Coinbase warns that bankruptcy could wipe out user funds

https://fortune.com/2022/05/11/coinbase-bankruptcy-crypto-assets-safe-private-key-earnings-stock/

by okasaki • 4 years ago

696 446 4 years ago

prepend7• 4 years ago

Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. And they aren’t SPIC insured in the situations where crypto is a security.

It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are risk adjusted rates for not having insurance.

It’s fine to invest in these products, but scary because people aren’t doing due diligence and have unrealistic expectations.

The CEO’s statement that they won’t go bankrupt it just comical. Of course he thinks they won’t. Few bank CEOs think that. But real banks and brokerages have insurance for their customers in the rare situation that they go bankrupt.

derbOac2• 4 years ago

The only exception I might take to what you're saying is that one of the main reasons for crypto is resistance to central authority, so the emergence of a situation where something like this can happen should be edifying.

It's not the first time this has happened; people seem to forget about Mt Gox.

These exchanges need to be part of the crypto schema. Crypto theory is so focused on the chain and not the infrastructure that builds up around it.

Anyway, I completely agree with what you're saying but it has special meaning when you're talking about something that's supposed to transcend the need for regulatory structures like FDIC.

Melting_Harps2• 4 years ago

The only exception I might take to what you're saying is that one of the main reasons for crypto is resistance to central authority, so the emergence of a situation where something like this can happen should be edifying.

Explain.

It's not the first time this has happened; people seem to forget about Mt Gox.

False equivalence, MTGOX wasn't a Publically traded company with tons of VC money and lots of institutional funds (Ark et al) backing them; Mark embezzled funds and had horrible OPSEC that led to a massive hack. He tried covering this up, Coinbase reporting a massive loss is definitely not the same thing.

These exchanges need to be part of the crypto schema. Crypto theory is so focused on the chain and not the infrastructure that builds up around it.

Coinbase has been the bane of the Bitcoin ecosystem since MTGOX folded. They are not a representation of what the 'Crypto' schema needs, in fact I'd argue CASH is a superior product in very conceivable way.

And what exactly is Crypto theory, exactly?

The Infrastructure was meant to be P2P, as noted in the White paper by Satoshi: exchanges are merely a response from the growing Market to cater to the increase in demand, and the truth is they still exist. Kraken, Binance, Gemini etc... still exist and will for some time. The number of exchanges isn't the issue in 'Cryoto land,' it's the scams and I'm glad Coinbase being a pusher of these worthless alts deserves to suffer. My worry is what happens to their BTC if they decided to unload to cover losses.

eatonphil3• 4 years ago

I do wonder why he's allowed to say on Twitter there is no risk of bankruptcy [0]. While the risk could be minimal and maybe negligible saying "no risk" means zero chance. That can't be true of any company. For a public company ceo to say that, isn't that securities fraud?

I guess even if it is fraud and they do get prosecuted by the SEC they'd just get fined for it. And maybe the fine here would be much less than the price of a run on coinbase.

[0] https://mobile.twitter.com/brian_armstrong/status/1524233602...

maxerickson6• 4 years ago

If you don't have significant liabilities you can't really go bankrupt.

(I didn't look to see if that was the case, just making the point in general)

superkuh2• 4 years ago

Do you think it would be okay for him to say there's no risk of bankruptcy to some friends in a public bar? How about at a BBQ in his backyard? Would it be okay for him to say this on a flyer stapled to a public board?

Why is twitter special?

thesuperbigfrog• 4 years ago

> For a public company ceo to say that, isn't that securities fraud?

Cryptocurrencies are not regulated securities.

What laws protect cryptocurrency "investors"?

nradov2• 4 years ago

The SEC can't prosecute anyone, they have no criminal enforcement power. However they can bring civil actions for fraud or other violations of securities law, and refer criminal fraud cases to the Justice Department.

gitfan862• 4 years ago

He probably has a disclaimer somewhere saying his tweets are "not forward looking statements" so he is only saying that as of right now in this moment there is no risk of bankruptcy

devin• 4 years ago

“everything is securities fraud” —Matt Levine

Forgeties792• 4 years ago

If I was a CEO and saw how few and far between (as well as toothless) the repercussions have been for Elon Musk, I wouldn’t fear tweeting whatever I wanted either.

misja111• 4 years ago

There are all kinds of way out of this in case he would get sued: he could say that with 'there is no risk', he just meant shorthand for 'there is no more than a negligible risk'. Or he could say that with 'there is no risk' he was merely expressing his strong personal opinion based on the vision and faith he had in his company.

mmazing• 4 years ago

Does anything have a zero chance of happening?

core-utility2• 4 years ago

Since coinbase isn’t FDIC insured

Coinbase Pro is FDIC insured, makes one wonder why Coinbase itself isn't.

https://pro.coinbase.com/?1416

mupuff1234• 4 years ago

Afaict only fiat holdings are FDIC insured (for both pro and non-pro).

Melting_Harps2• 4 years ago

Coinbase Pro is FDIC insured, makes one wonder why Coinbase itself isn't.

This is exactly what those not familiar with Coinbase don't understand, the two systems are tiered and reflect that: Coinbase is by far the worst exchange experience, and they do not car about their customers unless they are Pro customers.

This gives the average person with limited knowledge the worst possible UX into thinking this is how things are and likely deters them from ever trying againg when their order doesn't get completed because of some arbitrary reason.

They did this to themselves, I can assure you this was a long time coming.

ceejayoz4• 4 years ago

“All USD balances are covered by FDIC insurance”; most people aren’t using them as a USD bank account. Crypto assets aren’t covered by this.

patrickthebold• 4 years ago

I'm not familiar with how any of this works, but I kind of thought coinbase was less like a bank—paying interest on deposits—and more like a user friendly web ui for managing your assets, because dealing with private keys is hard for a user.

If, for example, Dropbox declares bankruptcy I'd be shocked if creditors could search through the user data for things of value.

It seems like there would be plenty of money to be made just charging transaction fees and holding assets 1-1 for the users, but what do I know.

chii• 4 years ago

I'd be shocked if creditors could search through the user data for things of value.

dropbox don't own any copyright to the content from the user's uploads. So even if the creditors find any valuable IP or content, there's no way they can claim ownership over it.

Coinbase, on the other hand, is given custody of actual assets (the cryptos).

riffraff• 4 years ago

they do both, you can earn interest on some things within coinbase, e.g. 4% interest on USDC (their stablecoin)

kasey_junk7• 4 years ago

Coinbase looks more like a brokerage to me than a bank. While SPIC insurance covers some of your assets the bigger protection comes from brokerage rules around segregating user funds from company funds and the expectation of the courts that those funds won’t be used to settle company debts.

So it is a little surprising to me that crypto assets wouldn’t be treated similarly, which is probably why the SEC is demanding this disclosure.

mbreese• 4 years ago

So it is a little surprising to me that crypto assets wouldn’t be treated similarly, which is probably why the SEC is demanding this disclosure.

I only know what I read from the article.

But for me, it seemed like the disclosure was required, not because the crypto funds would be used to settle company debts, but rather, this has never been tested in court. So, it’s highly likely that customer accounts would be protected in a crypto bankruptcy, but we don’t have any precedent on it, so we don’t know this to be the case.

mathattack• 4 years ago

Banks have rules around commingled funds (banks can’t gamble with customer accounts) but this doesn’t look like a bank.

hbrav• 4 years ago

expectation of the courts that those funds won’t be used to settle company debts

I'm not sure if this is really the case, but I was under the impression that brokerages held the customers securities in trust. i.e. there is not merely a norm that they will not be used to settle debt, but it would be illegal for them to be used to do so.

If anyone knows more about brokerages and whether this really is the case, I would be very interested to know.

seaourfreed• 4 years ago

If this was a brokerage with stocks, the customers own those stocks. There is no reason crypto shouldn't be the same. There is no reason crypto shouldn't have top priority to their owners. It isn't okay for a company to put other creditors above the owners of that crypto

ceejayoz4• 4 years ago

Stocks in brokerages are safe in part because the SIPC exists. Being a priority creditor doesn’t help if, say, someone siphoned off all the Bitcoin.

JumpCrisscross5• 4 years ago

this was a brokerage with stocks, the customers own those stocks

Sort of. Most individuals' shares are held in "street name,"[1][2].

You have a claim against the broker for those shares, but that could be impaired if the broker went under. Losses are rare because American brokers are highly regulated. Coinbase has fought vigorously against being similarly regulated [3].

[1] https://www.sec.gov/fast-answers/answersstreethtm.html

[2] https://www.sec.gov/reportspubs/investor-publications/invest...

[3] https://www.marketwatch.com/story/coinbase-proposes-crypto-f...

nradov2• 4 years ago

You don't seem to understand how bankruptcy works. Creditor seniority is set by the court, following the bankruptcy code. The insolvent company has very little control over that process.

sureglymop• 4 years ago

What i don't understand is why don't people create their own wallet and keep their funds there? Isn't that the entire purpose? Of course they could still use coinbase as an exchange. But if everyone let's another party "manage" their wallet in what way is it really decentralized...

apozem• 4 years ago

It’s the obvious thing, convenience. Humans love convenience. People build billion-dollar businesses like Steam and Spotify that basically sell convenience.

Makes sense that a lot of people just want an easy way to manage their crypto. If you’re not ideologically dedicated to decentralization, why not do the easy thing?

patwolf• 4 years ago

It takes discipline to keep a wallet safe. I used to discount the risk of that, but over time I feel less and less confident in the average person's ability to not lose a wallet or have it hacked.

