Coinbase warns that bankruptcy could wipe out user funds
fortune.com
fortune.com
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.
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.
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.
I wouldn't read into that comment (of mine) too much. I meant what I said in an abstract sense.
> 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.
Fair enough; good point. They are different. But I do think these intermediary, exchange entities, whatever you want to call them, tend to emerge repeatedly, with their own vulnerabilities, in a way that isn't always fully recognized in a lot of the discussion of cryptocurrency. My sense (which could certainly be wrong) is there's a bit of a gap between blockchain-level issues and macroeconomic theory as it comes up in discussions of cryptocurrency.
> And what exactly is Crypto theory, exactly?
I just meant academic computer science - economic theory about cryptocurrency, like you might have in conference proceedings, academic journal articles, or technical papers openly distributed for critique and discussion. Maybe the sort of thing that might get discussed in formal policy reports by various public and private profit and nonprofit institutions.
> 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,
I think that's part of what I'm getting at. From the very beginning it's been clear to me people generally don't actually want pure cryptocurrency P2P in the sense they don't actually want to store the entire blockchain on their laptop. So these kinds of intermediary structures will emerge.
> 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
I don't mean to imply I have a problem with exchanges per se, it's that it would be nice if there was some kind of robustness built in surrounding them. Maybe fraud is inherent to all economic systems (people lose money all the time on traditional stock exchanges and in investment schemes), but it would be nice if there was something like, just say hypothetically, a higher-order layer akin to the FDIC etc (in the absence of the FDIC etc), but distributed or something? I just think these things aren't really well-worked out -- the idea that someone could exchange USD into crypto and then have it disappear because a central entity collapses is going against the grain of what crypto is supposed to prevent.
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...
(I didn't look to see if that was the case, just making the point in general)
Edit: looking at the 10K, other than customer assets (where they have a net holding), they have like $6 billion in cash and equivalents against less than $5 billion of debts and other obligations).
So if they shut it all down, there would be funds left over.
The dead reply to my comment at the top of the thread makes a good point that loss of the custodial holdings in a hack would bankrupt them.
No transactions? No income. No trust/willingness for people to continue doing transactions? No future income.
Every company that ever went bankrupt had more assets than obligations before they went bankrupt.
Coinbase's quick ratio [1] adjusted for custodial assets, as of 31 March 2022, was 6.6 [2][a]. That's good. Don't adjust for custodial funds, and it's 0.15. Virtually bankrupt. With $6.2bn cash on the balance sheet and $830mm cash burned by operations in Q1, they have over 2 years of runway assuming Q1's terribleness continues. That's good. But were they to suffer a hack, that margin of safety could rapidly collapse. And in that case, customers could be left behind secured lenders. (Where USDC holders would wind up is a mystery.)
[1] https://www.investopedia.com/terms/q/quickratio.asp
[2] https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/89c60d8... page 5
[a] (6,116,388, cash and cash equivalents + 346,048, accounts receivable + 1,333,333, crypto assets held) / (10,921,823, current liabilities - 9,742,961, custodial funds due to customers)
Grant Thornton audits Coinbase last I checked. Hopefully they do a better job than EY. I doubt a "stablecoin" holding would count as cash equivalents, but not all cash equivalents are equal and the definition has changed over the years. Commercial paper, 1-3 month maturing Treasury notes, certificates of deposit, money market accounts, and savings account funds can all be counted as cash equivalents. For example, if you hold a two month commercial paper of another cryptocurrency company as Coinbase, this might qualify as a cash equivalent. Cash equivalents are not all equally liquid or risky. Even if all of the cash and cash equivalents are there and solvent, the definition of a cryptocurrency in a bankruptcy might not be settled in a court of law in such a way that it favors account holders of Coinbase held cryptocurrency over stockholders or bondholders.
Yeah, that's what I said, fraud.
Do you have an example where it was wrong without fraud?
I might tone it down just a bit to "Somewhat unlikely to happen. Today."
