low and at a time like this the company started reminding users that all the currency stored on Coinbase may be part of the bankruptcy pool. Since I am assuming that at least some amount of people hold their crypto on that platform I would suggest looking for alternatives as you really don't own your money there.
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