To me Coinbase feels more like bank. Once I deposit money I no longer worry about the physical security of that money. Clearly that isn't the case given it's not FDIC insured, but the fact that it's a multi-billion dollar publicly-traded corporation instills some confidence.

AuryGlenz• 4 years ago

Early on I had some Bitcoin hacked from a wallet. That was before wallets even had passwords, if I remember correctly.

I bought a hardware wallet years ago and then decided not to use it. If Coinbase goes down crypto as a whole will probably be brought under with it, so I’d rather have someone else manage it for me.

mbesto2• 4 years ago

Would you like to explain to my 70 year old mother that she should install a Chrome extension, transfer her coins to it and expect her not to lose that? Oh and then explain to her that she is going to print out a piece of paper with 12 words on it. That's her backup in case she loses everything...so "Mom, do not lose this piece of paper you're screwed!"

Yes she'll figure that out easily!

tablespoon7• 4 years ago

What i don't understand is why don't people create their own wallet and keep their funds there? Isn't that the entire purpose? Of course they could still use coinbase as an exchange. But if everyone let's another party "manage" their wallet in what way is it really decentralized...

The real purpose of Bitcoin is to speculate on the roller coaster. Everything else is basically woo that's needed to fuel it. The "future of money" where people by their coffee with a super-secure private wallet is a lie.

gigaflop• 4 years ago

You can 100% create and manage your own wallets on your own hardware. However, most exchanges have transfer fees, on top of whatever costs are incurred on the network by the transfer. And, if you want to sell on an exchange, you likely need to transfer the tokens into the exchange wallet anyways.

If someone is buying crypto to hold it for years, then wallets and hardware keys and 12-word passphrases make the most sense.

If you're not sure if you'll hold a coin for long, or are speculating, or have less than $5k on the exchange, it might not be worth the hassle (for the indeterminate 'you') to create and manage your own wallets.

aaaaaaaaata3• 4 years ago

Few bank CEOs think that

aloud.

300bps3• 4 years ago

Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well.

No, it doesn't make sense at all. It is incredible to me that these are all solved problems in traditional finance.

Coinbase could utilize the services of a custodian to hold the crypto. In fact, that's what any responsible financial services company would do. It makes perfect sense because if there is a dislocation in crypto, it could bring Coinbase down but it won't bring Bank of New York down. So hold all the customer crypto at Bank of New York.

Or they could have individual wallets titled to customers. More difficult and doesn't allow them to do off-chain transfers but possible.

There are a million ways to do this, this is a solved problem in finance. Coinbase chose not to do it and now is paying for that by having to disclose the truth - retail customers are screwed if Coinbase declares bankruptcy. Whose fault is that? The CEO apologizes for it so that should tell you.

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. We should have had these in place previously, so let me apologize for that.

https://nitter.net/brian_armstrong/status/152423348004071014...

giancarlostoro• 4 years ago

It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are risk adjusted rates for not having insurance.

You don't need to hold your crypto within coinbase, you can transfer it to a wallet you fully control.

Cthulhu_• 4 years ago

I mean with over 250 billion in assets managed, they should be able to get bought out and / or attract investors instead of go bankrupt. I'm sure there's rich folk who have an interest in owning an established crypto exchange.

Although on the other, with that much in assets, there may also be people with an interest in having it go bankrupt - or just to spread these rumors, to further help crash the price of crypto.

phkahler• 4 years ago

> Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well.

No it doesn't. Well if coinbase is lending crypto like a bank then sure. But if they are acting like a stock broker, they should be holding real assets on behalf of customers and those assets should go to the customers who actually own them.

Longer term investors can actually (could? it's been a while) get their stock certificate mailed and hold it themselves.

svnt6• 4 years ago

They are acting like what is best for them, which is neither. They are taking as much as they can because that is how finance works.

For being on HN this post is confusingly full of people who assume tech companies are run for the public benefit, or at least with some moral obligation of protecting your assets.

dboreham• 4 years ago

it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well

Others have said this, but just to reiterate : this is quite wrong. This is like saying that because you hold Amazon stock via a Schwab brokerage account, if Schwab were to declare bankruptcy, then you would lose your Amazon stock. Needless to say that wouldn't happen because you are the owner of the stock, not Schwab.

FDIC insurance covers a totally different scenario where the money you deposit doesn't really exist (lent to someone else in the meantime).

What makes sense is that Coinbase isn't the owner of customers' crypto assets. This thread is about the fact that apparently that's _not_ necessarily true.

peyton• 4 years ago

You might wanna check the fine print on your Schwab brokerage account.

iamthirsty2• 4 years ago

Others have said this, but just to reiterate : this is quite wrong. This is like saying that because you hold Amazon stock via a Schwab brokerage account, if Schwab were to declare bankruptcy, then you would lose your Amazon stock. Needless to say that wouldn't happen because you are the owner of the stock, not Schwab.

But that isn't how Coinbase works. They aren't holding a share for you, they are holding your actual assets, with nothing in force that they would have to return them, bar what is in USD.

ldoughty• 4 years ago

There's no FDIC or other protections in play here, except for the small amount of money a customer might have in "cash", held by Coinbase pending or resulting from a crypto transaction.

Once you buy a bitcoin, you have a digital good, not money/currency (as defined by most governments/courts -- which is the point that matters here)

If you buy a skin in Fortnite, and Fortnite goes under, you no longer have that skin, even it if was made by another player and put on a public marketplace offered by Fortnite. You can't get Forenite to return that skin to you, and you can't ask the author to send you a copy to save.

If Coinbase goes under, the crypto would likely be treated as digital goods by the court, not as "currency".. or perhaps that case would solidify crypto's definition as a security or currency... but I'd argue that it's unclear right now, and that creditors would want Coinbase to liquidate the digital assets to pay off employees, creditors first.

xur172• 4 years ago

Coinbase users would become “general unsecured creditors,” meaning they have no right to claim any specific property from the exchange in proceedings. Their funds would become inaccessible.

I'm curious about this bit - are they required to structure their company in this way, or was it a choice that they made?

nmfisher2• 4 years ago

Perhaps someone with closer knowledge of USA finance law can fill me in - is there anything legal preventing Coinbase acting as trustee for customers as beneficiary? Surely that would avoid this situation (though there are probably commercial considerations why they don’t want to do that).

lumost2• 4 years ago

Surprised that customer positions aren't considered loans with first rights over all other lenders in a bankruptcy proceeding. The company shouldn't be playing around with these, but based on this statement it sounds like they are doing something odd and trying to run a fractional reserve system, or leveraging customer deposits for other high risk activity such that the money may not be there.

Makes me think that I should move my crypto back to my own wallet/sell the crypto.

post-it• 4 years ago

You probably should. You wouldn't give Coinbase your SSH private keys, crypto keys are no different.

svnt6• 4 years ago

You should. Crypto is about to prove (again) why banking needs regulatory bodies.

rmbyrro2• 4 years ago

I think main issue is not lack of insurance. Stocks aren't insured, for example.

Crypto being a novel space where no one truly understand its risks and that is (sadly, still) welcoming to scammers is the real issue, in my opinion.

prepend7• 4 years ago

Stocks are insured by SPIC. I’m not sure it’s possible to find a US brokerage in business that doesn’t insure stocks against this kind of loss in bankruptcy.

andy_ppp• 4 years ago

Yes, if they definitely won't go bankrupt that means the insurance will be extremely cheap! If this insurance isn't cheap then that means there is a reasonable chance they could go bankrupt. In my opinion all it takes is one insider taking a copy of everyone's private keys and they are toast. I would advise to not put all your eggs in one basket.

jpmattia3• 4 years ago

Since coinbase isn’t FDIC insured,

The Fortune article in the HN link is writing only about the crypto assets, which lack FDIC insurance. Cash assets are FDIC insured.

From Coinbase: "To the extent U.S. customer funds are held as cash, they are maintained in pooled custodial accounts at one or more banks insured by the FDIC."

https://help.coinbase.com/en/coinbase/other-topics/legal-pol...

thr0wawayf00• 4 years ago

yeah but why on earth would you store cash in Coinbase? Are you even getting a savings account interest rate on that?

HWR_14• 4 years ago

"To the extent U.S. customer funds are held as cash, they are maintained in pooled custodial accounts at one or more banks insured by the FDIC."

Doesn't that mean Coinbase is insulated from the banks going bust? I don't know why a "pooled custodial account" would help the Coinbase user. It's still Coinbase's money held for them (just like the BTC).

But maybe it does. I'm slightly ignorant here.

cm21872• 4 years ago

FDIC insurance is for banks, not brokers. I think what protects you from a broker going bust is the separation of client money from firm money. Though I think that separation failed in the most recent major broker bankruptcy (MF Global) and probably many others. FDIC would protect the broker against its own bank going bust (though I am sure there are guarantee caps).

kasey_junk7• 4 years ago

All client assets were returned during the MF Global bankruptcy.

tablespoon7• 4 years ago

Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. And they aren’t SPIC insured in the situations where crypto is a security.

Is Coinbase "loaning" out the Bitcoin users have deposited in it?