You can calculate your annualized failure rate. That's a best-case on the odds your funds will continue to exist next year. Move fast / break things / fail fast / developer sprints / etc. speeds this process up even further. Crypto companies also have a giant target painted on their backs for hackers (including rogue state-level actors, some of whom just had large sums confiscated by Western institutions).
Tulips, anyone?
I’m not saying it’s risk free, but what exchange or broker is? Does anyone else match Coinbase for security? Gemini seems at best equivalent.
There is - as some people seem likely to discover - a difference.
Why is twitter special?
The SEC's Rule FD [1].
Apparently such information has to be released in a way that all the public, generally, can see it at once and twitter with it's faked high user numbers and famous people fulfills this. Releasing it on a small local poster board would be illegal because it is limited, where twitter is legal because everyone theoretically has access to twitter.
Cryptocurrencies are not regulated securities.
What laws protect cryptocurrency "investors"?
Declaring it as personal opinion would not likely absolve him. 'Funding Secured' was also a personal believe, from the SEC standard it had to be substantiated in a meaningful way though, or gets fined.
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.
There are lots of people who keep USD there with open flash crash orders. Of course if Coinbase fails, the prices may basically flash crash to zero and your orders will be filled, and then you are no longer FDIC insured.
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.
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).
If I on Titanic and upload it to Dropbox. A creditor during bankruptcy couldn’t use those rights to sell streams of Titanic.
For coinbase, a creditor could sell the crypto stored.
Last time I checked it included commercializing IP, in at least Facebook and Twitter.
While I wouldn’t a priori assume any given cloud storage user agreement includes a perpetual IP license to anything the user uploads, I also wouldn’t assume it to be free of such a clause.
Either way, read closely. And get legal advice if it matters, because jargon doesn’t mean what outsiders think it means.
They said they wanted to be able to sue someone who scraped it. And that required ownership.
Suing people for violating the copyright goes well beyond simple cloud operations.
It means they can reach settlements, etc.
It was less clear whether they could sue the author.
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.
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.
https://www.sipc.org/about-sipc/sipc-mission
"SIPC oversees the liquidation of member firms that close when the firm is bankrupt or in financial trouble, and customer assets are missing."
In Coinbase's case, holding in a custodian account doesn't save them if the Bitcoin in it gets sent to an attacker's wallet. They're just gone, and neither the SIPC nor FDIC cover that asset class.
In the US, there is Government insurance up to the SIPC limit of $500,000 of securities and $250,000 of cash. But coverage ends at that point.
I have had the annoying experience of having to pry restricted stock certificates out of the vaults of a failed broker. Fear of the regulatory agencies is strong enough that a week of phone calls produced the certificates.
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...
Similar to banks and FDIC the financial industry is good at this kind of thing and brokers can go bankrupt without customers ever really noticing.
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?
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.
And that is the danger. It feels like a bank, and lots of other people also feel it is like a bank, so you figure you are safe.
But it is not a bank. It does not offer the regulator protection of a bank. Feelings don't change that. A good UI does not change that. Only regulation change that.
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.
Yes she'll figure that out easily!
These can be reissued: https://www.usa.gov/replace-vital-documents
Crypto on the other hand is just like "you're screwed, go scour the landfill for your hard drive".
Also, isn't the promise of crypto/defi that it's supposed to NOT be like those archaic systems (SSN, birth certs, etc.)?!
But honestly, most HN uses password managers -- if crypto became primary currency, that would make hacking someplace like Bitwarden or Coinbase enormous world shattering honeypots -- like Nation state targets.
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.
> Everything else is basically woo that's needed to fuel the speculative roller coaster.
For some people sure, but not all, and I would even go as far as to say not the main intention of the original product.
It certainly wasn't the "main intention of the original product," but Bitcoin failed at that. A big part of that failure was the peculiar ideology that got baked in through many of its design decisions.
what makes you say that? I use bitcoin to conduct private transactions regularly and its pretty darn solid for that purpose. Doing such a transaction over the internet, before bitcoin, required you to use permissioned rails.
Just because it can be used like that doesn't mean it actually succeeded. The vast majority of Bitcoin is held as a speculative investment, and the deflationary aspects are a strong disincentive to regular circulation.
