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Comment by jacquesm | Hacker News Reader

Ouch. Thanks for that. I wonder why the normal customer funds segregation rules do not apply to crypto assets.

See the full text from the SEC filing: "due to the novelty of crypto assets, courts have not yet considered this type of treatment for custodied crypto assets"

Basically, there's no legal precedent. It's anyone's best guess.

> Basically, there's no legal precedent.

We’re about to find out soon.

Go read FTX's statement to Congress from a few months back on why crypto exchanges should not be hobbled by all those old rules about separation of functions.

There's nothing prohibiting a crypto exchange from having a separate company to hold customer's assets. In a bankruptcy, the custody company should still be solvent. That's required in Japan.[1] Customers of FTX Japan still have their assets.

[1] https://www.coinfirm.com/blog/japan-crypto-asset-regulations...

I work a lot with trustees that hold third party funds, there isn't a single one of them that would ever commingle funds to the degree that these exchanges do (or even any degree at all other than to separately invoice customers for work and fees), and all of the rules around such third-party monies should be mandatory for any exchange. But as was pointed out elsewhere in this thread even that may not be enough if an exchange goes bankrupt.

Japan had the first real test of this with Mt. Gox. Regulations are written in blood, unfortunately

Basically, because cryptocurrencies aren't considered "money", and what they are is still kind of up in the air...and because, as so many of its proponents are so proud of (despite it being extremely obviously a temporary state of affairs), cryptocurrency is not yet subject to very many laws and regulations.

You can't have the protections of "money" without the regulations of "money". As long as everything was going fine and government was still dragging its feet catching up to technology, the people who got in early got to pretend there was something special about cryptocurrency that made it possible to have their cake and eat it too.

Now, they're starting to find out why that's not the case.

It may not hold up in court. But at that point, you’re trying to claim assets back from a bankrupt entity.

The disclosure isn’t a statement of what Coinbase would want to happen, but rather what a bankruptcy court might do. Bankruptcy law is very pro-debtor. An entity in bankruptcy court is like a Hoover, aggressively sucking any nearby assets into the bankruptcy estate.

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