The reason banks need the FDIC is that they loan your deposits out instead of throwing it in a vault and sitting on it, so if they go under they don't have those assets to distribute in a bankruptcy. Given how immature and non-economic cryptocurrency is, it wouldn't surprise me if Coinbase was sitting on all/most of its users desposits. So it's possible the users might get most of their deposits back after a bankruptcy proceeding (assuming the reason wasn't massive theft of assets or something).

retcon• 4 years ago

I think your statement about the idea that Coinbase isn't living on the float about as likely as the notion that nobody in crypto is desperately trying to create a fiat currency fiefdom. As such, your views come across as the kind of statement that are illegal to distribute concerning regulated investment.

rileyphone• 4 years ago

No, but the users would be last in liquidation preference, so would end up screwed anyways.

caylus2• 4 years ago

While I agree making a bad loan is the most likely reason for a bank to lose deposits, I wouldn't go so far as to call it "the" reason.

Robbery, embezzlement, or natural disaster [1] can also result in loss of funds that would be covered by FDIC, and those risks exist for cryptocurrency too, albeit in somewhat different forms.

[1]: see this paper, which found that "disaster damages play a significant role in bank failures": https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2506710

jpmattia3• 4 years ago

deleted erroneous comment about shorting on Coinbase.

dragontamer• 4 years ago

Is Coinbase "loaning" out the Bitcoin users have deposited in it?

Maybe not Bitcoin, because I don't know if Bitcoin has any staking protocols in it.

But things like Anchor / UST / Luna participated in a staking scheme, where if you promised not to sell UST, you'd get 20% APY gains (measured in UST of course, not US-dollars).

Coinbase could be participating in those schemes in a group wallet-setting. Ex: UST holdings at Coinbase would be staked, so that Coinbase would get those gains. Or with other coins with such benefits??

I'm mostly pulling this out of my ass btw. I don't know the structure of Coinbase. But I can see the "incentivizing" from the various cryptocoins on the market or the various "protocols" that allow for exponential growth (as long as you "lend" or "stake" your coins somewhere else).

svnt6• 4 years ago

If they were conservatively minded or playing it safe, the highest probability is that they left or lost a long time ago, or they haven’t entered yet. Coinbase won, effectively, which means they are well beyond taking a cut of transactions and calling it good.

The statement from the CEO is to prevent a run. Why do they need to prevent a run if they aren’t farming the float?

The only other option is “we make our money on trades” however, and especially in the bigger coins, trades are expensive, and not happening as often as they would like. They would (and will, if it comes to light) likely argue that it would be violation of their fiduciary duty to allow the custodial accounts to just sit there not making money.

If exchange revenue data are public this could probably be figured out based on comparing transaction flow and revenue. My money is they are dependent on float, and probably also directly or indirectly using it to front-run. It is SOP for finance.

danans3• 4 years ago

Is Coinbase "loaning" out the Bitcoin users have deposited in it?

I don't understand how they would loan it out. What denomination/form will the loan be transferred in? Bitcoin? If so, how are they creating the Bitcoin to loan out?

They can't take it out of their depositors' wallets because by design that would result in a lower balance for the wallet on the blockchain.

They can't make a copy because Bitcoin prevents double transactions. Likewise, Bitcoin can't be "created" like banks create fiat currency on their balance sheets.

If they are loaning out fiat cash fractionally backed by depositors' Bitcoin, who are they borrowing that cash from, and how can they guarantee to their creditors that the Bitcoin backing the loan are available as collateral?

Would they take their users' wallets' private keys to pay in the event of a default?

bubbleRefuge3• 4 years ago

Banks do not loan out deposits . This is a misunderstanding of modern banking. In modern banking systems, loans create deposits. Banks create loans out of thin air. In order to make loans they must have appropriate capital ratios. Bank deposits are a liability. When a bank deposit is debited, either via a withdrawal, check, or other transaction, it is settled using reserves. Reserves are federal money that is on deposit in accounts which banks have at the Federal reserve. Banks pay each other via interbank reserve settlements. Banks only maintain a minimal amount of reserves on deposit(Reserve Requirements). They can borrow reserves from the Fed if needed.

2OEH8eoCRo0• 4 years ago

It's funny but if crypto really does crash you can bet that all of us will be paying for it one way or another.

pandemicsoul• 4 years ago

I was on reddit and someone called bitcoin a "useful savings account" and I was like, "NO, STOP. Do not tell people this stuff is for savings!" I was downvoted to hell and people were like "lmao noob." Got into a back and forth where I was trying to delineate an investment and savings and people just kept replying stuff like, "it goes up, that means you beat inflation, do you not understand how this works???"

Sigh.

AYoung010• 4 years ago

Sadly, discourse on reddit has not been worth the time of day since 2015 or so.

aaronbrethorst2• 4 years ago

Tulip mania, indeed.

sexy_seedbox• 4 years ago

Let me guess, you were on the wrong sub-reddit? Try /r/buttcoin instead, you'll get upvoted to heaven.

Simp4Zuck• 4 years ago

The subreddit you’re in is what decides whether your opinion will be upvoted. If you go to a video game’s specific subreddit and say “I know you all like Call of Duty, but Call of Duty sucks”, then you will be downvoted into oblivion even if you’re “correct”. Same goes for things like politics and bitcoin. The subreddits all end up attracting people who have a certain opinion and outcasting the rest.

seydor• 4 years ago

when crypto doesn’t have the protections of regular banking and investments

Coinbase is not 'crypto' though. Nobody's coins go down if one exchange crashes, unless they are careless enough to leave them there. The real problem is that cryptocoins are hard to use , and so exchanges are used as banks (they shoudn't) . But that is something that tech can fix

matheusmoreira2• 4 years ago

It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments.

The problem isn't crypto, it's these exchanges. Nearly everyone just leaves their coins in the exchanges. They're essentially banks but with none of the protections. They even offer cryptocurrency loans, savings accounts and everything.

Cryptocurrencies were supposed to replace banks but they ended up reinventing the whole thing badly. It was supposed to be a dollars -> electricity -> CPU -> bitcoins closed decentralized system, but now it's just dollars <-> bitcoin within centralized exchanges.

its_ethan2• 4 years ago

I'm not sure who first said it, but crypto feels like a solution in search of a problem. Something akin to "when all you have is a hammer, everything looks like a nail" - forcing crypto/blockchains as solutions to problems that are either already solved, or could be solved in other more traditional ways, only acts as a disservice to wider adoption imo.

Daishiman• 4 years ago

Cryptocurrencies were supposed to replace banks but they ended up reinventing the whole thing badly.

The only way that statement could be true is if anyone every assumed it's feasible or desirable for everyone to have physical wallets and self-host everything

olalonde3• 4 years ago

It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are risk adjusted rates for not having insurance.

You are missing the point. We are shocked that even if Coinbase keeps users' deposits 100% safe, users could still lose their deposits if a judge decides so. Why isn't there a way to segregate those deposits from assets on which creditors have a claim? This kind of simple arrangement ought to be possible without new regulations or FDIC-style protection.

Needless to say, "not your keys not your Bitcoin" continues to be good advice.

JoeAltmaier• 4 years ago

Bankruptcy rules are weird, and it's not just crypto companies that work that way. Lots of uninsured companies could lose depositors' accounts in bankruptcy. Witness grain elevators, or storage companies, or safe deposit companies - it took special laws to protect depositors. Which protection Coinbase doesn't have, apparently.

It's always more nuanced than first glance. And (rich) creditors have always had more sway in court than common depositors, unless special rules are enacted that say otherwise.

svnt6• 4 years ago

Sorry to say it, but no, you.

You are missing the point. The regulations on banking created and enforce those legally binding separations in assets that you are shocked don’t exist.

prepend7• 4 years ago

Coinbase could purchase and maintain insurance against such an act. That’s what E*Trade/etc do to protect against the same risk should they go into bankruptcy.

MaxfordAndSons• 4 years ago

I think you mean SIPC?

prepend7• 4 years ago

Yes, thank you. What’s odd is I thought I typed that but autocorrect changed it and that’s a bit concerning since it changed it to a pretty not cool term.

shapefrog• 4 years ago

They could simply have a ringfenced seperate legal entity hold the customer funds. Begs the question, why not...

sacrosancty• 4 years ago

Who's shocked? The journalist? It's their job to appear shocked so stories sound more interesting. You might be imagining some fantasy fool to laugh at.

patricklorio• 4 years ago

Coinbase is FDIC insured but that's only relevant for USD. The SEC mandates disclosures of all risk and given that a crypto company like this has not gone bankrupt there, isn't precedent on how bankruptcy courts will consider crypto assets held under custody. Therefore it's a risk that should be made transparent.

talhof8• 4 years ago

So much for 'read + write + own'

aaaaaaaaata3• 4 years ago

Coinbase barely has an "us too" web3 wallet — they're not a proper web3 company, they're a tradfi bank in sheep's clothing.

_Algernon_2• 4 years ago

This boils down to the "not your keys not your coin" mantra that's often repeated in the cryptocurrency community. It is possible to move your coins to your own wallet and manage them on your own. This comes with risks (eg. lost keys). Keeping them on exchange comes with different risks.