A monetary system that only works if a small number of people use it is...not useful.
AFAICT, the main intention of the original product was to undermine fiat currency, and by proxy, the institutions that are built on and support it, primarily governments and central banks but extending beyond that to broader societal institutions that use taxes and monetary policy as their tools.
I'm not so sure it's done with that yet.
The financial FOMO that fuels that goal just seems like a means to that end, and the climate damage from it's energy consumption seems like an (unintended?) second order effect whose problematic nature needs to be rationalized post hoc.
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.
Most might, but Coinbase does not. Outgoing transfers are free—they even cover the network fee. For incoming transfers the sender pays the network fee but there is no additional charge.
It's a bit of a hassle to shift funds around, and not having your funds instantly available on the exchange limits your ability to take advantage of short-term opportunities, but in general I would still recommend self-custody over leaving "large" amounts of crypto on an exchange for very long. That's less due to the risk of bankruptcy and more due to the risk of the exchange getting hacked—practically speaking we have more real-world examples of the latter case, discounting bankruptcy directly resulting from a previous hack.
aloud.
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...
You don't need to hold your crypto within coinbase, you can transfer it to a wallet you fully control.
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.
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.
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.
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.
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.
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.
I'm curious about this bit - are they required to structure their company in this way, or was it a choice that they made?
Makes me think that I should move my crypto back to my own wallet/sell the crypto.
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.
Stocks themselves don't need insurance from the brokerage, as they're in custody somewhere else. Depends on the country, I presume.
What I meant is there's no insurance against the company you own going bankrupt. If you buy Tesla and it goes south, nobody will rescue your funds.
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...
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.
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).
What kind of nonsense is that? I'm just some rando on the internet.
Cite please, because if true that would be mind-boggling.
Say you ordered a pair of jeans from Sears, via the catalog. And unfortunately your cash transfer cleared on the day they went bankrupt.
They owe you a pair of pants, or your money back if they cannot deliver the product you ordered.
They also owe their employees money, if they have not issued payroll yet for that month.
They also owe their bondholders money.
They may have also taken out bank loans.
You, as the client, are in line behind the employees and bondholders and other creditors.
probably last in line.
In which case you've lost your pants.
It seems like depositors should be one of the first in line, certainly before bondholders.
When you send money to Coinbase, it’s not like that. This latest disclosure makes it clear assets held at Coinbase (or other exchanges) aren’t yours in any sense.
When you buy crypto with coinbase, they hold that crypto in a custody account they have keys to. It’s not guaranteed how the court would rule on distributing those assets in case of bankruptcy.
From the article “it is possible, however unlikely, that a court would decide to consider customer assets as part of the company in bankruptcy proceedings even if it harmed consumers”.
users of coinbase never "owned" or "have" anything. You gave money to coinbase, they have the money now.
If you had the decryption key offline, then you could control the cryptocurrency.
this is cryptocurrency 101 - the very basic nature of the blockchain itself guarantees whoever has the key to have ultimate control.
Coinbase is not a bank, they don't have to give you anything.
You will probably get them back, but that is far from guaranteed [1].
[1] https://www.nytimes.com/1991/02/23/news/if-a-shop-closes-wit...
“the exchange noted that 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…”
And possibly second and even third, depending on liquidation preference terms.
[0] https://www.investopedia.com/ask/answers/09/corporate-liquid...
Coinbase is most decidedly not a bank, which is why the former doesn’t apply.
Each US state has their own laws, and I’m sure some of them are vague enough to not specify the currency in order to regulate transfers of foreign currencies… so that could get interesting if anyone notices that they are money transfer services…
Yes, they appear as a "customer custodial funds" current asset and "custodial funds due to customers" current liability on Coinbase's balance sheet [1]. Under current law, Coinbase's customers have a claim to those assets.
