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Coinbase warns that bankruptcy could wipe out user funds

fortune.com

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Re: Coinbase warns that bankruptcy could wipe out user funds

#61

Post by zeroxfe »

krono wrote: post #45

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...

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.

Re: Coinbase warns that bankruptcy could wipe out user funds

#62

Post by AdamN »

maxerickson wrote: post #39
WJW wrote: post #35

Earlier quoted context omitted.

Would that be 5 billion in customer assets and associated liabilities, leaving about 1 billion of equity for Coinbase? At a burn rate of 430 million per quarter that only leaves a runway about 7-8 months.

No, I left custodial holdings out of those numbers. 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.

Wouldn't a hack of the custodial holdings just mean their customers lose their money but the business is otherwise a going concern (for that few moments until everybody stops paying them)?

Re: Coinbase warns that bankruptcy could wipe out user funds

#64

Post by JumpCrisscross »

superkuh wrote: post #10
eatonphil wrote: post #4

Earlier quoted context omitted.

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 th…

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?

> Why is twitter special?

The SEC's Rule FD [1].

[1] https://www.sec.gov/news/press-release/2013-2013-51htm

Re: Coinbase warns that bankruptcy could wipe out user funds

#65

Post by apozem »

sureglymop wrote: post #50
prepend wrote: post #2

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 ris…

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...

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?

Re: Coinbase warns that bankruptcy could wipe out user funds

#66

Post by oefrha »

______-_-______ wrote: post #37

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.

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.

Re: Coinbase warns that bankruptcy could wipe out user funds

#67

Post by AdamN »

ceejayoz wrote: post #47
seaourfreed wrote: post #40

Earlier quoted context omitted.

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

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.

SIPC is just the framework. The primary thing is that customer assets are held in custodian accounts and not intermingled with the brokerage assets themselves. This is different than a bank which can lose your money if it does go bankrupt - it's just that FDIC steps in and makes whole the customers that qualify for the insurance (and pays out to other customers above the limits first before other creditors).

Re: Coinbase warns that bankruptcy could wipe out user funds

#68

Post by JumpCrisscross »

seaourfreed wrote: post #40
prepend wrote: post #2

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 ris…

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

> 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...

Re: Coinbase warns that bankruptcy could wipe out user funds

#70

Post by maxerickson »

JumpCrisscross wrote: post #57
maxerickson wrote: post #14

Earlier quoted context omitted.

Okay, but that isn't a liability in an accounting sense, it is a cash flow. 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.

> they have like $6 billion in cash and equivalents against less than $5 billion of debts and other obligations...if they shut it all down, there would be funds left over 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…

Right, I compared cash to liabilities, not assets.
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