Anyone holding significant amount of cryptocurrencies should consider the risks of each choice, make an informed decision, and live with the risk that entails. If that's too scary, then you probably shouldn't be in this market.

tmountain• 4 years ago

This feels similar to buying a stock’s street name (a proxy for the actual share) vs directly registering a stock in your name. A key selling point of crypto has always been eliminating central control. If someone else is managing your keys, it’s a given that they’ll borrow against those entries in one way or another (putting the money to work so to speak). Risk assessment depends on which someone thinks is more likely, a lost key, or a default. We are living in some pretty wild times given that the later may trump the former.

kasey_junk7• 4 years ago

In the case of cede & co going bankrupt (a nearly impossible thought) your street side shares would not be used to settle their debts. You don’t need direct registration for that protection. The same is true for your brokerage.

chaosbolt• 4 years ago

I'm almost sure Coinbase practices fractional reserve and other forms of market manipulation, let's see how that bank run works for people.

Some examples:

- NuCypher goes up quickly on binance (a few months ago) because a whale is buying there, lots of people try to withdraw on CB to sell on binance, withdrawals start off working but then get locked for 5 hours straight, reddit and other social media had people complaining, no explanation given by CB, just technical issues as always.

- Try to sell a few tokens a few weeks ago, it doesn't allow me to put big orders, instead they make me do it in multiple times, in which time the bots (some of which are theirs), front run me and instead of sell at a 5% lower price in one hit I lose 10% just waiting for the UI to allow me to make small order after small order.

- Always blocking withdrawals in the most suspicious moments imaginable, just happened to me 3 days ago trying to withdraw USDC, had to wait an hour until that "unexpected error occurred" disappeared.

- Human greed, why would they be different from the banks? I see most people don't withdraw their coins, I lend their coins for interest and profit from it, shareholders are happy, I sell my stocks and make money, if a bank run occurs I'll declare bankruptcy or ask the government for help because like a bank if my customers lose their money they might become unhappy and cause the government problems (Coinbase will eventually become a bank if crypto hype keeps growing).

einpoklum3• 4 years ago

I'm almost sure Coinbase practices fractional reserve

I'm not a crypto guy, so excuse the naive question: Can coinbase loan out money without actually transferring some sort of single-ownership keys for the amount loaned? If so, then indeed, they should be able to engage in fractional reserve "banking".

and other forms of market manipulation

Modern money markets are based on fractional reserve banking. That's how most money gets created these days. I'm no fan of the prevailing economic system but it isn't some manipulation which moves you away from some pristine state.

mattwilsonn8884• 4 years ago

This should either be so obvious it doesn't have to be said at all, or so important to those unaware that its the top comment. Somehow HN failed both of those but given their predilections on 'crypto' I'm not surprised.

redisman2• 4 years ago

Mt. Gox take N! I wish I could withdraw my ETH but it’s staking and Coinbase doesn’t have an option to stop staking or move it in any way

dahdum2• 4 years ago

Isn’t that because you converted your ETH to ETH2 for staking? They are pretty clear ETH2 cannot be transferred or traded, and it’s because the ETH2 network isn’t ready yet, not some sinister plan of theirs.

azinman24• 4 years ago

So if I wanted to move stuff to my own wallet, what’s the best way to do that these days? Anything that can support more than just Bitcoin?

I assume I’d just stick any private keys in a password manager vault that I already trust, and/or Yubikey. I’m not sure I trust the dedicated hardware wallets as that seems more prone to failure than a pure software approach.

sschueller• 4 years ago

Most hardware wallets use the same standard to generate your keys (BIP39, BIP32 and BIP44 I think) from a long recovery phrase of words. So you could for example restore your wallet in a wallet software if your hw wallets dies. As long as you have all the words and the correct order you should be able to restore your funds somewhere else.

grandpoobah2• 4 years ago

Atomic wallet

smoldesu• 4 years ago

It's crazy that there are still people out there who will defend custodial wallets like this. Not you wallet, not your coins. It's as simple as that. These companies trying to take crypto mainstream are getting so much stuff wrong, it's no wonder they're losing customers and share value.

theshrike793• 4 years ago

I just moved all my crypto off Coinbase, just to be sure. Coinmotion seems to be a stable-ish option. At least they're not looking for hockeystick growth and aquisition.

imron• 4 years ago

As the saying goes, out of the frying pan, in to the fire.

theshrike793• 4 years ago

I'd be worried if I paid a cent of real money for any of this stuff.

100% of my crypto is from Keybase's XLM giveaways. I'm just waiting for the next stonk to sell it all and move them to actual markets.

yreg4• 4 years ago

Why not to a non-custodial wallet…?

IceWreck• 4 years ago

Why do you use an external service ? Just keep the wallet on your own machine.

theshrike793• 4 years ago

I had a wallet on my own machine when BTC was a new thing. Lost it. I've intentionally forgot how much self-mined BTC I had in there. It was more than 1.

Now I'll rather use a service =)

mrjin• 4 years ago

Wasn't the exchange that stole the user funds?

Barrera• 4 years ago

Also read the fine print about the "insurance" Coinbase carries against loss of bitcoin through an attack. It's limited to the hot wallet only. Cold storage is not insured.

In other words, the insurance is probably worthless. People with the good sense to realize that Coinbase is not a bank in any sense of the word are unlikely to be affected.

usrn3• 4 years ago

I've been messing with crypto long enough to know how this goes and my coins are already in a local wallet.

Coinbase had a good run but don't be stupid. Crypto exchanges aren't insured like consumer checking accounts are in the US and when they're gone they're gone. Geth isn't hard to set up for most of us, it took me about 20 minutes to have it up and running after not using a local wallet for nearly a decade.

Remember to write down your password (I can't emphasize that enough. I'd be retired by now if I had done that with the wallet I made in 2011) and back up your wallet. I keep mine in git.

vmception7• 4 years ago

Geth lol. The worst full/fast synced node software out there? Thats what you choose to write?

Just let the people use metamask, more full nodes are nice but theyre not there yet

usrn3• 4 years ago

Meh, I'm using it in lite mode. It works fine that way. I'll probably set up a full node at some point.

alex_suzuki2• 4 years ago

Why on earth would the typical customer that is scared by this announcement choose to run a node instead of just withdrawing to Metamask or a hardware wallet?

usrn3• 4 years ago

Metamask looks like a smartphone app. I don't have a smartphone and keeping crypto on one seems like a bad idea.

skilled• 4 years ago

Wait, can someone explain to me why they would explicitly announce it like this? This almost sounds like they're expecting to go bankrupt, or have plans to close the platform.

In the last 7 days they have lost over 50% value, and dropping a news bomb like this is only going to make it worse, isn't it?

kasey_junk7• 4 years ago

They are required to do so by the SEC.

ergonaught• 4 years ago

I'm sure someone could. To quote, "In comments shared on Twitter, Coinbase CEO and founder Brian Armstrong said the exchange had "no risk of bankruptcy," and that the disclosure was made due to new rules set by the U.S. Securities and Exchange Commission regarding public companies that hold crypto assets on behalf of others."

onlyrealcuzzo• 4 years ago

Is something amiss with USDC?

If it's even partially backed by other cryptos, it could implode pretty soon.

legutierr• 4 years ago

It's fully backed by cash held at US banks and by US Treasuries, per my understanding. And this disclosure did not pertain to those reserves, which are held in trust on behalf of customers as per state money-transmitter laws, which customers would presumably not be treated as unsecured creditors, but only to cryptocurrencies held in Coinbase-controlled wallets.

luciusdomitius• 4 years ago

3 months ago J Powell (of Kraken, not Fed lol) adviced his users not to keep their crypto on his exchange[0]. Not the best business move either. A possible explanation might be provided here: https://twitter.com/jespow/status/1498112744754606081

0. https://twitter.com/jespow/status/1494462097161220104?lang=e...

next_xibalba• 4 years ago

This is a formal filing with the SEC [1]. Companies are either incentivized or outright mandated to disclose every possible risk, even those which are highly improbable. In this case, due to new regulations that directly affect Coinbase, customers' claims in a Coinbase bankruptcy are clarified. Also, some implications for the accounting thereof. Coinbase is not a bank, and assets of customers are not insured. Thus, customers would probably not be made whole in the event of a bankruptcy. Coinbase says it is possible that these facts could harm business if current or potential customers find this risk sufficient to reduce, halt, or not start doing business with Coinbase.

The filing says nothing about how probable a bankruptcy is, but Brian Armstrong, Coinbase CEO, has given his perspective on this topic here: [2] Here is the lede: "We have no risk of bankruptcy."

[1] https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/89c60d8...

[2] https://twitter.com/brian_armstrong/status/15242334800407101...

matwood• 4 years ago

Read any company annual report and you'll see all sorts of risks listed. Amazon lists war and other geopolitical events for example. This isn't to minimize that bankruptcy is a risk, just that it doesn't mean it is imminent.

kristopolous• 4 years ago

They're extremely fun to read sometimes bordering of fantasy and fiction. I don't think I've seen one mentioning the undead crawling their way to the surface from their earthen tombs but I probably just haven't read enough

Rest assured if I ever go public I'll insist on putting a few in there. A battalion of armored octopi marching ashore with undefeatable sea ordnances enslaving humanity by tentacle could prevent us from hitting our quarterly numbers...

I've put so many hidden jokes like that in terms of service and privacy policies over the years.

alex_suzuki2• 4 years ago

Not your keys, not your coins - indeed!

______-_-______2• 4 years ago

https://nitter.net/brian_armstrong/status/152423348004071014...

In other words: We only disclosed these risk factors because we were legally required to. Please ignore our SEC disclosure and half-billion dollar quarterly loss, and instead trust my unregulated statements posted on Twitter. There are no risk factors, your money is safe, the music will never stop.

duxup3• 4 years ago

Somehow that’s even less comforting….