Look at a brokerage's balance sheet, on the other hand, and you see special line items for segregated cash and securities. If a broker-dealer goes under, "it ordinarily is liquidated under SIPA, not the Bankruptcy Code," where the SIPC "asks a federal court to appoint a trustee to liquidate the firm and protect its customers" [2]. The first priority is customer assets. Creditors second. Coinbase isn't similarly regulated, in part because it has fought tooth and nail against being needed to.
[1] https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/89c60d8... page 5
[2] https://www.mondaq.com/unitedstates/investment-strategy/6631...
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
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).
The risk here is always the same. Liquidity in terms of cash. I dont believe there is any regulation stopping coinbase from using or investing customer cash or anything preventing them from acting as a hedgefund (leveraging that cash) to make investments using customer funds. The real risk is there. If they are using crypto as collateral to make investments that are tanking in value, while crypto is tanking in value, they'll be forced to post more collateral in the form of cash or be forced liquidated to take a loss. Insolvency leads to bankrupcy.
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.
Users/holdings going down aren't good for the company and stock, even if a run doesn't hurt them financially.
Coinbase claims not to do anything with deposits: https://help.coinbase.com/en/coinbase/privacy-and-security/o...
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?
Their users balances are just entries in a database at coinbase. Users expect that coinbase holds coins to back up those balances, but there is no proof of it.
Last I checked coinbase doesn't participate in any proof of solvency protocols so there is no way to know if customer balances exceed their holdings.
If the users' wallet values are really just database entries referring to some miniscule portion of the mega-wallet whose private keys are actually owned by an exchange, then what's the point of using the blockchain at all?
What is the value provided by exchanges other than an asset database that (hopefully) has bank-level security?
Just a way for regular folks to speculate on cryptocurrency?
Couldn't that function be equally served by some kind of high-risk brokerage account that has a crypto investment option?
> Couldn't that function be equally served by some kind of high-risk brokerage account that has a crypto investment option?
Absolutely. What coinbase does could be done by traditional brokerage accounts. This is one of the reasons that people have been critical of coinbase as a business.
The regulatory uncertainty around Bitcoin has so far mostly kept more traditional brokerages out of the space. Though, FWIW, Interactive Brokers has a partnership with PAXOS to support bitcoin on their platform, the integration is not amazing however.
It's also the case that cryptocurrency exchanges make a considerable amount of income from promoting varrious extremely sketchy alternative cryptocurrency and accepting massive bribes for their listings and other activities that traditional brokerages wouldn't likely be interested in engaging in because they're already illegal for the other assets they handle.
But if the loan defaults, the asset disappears, and if this happens enough the bank risks becoming insolvent and no longer being able to repay other liabilities like its deposits unless bailed out.
Maybe that's what you're alluding to - the Fed will always bail them out so deposits are never lost? That's probably true in practice, but a loan from the Fed can't in of itself restore solvency, since it's still both an asset and a liability. In the most extreme case, the bank would still go bankrupt, investors would lose their money, and depositors could also lose some of their money unless individually bailed out by the FDIC.
Back to the original discussion - the key question here is are people who hold cryptocurrency at Coinbase considered "investors" or "depositors", and are they protected by the FDIC? The latter is almost certainly no, and the former determines how much they can expect to get repaid if Coinbase goes bankrupt.
So how banks actually work is important. Banks assets vs liabilities are their capital ratio and they become insolvent when the capital ratios are below fed requirements and are not allowed to continue lending. Notice these ratios were relaxed in the 2008 crisis. But bank liquidity is different from solvency. Liquidity, the ability to make interbank payments for consumers(like writing checks) or make withdrawals is guaranteed for banks because these adjustments are made in bank reserve accounts(at the fed) which are totally different from consumer checking accounts. And, the fed will cover any overdrafts in these accounts by design. So equating lending with consumer deposits and liquidity is wrong. Banks don't check deposit amounts before making loans. This is a myth. They create loans out of thin air so long as capital requirements are met because loan funding is nothing more than a bank making a deposit to the borrowers account in exchange for a signed contract (which is an asset to the bank). The fed will cover overdrafts from banks
Sigh.
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
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.
