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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

#461

Post by bonestamp2 »

themusicgod1 wrote: post #284
bonestamp2 wrote: post #143

Earlier quoted context omitted.

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.

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

I like your spirit, but what makes coinbase the best onramp for me is the instant transfer feature. I can't instantly find a gig that pays in crypto or instantly sell something and find a buyer who will pay in crypto.

Re: Coinbase warns that bankruptcy could wipe out user funds

#462

Post by tekknik »

azinman2 wrote: post #458
tekknik wrote: post #453

Earlier quoted context omitted.

The problem with your current approach, and software wallets in general (as well as these recoverable wallets) is the private key is retrievable. Which sorta negates the protections given by having a single owner of the cert (the hardware wallet).

I’m not terribly worried about that scenario. I haven’t had my 1password breached — lots of bad things could happen if I did. I don’t own enough crypto to make this my biggest concern. I’d rather have a robust system that will hold it without failure, or in Coinbase’s case, bankruptcy.

Then you have some false sense of security and clearly aren’t holding any real value in this wallet.

Re: Coinbase warns that bankruptcy could wipe out user funds

#464

Post by randomsearch »

maxerickson wrote: post #14
IfOnlyYouKnew wrote: post #12

Earlier quoted context omitted.

They just posted a quarterly loss of $430 million.

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.

There are 14 billion tether in circulation, don’t they need enough to back it?

Re: Coinbase warns that bankruptcy could wipe out user funds

#465

Post by azinman2 »

tekknik wrote: post #462
azinman2 wrote: post #458

Earlier quoted context omitted.

I’m not terribly worried about that scenario. I haven’t had my 1password breached — lots of bad things could happen if I did. I don’t own enough crypto to make this my biggest concern. I’d rather have a robust system that will hold it without failure, or in Coinbase’s case, bankruptcy.

Then you have some false sense of security and clearly aren’t holding any real value in this wallet.

Real value is all relative.

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.

Re: Coinbase warns that bankruptcy could wipe out user funds

#466

Post by tekknik »

azinman2 wrote: post #465
tekknik wrote: post #462

Earlier quoted context omitted.

Then you have some false sense of security and clearly aren’t holding any real value in this wallet.

Real value is all relative. 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.

Oh I’m right there with you on hardware wallets, I’m just pointing out that your software based wallets are very vulnerable. The only safe key is one that nobody can retrieve.

Re: Coinbase warns that bankruptcy could wipe out user funds

#467

Post by caylus »

bubbleRefuge wrote: post #376
tablespoon wrote: post #195

Earlier quoted context omitted.

> 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 depo…

Sure, banks can create money "out of thin air" because the liability created when the loaned money is debited is balanced out by the asset of the loan owned to them.

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.

Re: Coinbase warns that bankruptcy could wipe out user funds

#468

Post by bubbleRefuge »

caylus wrote: post #467
bubbleRefuge wrote: post #376

Earlier quoted context omitted.

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 depo…

Sure, banks can create money "out of thin air" because the liability created when the loaned money is debited is balanced out by the asset of the loan owned to them. 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 alwa…

Agreed on crypto. Just feel its important to understand that banks are quasi-government institutions because of the federal reserve system, heavy regulation, and FDIC insurance. All of this evolved over time to improve how they serve as financial intermediaries and most of which crypto lacks.

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

Re: Coinbase warns that bankruptcy could wipe out user funds

#469

Post by einpoklum »

JBSay wrote: post #401
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…

Money is not created through fractional reserve banking. Money is loaned into existence by commercial banks. Similarly Coinbase can sell you coins which don't exist. Like a bank it doesn't have to make good on this IOU until you withdraw your funds.

It is fractional reserve banking which allows banks to loan money into existence, as long as their reserve is at least a certain fraction of their total loans. The alternative is full reserve banking, where banks aren't allowed to do that - or no-reserve banking I suppose...

Re: Coinbase warns that bankruptcy could wipe out user funds

#470

Post by Simp4Zuck »

pandemicsoul wrote: post #231
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…

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.

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.
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