But I suppose that’s the rabbit hole crypto fans go down.

gennarro• 4 years ago

“There are no risk factors” doesn’t inspire much confidence in me, even if this specific situation isn’t of much concern to Coinbase management.

oefrha3• 4 years ago

I get the point, but please don’t use a block quote when it’s not a quote.

Two problems: 1. People don’t read the source. 2. People can’t detect subtle or not-so-subtle cues.

Case in point: there’s already a sibling discussing “There are no risk factors” as if it’s actually a quote from Brian Armstrong.

dj_mc_merlin3• 4 years ago

I would argue that's the people's problem. How important is what they have to say anyway if they won't read the source and can't detect sarcasm?

edit: also, even if it's not a direct quote.. c'mon, it is what he's saying. The SEC made a rule that applies _specifically for crypto companies_, saying they have to disclose that crypto assets under their custody could potentially be taken in a bankruptcy.. and this guy goes on to say what he was just forced to disclose is not true. It doesn't get more obvious.

pc86• 4 years ago

Ok here are some actual quotes then:

"We have no risk of bankruptcy" - objectively false statement

"it is possible, however unlikely, that a court would decide to consider customer assets as part of the company in bankruptcy proceedings" - goes against the entire point of his thread, and is also exactly why this disclosure was required

The quote above seems like a completely accurate and fair characterization.

______-_-______2• 4 years ago

You make valid points. I edited my post.

maccard4• 4 years ago

I don't have skin in the game (not a crypto fan, not in the US and not an investor in coinbase), but I don't think your sarcasm is warranted here (side note for any other readers, that's _not_ what his linked thread says).

Regulatory capture is _real_, and dispraportionately favours incumbents. As regulations are tightened on crypto in general, firms that are not involved in the creation of said regulations are going to find themselves on the wrong side of the law. Furthermore, if _any_ organization has a reputation of taking sides, it's the SEC.

gonzo41• 4 years ago

The thing with crypto is its just reinventing money and all the same crap over. Right now it's like banking in the 1820's with no parachute.

Crypto isn't living up to it's PR an I don't really understand why people can't see its flaws.

duxup3• 4 years ago

I don't think regulatory capture is the issue here. We're talking about a disclosure of risks ... that seems reasonable to me.

Dude says there is no risk of bankruptcy and is predicting court case outcomes... and it is clearly in his financial interest to make the arguments he is making.

The system is rigged and other truthy arguments are all but standard operating procedure for whatever crytpo idea someone comes up with. Those arguments doesn't make mean we shouldn't be skeptical.

junon3• 4 years ago

This is not a direct quote, please don't use blockquotes. It's disingenuous.

p49k• 4 years ago

It’s a direct quote from the 2nd tweet in his thread.

raverbashing• 4 years ago

3. 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
4. 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. We should have had these in place previously, so let me apologize for that.
5. ...and it is possible, however unlikely, that a court would decide to consider customer assets as part of the company in bankruptcy proceeding

The term people might want to google is "bail-in". And it is likely that Coinbase has less protections related to that than a conventional bank.

Ecstatify• 4 years ago

Sensationalized title and that's from someone who doesn't even like crypto and thinks it's a scam.

Title: {Sensationalized title}

Intro: {Waffle}

Middle: {Sentence that gives context to sensationalized title}

Ending: {Facts & figures to legitimise article}

krono2• 4 years ago

When a CEO requires 8 twitter posts[1] to essentially convey the message "Don't worry about this legal clause", it sort of has the opposite effect on me.

[1] https://twitter.com/brian_armstrong/status/15242334800407101...

zeroxfe• 4 years ago

That thread actually seemed like a reasonable response to balance out the "gloom and doom" from the media. Also, not sure why you think "8 twitter posts" are a such big deal -- tweets are limited in size, and twitter has a broad audience, and these types of tweet threads are very common.

TheCondor• 4 years ago

They are common and stupid.

Write a memo, have the lawyers review it, post it on Coinbase.com, tweet a link, do a press release, etc.

krono2• 4 years ago

Only took me 5 words and a contraction to say the same thing, and I'm not even a native English speaker.

Edit: All those maybe's and probably's are the most troublesome part though.

nolok2• 4 years ago

Because if all he had to say was "there is no actual risk", then that's all he would have written, and it fits in less than a single tweet.

dj_mc_merlin3• 4 years ago

It does not look reasonable in any way to me.

Your funds are safe at Coinbase, just as they’ve always been.

You won't lose your funds, don't worry.

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. We should have had these in place previously, so let me apologize for that.

Unless we have your keys, in which case I'm sorry we're not protecting you yet (but don't worry, everything's fine).

We have no risk of bankruptcy

Said directly after their worst quarter to date. Always a lie regardless.

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.

A rule made specifically for their type of companies that clarifies risks of storing assets in a non regulated bank.. somehow shouldn't make you scared that your assets might get taken away since it's very "unlikely".

paxys• 4 years ago

If it was a reasonable explanation then it would be in the SEC disclosure. Except that you can get sued for misrepresenting what's in there. On the other hand you are mostly free to Tweet whatever garbage you want.

9935c101ab17a66• 4 years ago

You say "doom and gloom" as if the media is being unfair in their coverage of Coinbase. The same Coinbase that saw a 43% decline in share price in four days before releasing their earnings.

In said earnings report, they:

- Posted a net loss of $430m (defying analyst expectations of a profit)

- reported a decrease in monthly active users.

- reported a decrease in transaction volume.

Their bonds have been downgraded, they are facing increased financial regulation and two of the largest stablecoins have become unpegged in the last few days.

Coinbase then files an SEC disclosure stating in plain terms that it will use the assets of its users to pay off secured creditors in the event of a bankruptcy.

His twitter thread was definitely not a reasonable response.

UncleMeat• 4 years ago

I dunno, these headlines are always a bit silly. "Snapchat's IPO filing says that they might never turn a profit ever!" Yeah, the risks section of an IPO filing are dry and always filled with this stuff. They aren't some secret code the company is sending out. I see this as the same.

walderf• 4 years ago

i don't use twitter that much so i don't know if this type of multi-tweet message is common place on the platform or not. especially for conveying important information in any sort of manner that should be taken seriously.

i recently experienced a ~20 tweet "story" that was explaining a pretty serious and important shift in the posting parties operations. it was the first time i recall ever having encountered this sort of "tweet" and, at least to me, it did not seem like an ideal or effective means of communication.

i get that they want to reach their audience and that's what i feel like twitter is good, well, probably the best at. the whole intent of the platform had always been geared toward sending short, articulate messages. a substance-filled, important message like this one and the one i had to read before no doubt took a few "practice runs in the mirror", so to speak. i read both of these messages from the comfort of my desktop PC using nitter. as difficult as that was, i can't imagine having view it using a phone.

regardless of the topic of the message, my thoughts are, if you have something to say, say it in a single tweet with a link to an officially hosted post or webpage. any more than that, especially on any sort of usual basis, is not only inconvenient for both parties involved, but confusing, unprofessional, and, in a lot of cases, like you said, quite off-putting.

tekknik12• 4 years ago

i don't use twitter that much so i don't know if this type of multi-tweet message is common place on the platform or not. especially for conveying important information in any sort of manner that should be taken seriously.

It’s so common there’s bots that place the thread posts on a single page.

https://www.theverge.com/2020/2/25/21152579/twitter-thread-e...

floatinglotus• 4 years ago

It will amusing if people who bark all day about decentralized currencies lose a bunch of money because they still wanted the benefits of a centralized bank to hold their magic coin purses.

dasz• 4 years ago

If your crypto isn't actually in your own wallet you are really just someone's creditor.

The whole point of crypto wallets is that you don't need such central businesses to hold your cash.

Then again there's all sorts of benefits so there's a tradeoff.

nunez• 4 years ago

mtgox redux

jermaustin1• 4 years ago

I'm still unhappy with this. I had ~5 BTC with them, but have never been able to give sufficient evidence for settlement, and they keep taunting me with monthly settlement emails.

josephd792• 4 years ago

Coinbase is the AOL of crypto.

bonestamp22• 4 years ago

Is there a better crypto on ramp though?

Coinbase will let me transfer up to $1000 worth of crypto off their platform immediately after purchase even though the funds haven't settled in their account yet. Every other crypto platform I've used, forces a wait of 3, 7 or 10 days before you can withdraw your new crypto.

themusicgod1• 4 years ago

Yes. Doing work or providing a good or service in exchange for bitcoin/crypto.

josephd792• 4 years ago

You're correct. Coinbase definitely made it easier for people looking for a quick way to onboard fiat and to join the crypto ecosystem, just like AOL made it easy for people to access the internet back in the 90s.

AdamN3• 4 years ago

wut?

Havoc2• 4 years ago

That sounds suspicious to me.

In UK at least client money should be segregated especially in the context of custody assets. Really shouldn't enter the same pool of assets as Coinbase's office chairs in case of liquidation

smcl2• 4 years ago

Didn't it take a fairly long while before client money laws came in even in traditional banking? I don't have a date so I could be wrong, but taking the history of british banking I have a feeling this was a relatively recent thing. Being generous, we're still within the first decade of crypto as an investment instrument, I imagine regulations haven't quite caught up so really it's no surprise newer crypto companies like Coinbase aren't particularly serious about keeping client money/assets separate.

And as much as client money should be segregated, some big names are still getting dinged with CASS breaches - Charles Schwab in 2020, for example.