Well, to me the problem is absolutely real. Decades ago, my country suffered from hyperinflation. We went through several inflationary currencies like it was nothing until some economist managed to dupe everyone into believing it was gonna be different this time. Not before desperate attempts to control inflation were implemented, though. In the 90s the president just froze everybody's bank accounts.
I simply don't trust governments. I want them to have zero authority and influence over my money. I don't care what it costs to achieve this, as long as governments are successfully exorcised from this economy it's worth it. The way I see it, pure blockchain solutions are the only way this could possibly work and even then only if sufficiently decentralized. Exchanges are the complete opposite of this vision, they're literally banks with all of the downsides and none of the upsides.
But you need an effective republic for this, and one that have a hint of democracy.
If you're in a state that can freeze bank accounts and completely retool the national currency on a whim, what prevents them from strong-arming every one of those above-mentioned institutions into not accepting that cryptocurrency? If you can freeze everyone's bank account, you can certainly enforce jail time for a store owner who is found to be doing transactions in whatever cryptocurrency.
Basically, for cryptocurrency to solve the problem you describe, it would have to become the same structure that caused/causes the problem to begin with. You'd be back to square one.
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
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.
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.
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.
I don’t think letting companies set their own creditor priorities would really be feasible if we want to have predictable securities markets.
I assume that if we let companies protect certain assets from creditors during bankruptcy they would set aside massive bonuses and all sorts of other shenanigans.
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.
But I suppose that’s the rabbit hole crypto fans go down.
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.
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.
> Please ignore our SEC disclosure and half-billion dollar quarterly loss, and instead trust my unregulated statements posted on Twitter.
As actually possibly coming from the mouth of the CEO of a company (that is not Elon).
> People can’t detect subtle or not-so-subtle cues.
Or they just skim part of the comment and jump to reply immediately. Same effect.
>We have no risk of bankruptcy
Reality is that every company has greater than "no risk" of bankruptcy. That's why regulators force them to spell out their risks in filings.
It is entirely reasonable to believe that a large proportion of Coinbase users would read, "We have no risk of bankruptcy" and choose to leave their money at Coinbase believing that the CEO must have used some financial mechanism to 100% prevent bankruptcy.
Words have meaning, and when you say, "no risk of bankruptcy" there are a lot of people that will be duped into believing that literally.
"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.
Isn't that a statement that the SEC should fine them for?
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.
Crypto isn't living up to it's PR an I don't really understand why people can't see its flaws.
Edit: I got less lazy. https://m.xkcd.com/793/
Because people are trying to get rich off of it. I believe a majority know it’s a horrible “currency”, they just want money.
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.
> The system is rigged and other truthy arguments are all but standard operating procedure for whatever crytpo idea someone comes up with.
But remember that applies to both sides of the coin - the SEC disclosure of risks claiming there's a huge risk of monetary loss _is_ true, but it's also unavoidable as (to my understanding) there isn't currently a way for coinbase to be FDIC insured.
> Those arguments doesn't make mean we shouldn't be skeptical.
You should be incredibly skeptical, but you should be informed of what you're skeptical about.
Because ... they aren't FDIC insured nor do they provide any reliable protections for their user's money?
It's hard not to post it, because it is true.
> 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.
[1]: https://twitter.com/brian_armstrong/status/15242334800407101...
Write a memo, have the lawyers review it, post it on Coinbase.com, tweet a link, do a press release, etc.
Edit: All those maybe's and probably's are the most troublesome part though.
Before reading that tweet chain I was on the “SEC always requires horribly pessimistic outlooks” and now I’m in the “they’re going bankrupt very soon” camp.
> 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".
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.
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.
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...
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.
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).
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.
> Modern money markets are based on fractional reserve banking
Bitcoin was developed to solve this.
> That's how most money gets created these days
Bitcoin is a deflationary asset. It’s not supposed to be “made” because a bank/Coinbase says so, but only via mathematical proof of work.
> I'm no fan of the prevailing economic system but…
Satoshi wasn’t either. That’s why he made Bitcoin. If the argument for Bitcoin becomes “it sucks but we need banks to lie to us for the economy” then there is no core argument for Bitcoin.
