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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

#371

Post by ricardobayes »

AYoung010 wrote: post #238
pandemicsoul wrote: post #231

Earlier quoted context omitted.

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.

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

Unfortunately doubly true for their crytocurrency-themed subreddits with millions of followers where each and every post that isn't about 'number goes up' gets moderated. Even a post got deleted where the user warned others to invest carefully, only funds that they don't mind losing. Or posts where a user posts a proof of their losses.

Re: Coinbase warns that bankruptcy could wipe out user funds

#372

Post by ricardobayes »

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…

What this means in layman's terms if they don't dip into custodial funds they can't cover their current liabilities?

Re: Coinbase warns that bankruptcy could wipe out user funds

#373

Post by [deleted] »

formerkrogemp wrote: post #189
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.

On paper, you have and can report a lot of assets. However, many companies go bankrupt with current ratios greater than one with either overinflated or overvalued assets or undervalued or understated debts or some combination. Financial reports a la 10-Ks and 10-Qs are 'boring,' difficult for most people to read, contain specialized jargon, and contain significant lag time where a going concern is, well, a concern. A…

[deleted]

Re: Coinbase warns that bankruptcy could wipe out user funds

#374

Post by prepend »

sdenton4 wrote: post #230
tablespoon wrote: post #205

Earlier quoted context omitted.

> No, but the users would be last in liquidation preference, so would end up screwed anyways. Cite please, because if true that would be mind-boggling.

Welcome to capitalism! The billionaires always eat first. And don't you forget it.

Actually bond holders eat first in US bankruptcy law. Then employees, and shareholders last. So in this case, under capitalism, billionaire investors eat last. [0]

[0] https://www.investopedia.com/ask/answers/09/corporate-liquid...

Re: Coinbase warns that bankruptcy could wipe out user funds

#375

Post by syshum »

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…

No post body was provided.

Re: Coinbase warns that bankruptcy could wipe out user funds

#376

Post by bubbleRefuge »

tablespoon wrote: post #195
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…

> 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'…

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.

Re: Coinbase warns that bankruptcy could wipe out user funds

#378

Post by einpoklum »

uncomputation wrote: post #319
einpoklum wrote: post #280

Earlier quoted context omitted.

> 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…

The issue isn’t that modern banks all do this. It’s that crypto was supposed to be different, a response to the financial crisis where people were affected that didn’t even gamble on housing, a way to truly own and prove your money is your money. > 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…

> crypto was supposed to be ... a response to the financial crisis where people were affected that didn’t even gamble on housing, a way to truly own and prove your money is your money.

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.

Re: Coinbase warns that bankruptcy could wipe out user funds

#379

Post by hbrav »

kasey_junk wrote: post #30
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…

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…

> 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.

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