Havoc2• 4 years ago

Most things should have pretty good client money coverage now - basically anything that is deposit taking and then some.

it's no surprise newer crypto companies like Coinbase aren't particularly serious about keeping client money/assets separate.

I'd say the opposite. As crypto company I'd be expecting the regulator to be on my ass from day 1 above the pettiest things.

nabla9• 4 years ago

In UK at least client money

As I understand it, English law custody model is a trust arrangement and pure delegate custodian should be safe in the case of bankruptcy.

Shouldn't does not mean that it does not happen in the UK too. The Lehman Client Money Litigation in the UK is a good example. Lehman Brothers International fell short $2.6 billion in client money under CASS 7 (statutory trust, segregation and pooling).

Coinbase is not operating with that model. Coninbase customers can be just general unsecured creditors

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

mellavora3• 4 years ago

Yes, that is how it would work if Coinbase was regulated as a custodian. Have you confirmed that they are indeed classified in this way, and that your crypo holdings are indeed covered by that classification?

Or are you duck-typing Coinbase as a securities/brokerage firm based only on "look" and "quack"? (where "look" was a quick look without going into the difference between crypto assets and regulated securities issued by a regulated public company)

matt321• 4 years ago

If people loose tons of cash in this fiasco, it will pretty much kill crypto

aaaaaaaaata3• 4 years ago

Consider their ownership, and what it could mean for those parties if Coinbase were sacrificed.

It's an interesting theory.

capableweb4• 4 years ago

If I'd get a nickel every time someone said this, I'd have tons of cash. But, seems that no matter how much people lose in cryptocurrencies, the ecosystem carries on. It might dip for a while, but sooner or later it comes back up. And then it falls... And then...

z9znz• 4 years ago

In the event the crypto exchange goes bankrupt, Coinbase says, its users might lose all the cryptocurrency stored in their accounts, too.

File this under "how to guarantee your customers flee as fast as possible".

halukakin• 4 years ago

When you buy BTC using coinbase do you really have a wallet somewhere, do you really buy BTC? Or does coinbase allocate BTC to you from its own BTC holdings?

robjan• 4 years ago

The latter. The Coinbase fees would have to be a lot higher (and variable) if there was one wallet per customer.

bitxbitxbitcoin4• 4 years ago

Definitely the latter and the amount of people that don’t understand this is disturbing.

etimberg• 4 years ago

I wonder if this will cause them to go bankrupt because users get scared and leave. Just like Bear Stearns in 2008

capableweb4• 4 years ago

I don't think Coinbase can go bankrupt because users leave the platform. They would go bankrupt because of mismanaged funds in that case. Let's say all users withdraw their fiat currencies and also cryptocurrencies, Coinbase will still have money in their own bank for sure, unless they store their own money on their platform, which is highly unlikely.

Even if 100% users withdraw 100% of their funds, Coinbase takes a transfer fee from all of those withdrawals, so they'll get even more money in their account in that case.

cyberlurker• 4 years ago

They don't have 100% of the funds on hand, same as most real banks.

mathieubordere• 4 years ago

Maybe today is the day this charade comes to an end.

edit: Premarket Coinbase value drops -26.70% now

civilized2• 4 years ago

Remind me what is the point of holding cryptocurrency again?

yreg4• 4 years ago

A. speculation

B. diversification against more tradional assets

C. store of value if you don’t have access to any better financial instruments

D. keeping some ready on hand to pay off ransomware attacks

brink• 4 years ago

E. Learning what it's like to be dumped on

civilized2• 4 years ago

All except maybe D also apply to Pokemon cards

AlexandrB• 4 years ago

Regarding B, Is there any evidence that BTC is countercyclical? It seems to have followed the conventional market down over the past week.

mattwilsonn8884• 4 years ago

Having a Coinbase account with funds on it is not holding crypto-currency. Everyone who knows anything has been saying since before Coinbase was around "not your keys, not your coins." If you use an uninsured bank as your vector for understanding the benefits of cryptocurrency you're bound to stay confused and continue making non-arguments dependent on poor price performance of the asset you irrationally despise because despite your technical background you still missed out on it.

yrttq123• 4 years ago

It's very unfortunate that the legal system doesn't have a way of saying: this asset is mine and I'm handing it over to you for safekeeping, but it is still 100% mine which means it cannot be used to payoff creditors in any circumstance whatsoever and can only be returned to its rightful owner, meaning me. It may be fungible, so that it can be shuffled around with assets of other customers, but that doesn't change the fact that the quantity of units I deposited still belong 100% to me.

skizm• 4 years ago

I feel like saying "We have no risk of bankruptcy" is the same as Musk saying "Funding secured" on Twitter. The statement is provably false and will directly impact stock price.

bogwog• 4 years ago

If I had any cryptocurrencies in Coinbase, I’d be transferring it out ASAP after reading this and the CEO’s response on Twitter trying to downplay the risk. That’s a red flag.

ar_lan2• 4 years ago

Coinbase has locked a lot of people's ETH2 funds - there is no way to currently withdraw them. This was always a strange concept to me, but there are a good chunk of customer's who are literally just stuck with Coinbase, like it or not, with their funds being held hostage.

I know it's a choice, but it's also been like that for many, many months at this point, when I can imagine most people thought "this would only be this way for a few days/weeks".

gitfan862• 4 years ago

How are you going to prove that there is a risk of bankruptcy today if the company doesn't go bankrupt today?

How are you going to prove that the phone calls and meeting with the Saudis didn't include funding commitments from the Saudis?

I'm not suggesting that these CEOs are 100% honest at all times, I'm sure they are not, but you need actual proof for fraud to have bet committed.

adam_arthur• 4 years ago

Well, it's objectively true that any company can go bankrupt.

And an easy scenario to picture for Coinbase would be if crypto assets all dropped 90% or more in value in a short span of time, and went the way of the beanie baby. Is it a high probability? No, but at least a few percent chance.

marban• 4 years ago

Shareholder letter that ends with #wagmi. GTFOH

mkr-hn• 4 years ago

As someone without 250k in the bank (or generally), FDIC insurance is quite reassuring. Banks pay into it like any other insurance, so it would take a huge money-doesn't-matter-anymore shock to overwhelm it. 2008 was pretty close! Crypto wouldn't do any good for me since the utility bills for all the internet infrastructure are paid for with real money (in the "most people exchange it for goods and services" sense).

There'd be nowhere to go where even a paper wallet would do me any good. You could execute a 51% attack on a solar-powered NetBSD toaster.

mattwilsonn8884• 4 years ago

You could execute a 51% attack on a solar-powered NetBSD toaster.

I don't think you understand the basics of Bitcoin.

monkey_monkey• 4 years ago

Is the Coinbase Wallet safe to use? What would happen if Apple removed the app, would people lose access to funds stored in that wallet?

drcode• 4 years ago

These types of wallets generate recovery seed phrases that are widely supported: When you install the wallet, you will be asked to write down a phrase, and you'll be able to type the same phrase into any of 20 other wallet implementations to recover your funds.

capableweb4• 4 years ago

Also, correct me if I'm wrong (long time ago I used iOS), but even if Apple removes the application from the App Store doesn't mean it'll be deleted from your phone automatically. At least I remembered that I was still able to use some apps even after they were deleted from the App Store some years ago.

nathias• 4 years ago

That shouldn't happen.

Why? I have no problem with this. The problem is just if you're advertising that you'r safe etc. then when you lose it isn't just a loss, it's a scam. Most of the centralized crypto will hopefully be fully replaced with defi solutions in the near future.

anonu• 4 years ago

The government only intends to erode confidence in crypto.

shadowgovt• 4 years ago

the government has no incentive to enhance confidence in Bitcoin when, from their point of view, money is an already-solved problem.

paulsutter• 4 years ago

This is true for any brokerage account where you have margin enabled. Check your margin agreement carefully. Or better, disable margin on your brokerage account

“ people with margin accounts end up as just general creditors in any bankruptcy and recover only a fraction of their assets after some years in bankruptcy proceedings. During bankruptcy, their accounts are frozen and no transactions are allowed”

https://www.bogleheads.org/forum/viewtopic.php?t=20582

(sorry couldn’t find a better reference searching on my phone)

ad• 4 years ago

I'd be pretty interested to see how cash account is treated differently; I couldn't find a better reference either. But one advantage over the coinbase situation is at least the margin account falls under SIPC.

_nhynes• 4 years ago

Now the real question is whether bankruptcy would topple USDC since Coinbase is one of the major backers [0]. It's holding steady right now, but so was UST a few days ago. USDC has $48B supply and is propping up DeFi apps on many other networks (just look at AAVE [1] and Curve [2], two multi-chain protocols), so if it falters, there could be massive fallout.

[0] https://www.centre.io/usdc

[1] https://app.aave.com/markets/?marketName=proto_mainnet

[2] https://curve.fi/pools (search USDC)

capableweb4• 4 years ago

I don't think you can really compare UST and USDC like that. USDC has major backing by very large players in the space while UST is backed by... just Terra?

But I agree on the last part, if USDC looses its peg, large parts of the ecosystem will be fucked. But considering who is managing + supporting USDC, it'll take a large event for USDC to lose its peg.

corydori• 4 years ago

Coinbase is such a shit company...My interactions with them have been absolutely awful. The ended up trying to use a AMEX gift card attached to my papal to buy some crypto, got no error but the funds never went through. Apparently they didn't like that transaction and was flagged as fraud. I was told I can't open a support ticket or have it reviewed for 2 months, "they can't disclose the reasoning behind this." So I had to dump everything I had built up in that account into USD and withdraw it.

vmception7• 4 years ago

So I had to dump everything I had built up in that account into USD and withdraw it.