It is different. Nothing is stopping people from moving their crypto from the exchanges, and at least with crypto people have the opportunity to do that. What hasn't changed is human behavior and our affinity for the path of least resistance.
No technology is going to change that.
I really don't see how that is the case. In fact, there is no such thing as "truly owning" things. Ownership is a social construct.
> Bitcoin ... is not supposed to be “made” because a bank/Coinbase says so, but only via mathematical proof of work.
Well, so is, say, gold, but once it seems some significant use as money, financial institutions start dealing in debts-of-gold, or debts-of-X, which _are_ supposed to be made because a bank/Coinbase says so.
> Satoshi wasn’t either. That’s why he made Bitcoin.
I dunno, it seems like he started Bitcoin to get filthy rich off of a pyramid scheme, which he has. Wikipedia estimates "his" worth at 73 Billion USD in BitCoin. Although.... it's BitCoin, so maybe it's not really worth that much.
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.
It's all about ones personal trade offs. I have more faith in cryptography in a software world with backups than I do in a random hardware device with a maker that's unlikely to last the test of time.
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,
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.
A custodial wallet means someone else holds your keys, but a non-custodial wallet lets you hold them yourself (which Bitcoin Core does).
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.
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.
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.
Should be more encouraging that this guy wants to figure it out instead of pointing and jeering at him.
If the company pays a dividend it gets sent to you (or to whoever holds the stock on your behalf), but that doesn't seem like "using" the stock. I suppose you could "use" it by voting at the AGM.
Crypto you can make use of (such as it is), but no one does that. They hold it like a stock, same as the OP who doesn't know how to create a wallet.
> I suppose you could "use" it by voting at the AGM
Is my stock anything other than the number of shares I see on TDAmeritrade.com? If I wanted to take this thing that I supposedly own and sell it or store it in a way that doesn’t involve TDAmeritrade.com, is that even possible? No fucking clue.
My point was, there is really no "use" for a stock holding aside from the obvious as an investment. So simply investing in and holding a stock is fine.
The popular Crypto coins are supposed to have other uses, like a cash replacement. In fact cash replacement was intended to be the primary use for Bitcoin. But most people treat them as an investment they can just sit on and watch go up, like a stock.
Only purchase the hardware wallet directly from the company website, never used.
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!
One could (and should!) still use the same wallet with a self-hosted node, or a third-party one, by using the wallet with a different software (which is also officially supported; Ledger provides docs for doing so).
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.
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...
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?
If it's even partially backed by other cryptos, it could implode pretty soon.
0. https://twitter.com/jespow/status/1494462097161220104?lang=e...
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...
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.
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.
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.
Just let the people use metamask, more full nodes are nice but theyre not there yet
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.
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".
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.
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.
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.
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.
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.
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)
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.
I don't think you understand the basics of Bitcoin.
Title: {Sensationalized title}
Intro: {Waffle}
Middle: {Sentence that gives context to sensationalized title}
Ending: {Facts & figures to legitimise article}
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
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.
>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.
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
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)
[0]: https://www.centre.io/usdc
[1]: https://app.aave.com/markets/?marketName=proto_mainnet
[2]: https://curve.fi/pools (search USDC)
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.
“ 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)
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.
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.
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.
File this under "how to guarantee your customers flee as fast as possible".
Had to?
You had the option of withdrawing it all to unhosted wallets on the respective networks.
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!
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).
My favorite kind of dip
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.
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.
edit: Premarket Coinbase value drops -26.70% now
On the other hand, retail customers can't be trusted with their wallet keys..
Crypto has no such insurance.
Is it the bottom idk
Ironically, this very thing led to FDIC failing to meet their obligation deposit amount of 1.35%.
Pull out all your funds into your own wallet
It's an interesting theory.
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
Bitcoin would be $3 per Bitcoin if it only correlated to the NASDAQ over the last 10 years
It does its thing
Gold has been down over the past week as well, it is normal for all instruments to move together at times of uncertainty (and when many folks are getting margin called).
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.
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.
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.
Now I'll rather use a service =)