Had to?

You had the option of withdrawing it all to unhosted wallets on the respective networks.

monkeydust• 4 years ago

Would this situation be same as FTX, Binance as far as we know?

bitxbitxbitcoin4• 4 years ago

Yes.

fullshark• 4 years ago

If Coinbase goes bankrupt your crypto-coins will be worthless at least.

CyanDeparture2• 4 years ago

Can anyone tell me how to set up a wallet on my Mac in order to get my coins off coinbase. Is there any clear guide on how to do that. Every link on Google seems to be spam or downloading potentially malicious software.

It's very fustrating because so many people seem to know how to set up a wallet on their computer/Mac however I cannot for the life of me find a clear wallet to download and move my funds to or a guide on how to do it.

If I downloaded this - https://bitcoin.org/en/download - is that a way to do it? I can't download this in the UK, so is it safe to download it via a VPN and install it that way?

Thank you so much to anyone who sees this and replies.

illegalsmile• 4 years ago

If you only hold bitcoin that wallet would work, another popular one is electrum. If you want to store multiple coins in one application then Exodus or Atomic would be two good choices. You're looking for a non-custodial wallet and as always, protect your keys to protect your coins, you are the bank at this point.

CyanDeparture2• 4 years ago

It's just bitcoin I'm storing, is that one I've linked to above a non-custodial wallet or a custodial wallet?

jibbers• 4 years ago

Disclaimer: I've only done this a couple times and really am not good with this stuff.

After you download the app you mentioned, it's going to sit and grind your CPU for a long time. After that, you can click on the 'Receive' tab. Every field here is optional, but you might want to fill in the label with something like "from Coinbase". Click "Create new receiving address" and a new window will appear with a QR code and some other info. Copy the address. Then in Coinbase, send your Bitcoin to this address.

Again, this is probably a little watered down, but I hope it helps. Hopefully someone more knowledgeable writes up a better explanation.

pjbeam2• 4 years ago

Why can't you download this in the UK? My question is sincere, I'm surprised to read that.

3np3• 4 years ago

https://cointelegraph.com/news/bitcoin-org-blocks-access-to-...

Craig Wright (obviously falsely) claims to be Satoshi Nakamoto and thereby copyright on the (MIT licensed but whatever apparently) Bitcoin whitepaper. A UK court ruled in his favor and bitcoin.org are therefore not allowed to distribute it in the UK. They responded with restricting access to both the whitepaper and the software for UK IPs.

jungturk• 4 years ago

Jaxx has been in the local wallet business for a long time. Mac and mobile.

https://jaxx.io/

PheonixPharts• 4 years ago

I'm sorry but I can't fathom why you would "invest" in a cryptocurrency you yourself don't even know how to use. This comment reads as an object lesson in exactly what is wrong with the current world of crypto. The entire value prop of crypto currency is that you are in control not major financial institutions, but it sounds like you are very much not in control.

I think the best strategy for someone in your case is to cashout from coinbase into whatever fiat currency you use locally and put that into your bank account.

timmytokyo• 4 years ago

It's not that hard for me to fathom. Cryptocurrency is a speculative bubble, and it has attracted a huge number of investors who are looking for easy ways to invest. Coinbase makes speculating in cryptocurrency easy. Managing your own wallet is not easy for the average speculator.

paulcole2• 4 years ago

Tens (hundreds?) of millions of Americans "invest" in stocks they have no idea how to "use" (disclosure: I'm one of them). They're just numbers on a computer screen and nothing more.

Should be more encouraging that this guy wants to figure it out instead of pointing and jeering at him.

mattwilsonn8884• 4 years ago

I would not recommend using wallet software on your personal computer. It makes it a lucrative target. Instead invest in a hardware wallet - either Ledger or Trezor and follow the instructions.

Only purchase the hardware wallet directly from the company website, never used.

pluc• 4 years ago

That was the funniest thing I've read all day.

chill12• 4 years ago

I usually don't bother to login to comment, but I felt compelled in this case. The other replies include a lot of bad advice. You sound like you don't have much of experience actually using bitcoin (or cryptocurrencies). So the best (most secure and easiest) solution is to buy a hardware wallet and use the wallet app which they provide. I suggest either Trezor [1] or Ledger [2]. Do not buy a hardware wallet from secondary marketplaces or second-hand resale websites - buy direct from the developer's website only.

[1] https://shop.trezor.io/

[2] https://www.ledger.com/

For added opsec:

- Use a temporary email address on the order form (e.g. mailinator or similar).

- Do not ship the goods to your home address. Pick-up your order in-person at a drop-off spot, post-office, or have it delivered to your workplace.

A bit more information about hardware vs. software/app wallet:

- Hardware wallets protect your bitcoin and cryptocurrencies by keeping your private keys secure on a dedicated USB (or air-gapped) device. The private keys never leave the device.

- If you use an app on your phone or desktop computer, your private keys could be stolen by malware. This is the exact attack vector that hardware wallets are designed to protect against.

Good luck!

hnxs• 4 years ago

What happens if ledger goes out of business? I recall users being able to access their funds when Ledger had a systems outage some time in the past few years.

3np3• 4 years ago

This is good advice. Notably, you don't need to use the vendor wallet software either but can use either with e.g. Electrum.

If you really don't want to get a dedicated hardware wallet, the poor-persons choice would be to (in order of preference):

* In case you're really just holding and won't be wanting to transact with it anytime soon, a paper wallet can work. Generate it on an airgapped device and never let the private keys touch a connected device.

* Use a dedicated boot environment. For example: Set up Tails on a USB drive and boot into it on your laptop, or make a fresh install on a raspberry pi or similar. Use Electrum (or bitcoin core qt / cli), store the wallet file only on a separate encrypted USB drive. Don't use this OS install for other things. Prefer connecting only over Tor, I2P, or cjdns.

* A reputable smartphone wallet. A downside here is that you will have to be very diligent with your system updates and have to keep a peripheral eye on if the author gets acquired or goes rouge etc. You'd have to do your own research but Bluewallet seems decent.

* Ignore all the advice and access the keys on your PC anyway. It's possible to do safely but as noted above it has increased risks and requires a lot of diligence.

DebtDeflation• 4 years ago

If this is what's needed to securely store (not even use) crypto then the future for crypto is even bleaker than I thought.

guessbest• 4 years ago

You can't download your assets. They are virtual. What you can do is generate an address locally and transfer your bitcoin funds from coinbase to that. Remember to save your secret of you are just throwing (virtual) money in a canyon.

https://github.com/pointbiz/bitaddress.org

https://bitcointalk.org/index.php?topic=43496.0

grandpoobah2• 4 years ago

I use Atomic wallet.

qgin• 4 years ago

It’s frustrating when someone says “oh don’t worry about this legalese” when it suits them.

When the tables are turned, they have no problem using every inch of that legalese against you and to protect themselves.

If it doesn’t matter, don’t include it in the contract.

vorpalhex3• 4 years ago

This is the way.

The contract is always binding.

I always immediately treat anyone who says "don't worry about (something in the contract)" as somewhere between suspicious and hostile.

tfang17• 4 years ago

This is standard verbiage in financial docs of this sort

vmception7• 4 years ago

Good dips to buy, I rarely see literal FUD by the definition of the acronym. Some crypto is being firesold, COIN stock is being firesold

Is it the bottom idk

cm21872• 4 years ago

It’s amusing for someone who works in finance to see the crypto market re-doing the last century of financial scandals and regulations in fast forward. Discovering capital gain taxes, market manipulations, the necessity to separate firm money from client money for brokers…

cheschire• 4 years ago

Seems vaguely similar to how the wild west had to re-do civilization and industrialization in fast forward.

vmception7• 4 years ago

Not your keys not your coins

vmception7• 4 years ago

Oh wow literal fear uncertainty and doubt! This is where I make my best trades because the information asymmetry is so high!

My favorite kind of dip

tomcat27• 4 years ago

is gemini on similar situation?

FYYFFF• 4 years ago

I have been trying, unsuccessfully for 2 years to validate my account on Coinbase. I have over 100k in ETH stored in their wallet, have the highest levels of access to their services but CANNOT trade because they have NO HUMANS available. Their systems DO NOT work and there is NO contact info nor any way to actually reach a person.

So I have been trading with others and will never use CB for anything but cold storage. (Which they're great at)...

The company is the worst I have ever dealt with. There is no way to interact with a person. So if something does happen, you have NO RECOURSE.

Based on my experience, they will be bankrupt. This is a certainty. You cannot have a financial entity that has ZERO human interaction or service. No trust, none at all...

vorpalhex3• 4 years ago

It is probably worth reaching out to a lawyer and starting a legal suit. A legal subpeona tends to get humans involved real quick.

dehrmann2• 4 years ago

For $100k, this is absolutely worth it.

rogual• 4 years ago

I've been in that situation before with Coinbase, getting ignored and slow-rolled by their know-nothing support team. I submitted a complaint to the CFPB, not expecting much as I'm not in the US, and shortly afterwards Coinbase started replying to me properly. I eventually got my account back. Maybe worth a go.

uncomputation2• 4 years ago

Why do you say Coinbase is good for cold storage? It’s not custodied so in the event they went bankrupt/sanctions compliance/TOS violation, they could lock you out forever. A hardware wallet is good for cold storage. Coinbase is a hot wallet.

AlwaysRock2• 4 years ago

So best practice is to continue to hold your coin in a personal wallet and move to an exchance like coinbase when you need to sell?

paulpauper3• 4 years ago

They will make you do tons of ID verification to sell, take forever.

paulpauper3• 4 years ago

lol I guess the Superbowl ad was not so smart and a harbinger of things to come. For 2023 I guess we can look forward to no more crypto ads.

ar_lan2• 4 years ago

2025 will probably be another boom, though.

paulpauper3• 4 years ago

i dont think so

AlwaysRock2• 4 years ago

To clarify, this means just the crypto stored on their website but not in their wallet?

zendaven• 4 years ago

Correct, the assets you have in a wallet (something you have a secret phrase for) are not controlled by Coinbase.

noodles_nomore• 4 years ago

Coinbase limits withdrawals in times when crypto crashes by removing the 'financial services' header in the settings where your connected bank accounts are listed. I don't know if they still do that, but I saw this as recently as a few months ago. You can still empty your account by going through the account deletion process. It will give you the option to sell all your crypto (and maybe to send it to a wallet, I don't know) and do a full withdrawal. Afterwards you can still stop the deletion process if you think you want to keep the account anyway (e.g. I was worried the transaction would somehow not complete and then not have access to the account).

jmyeet• 4 years ago

This isn't an FDIC issue. This is an Securities Investor Protection Corporation ("SIPC") issue. The SIPC was greated almost 50 years ago to cover investors in a similar fashion to FDIC against the loss of custody assets in the case that a broker goes bankrupt. Like FDIC, there are limits.

The point here is that crypto isn't covered by the SIPC [1]. So the Coinbase disclosure (required by the SEC) is correct: there is no protection for your Coinbase custody assets in the cse of insolvency beyond being a general creditor.

This seems like a good thing for investors and customers to know.

[1] https://www.sipc.org/for-investors/what-sipc-protects

0daystock2• 4 years ago

FDIC doesn't even have enough funds to cover 1.3% of all deposits. Consider that before assuming your investments are protected.

vorpalhex3• 4 years ago

FDIC has the weight and backing of a very large government who is capable of creating more fiat currency as needed.

0daystock2• 4 years ago

creating more fiat currency as needed

Ironically, this very thing led to FDIC failing to meet their obligation deposit amount of 1.35%.

tomrod• 4 years ago

I put $200 into a coinbase account (my second go at crypto) at the first "peak" of bitcoin, more or less to teach myself to not invest in hype and to monitor the hype cycle over time.

It's been very interesting to follow this over the recent peak. Coinbase probably doesn't settle each transaction immediately, since Bitcoin and several other cryptocoin transactions per second are still low, instead using internal accounting to satisfy the counterparty transaction.

Fun times. Good luck to Coinbase, they may have just triggered a run!

ck2• 4 years ago

Brings back really bad memories of Crypty, lost so much to their stupidity and then missed out on the settlement.

smoyer• 4 years ago

No surprise ... Use your own wallet!

pbmango• 4 years ago

This conversation is especially interesting given the FDIC is probably the most decentralized component of traditional financial infrastructure.

It has cost taxpayers effectively nothing and rests on mutual insurance across the system. Yes there is a line of credit to the Treasury but the overall security it has provided for 70 years is probably hard to measure compared to the Fed buying/selling activity. I know there are probably teams working on this for crypto already (without the law mandate).

runjake• 4 years ago

You should move your crypto out of Coinbase or any other exchange's wallet into your own cold wallet.

In Coinbase's case, you can move that crypto to any wallet, including Coinbase's Coinbase Wallet app, where you have possession of the private key and should still have access to those funds if CB were to go south.

But yeah, welcome to the world of currency not backed by guns, so to speak.

chollida1• 4 years ago

Those of us who were around in 2008 remember when Lehman went bankrupt.

In that case they were the custodian for hedge funds assets. Lehman held those assets, in some cases because the British government force them to.

This really caused 2008 to spiral as now hedge funds that were perfectly fine got locked up and had to pull assets from the market due to Lehman holding their assets which caused even more selling and the feed back loop continued as funds sold their best assets first(think the Microsofts of stock world).

A coin bankruptcy would be the same thing, retail probably doesn't matter too much but if COIN held institutional funds, those guys do need to have liquidity for redemptions. This would mean alto of sell pressure on other exchanges and would lead to the best and highest quality crypto assets getting hammered down as funds fled to cash/stable coins.

Solana would probably crash and then shut down the network, even though they still try to claim they are a decentralized network:)

ETH and BTC would see very sharp drops in the first few days and then bounce back as people need to put money somewhere.

DEFI would feel this sell pressure and have alot of failings due to liquidity pools bein drained in this rush to quality. At best they'd get shutdown, at worst they'd just fail and go away.

You'd also expect the algo based stable coins to break the peg, even the well collateralized DAI would probably break.

Tether would probably continue on just fine as that's probably what most institutional funds would go to and I've given up on trying to predict its demise,

ur-whale• 4 years ago

Not your keys ...

elpakal• 4 years ago

Anyone want to invest whatever pennies they get on their Coinbase bankruptcy dollars on a new coin I just thought of? bankruptcoin - any coin exchange leftovers can be converted to coin and yolo’d.

sizzle• 4 years ago

Bright red flag that screams “not your keys not your coins”

Pull out all your funds into your own wallet

bacan• 4 years ago

So Coinbase is gonna be bankrupt pretty soon i guess

dqpb• 4 years ago

If Vanguard went bankrupt, would customers lose all their stocks?

kasey_junk7• 4 years ago

No. SIPC would make the customers whole first before letting any creditors access their shares. The issue is Coinbase is not handled by SIPC (or similarly the FDIC).

dehrmann2• 4 years ago

I'm going to get a few details wrong, but mutual funds and ETFs go to creative legal efforts to prevent this. Funds are usually independent entities that pay the fund house for management and marketing services. If the fund house goes under, it doesn't hold the assets in its funds, so fundholders aren't screwed.

lamontcg• 4 years ago

Coinbase popping and everyone with their funds/crypto still there gets ruined is probably in my top 5 signs that the crypto apocalypse is nigh and the Ponzi ends.

I still expect that the current downturn reverses later this year, and Coinbase isn't popping yet they're just having to disclose that risk. But given a real melt down in the broader economy and something like commercial mortgage backed securities popping, I expect that Coinbase would melt down.

Even though I'm not as negative as everyone else over current conditions, it is probably time to seek shelter (or that if there is a bounce later this year it is probably a profit taking opportunity before the crash)

Animats2• 4 years ago

Yes.

Do not keep funds in "hosted wallets" for more than a day or two.

Of course, Coinbase wants you to keep your money with them, so they can dip into your funds. Do they offer a service where funds in your Coinbase account sweep daily into a non-hosted wallet of your choice? No? How about that.

la_fayette• 4 years ago

What is the point in using coinbase anyway? It is just an expensive place to buy crypo assets, I don't get the value proposition, since you have so many cheaper and simpler places to buy crypto...

tu7001• 4 years ago

I don't understand why Coinbase have troubles, Crypto has arisen a lot, so the should have great interests.

tim333• 4 years ago

in the event it ever declared bankruptcy, “the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings.” Coinbase users would become “general unsecured creditors,”

That's terrible. Coinbase act very much like stockbrokers but with crypto instead of stocks and should segregate client funds the same way. If you deposit a 1000 Apple shares say with eTrade and they go bust the Apple shares are still yours and can't be taken to pay eTrades debts - that's how it should be. Otherwise it's just asking for the brokers to legally steal your investments by paying themselves huge bonuses and then saying oops, we're broke.

daniel-cussen• 4 years ago

Oh so they're doing the goldsmith does when he realizes he always had a baseline amount of gold in the vault no matter to whom it belonged?

jo6gwb• 4 years ago

Here's a great analysis for why Coinbase and other exchanges with similar legal structures pose a risk to customers should the exchange ever declare bankruptcy.

https://www.creditslips.org/creditslips/2022/02/what-happens...

TLDR: In bankruptcy, it is likely to be treated as a debtor-creditor relationship, not a custodial (bailment) relationship.

mdoms• 4 years ago

Wait if Coinbase users don't control their own wallets then how do they spend their bitcoins?

robinjhuang• 4 years ago

This might have been mentioned already, but the more accurate comparison would be to stock brokers. Robinhood has SIPC insurance up to $500k in case they go bankrupt.

Crypto has no such insurance.

calltrak• 4 years ago

I had a couple of hundred dollars with coinbase and they were going to charge me 30% to get the money out. I thought to myself want a bunch of thieving cunts.

stjohnswarts• 4 years ago

So why don't people also keep their wallet keys somewhere in their homes as well? That's all you need to access your funds, coinbase is just a convenience. To do otherwise seems insane especially if you have more than $1000 in there.

bagels• 4 years ago

This was all I needed to take all my coins out and put them in my own wallet. Bye, Coinbase!

aunterste• 4 years ago

That is why 'custodial' crypto is not better than a bank account, it's worse by the prevailing FDIC insurance coverage.

On the other hand, retail customers can't be trusted with their wallet keys..

Coinbase warns that bankruptcy could wipe out user funds

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