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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

#381

Post by somenewaccount1 »

misja111 wrote: post #264
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…

There are all kinds of way out of this in case he would get sued: he could say that with 'there is no risk', he just meant shorthand for 'there is no more than a negligible risk'. Or he could say that with 'there is no risk' he was merely expressing his strong personal opinion based on the vision and faith he had in his company.

Officers of a company are held to a different standard when it comes to public statement.

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.

Re: Coinbase warns that bankruptcy could wipe out user funds

#382

Post by tim333 »

>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,”

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.

Re: Coinbase warns that bankruptcy could wipe out user funds

#384

Post by jo6gwb »

Here's a great analysis for why Coinbase and other exchanges with similar legal structures pose a risk to customers should the exchange ever declare bankruptcy.

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.

Re: Coinbase warns that bankruptcy could wipe out user funds

#386

Post by paxys »

zeroxfe wrote: post #61
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.

If it was a reasonable explanation then it would be in the SEC disclosure. Except that you can get sued for misrepresenting what's in there. On the other hand you are mostly free to Tweet whatever garbage you want.

Re: Coinbase warns that bankruptcy could wipe out user funds

#387

Post by tablespoon »

jobs_throwaway wrote: post #308
tablespoon wrote: post #236

Earlier quoted context omitted.

> 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.

> but Bitcoin failed at that 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.

> 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.

Re: Coinbase warns that bankruptcy could wipe out user funds

#388

Post by nullc »

danans wrote: post #360
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'…

> Is Coinbase "loaning" out the Bitcoin users have deposited in it? 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 preven…

Their depositors wallets aren't "on the blockchain" -- if they were, they'd be in the the depositors custody not coinbase's.

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.

Re: Coinbase warns that bankruptcy could wipe out user funds

#389

Post by azinman2 »

_Algernon_ wrote: post #6

This boils down to the "not your keys not your coin" mantra that's often repeated in the cryptocurrency community. It is possible to move your coins to your own wallet and manage them on your own. This comes with risks (eg. lost keys). Keeping them on exchange comes with different risks. Anyone holding significant amount of cryptocurrencies should consider the risks of each choice, make an informed decision, and live…

So if I wanted to move stuff to my own wallet, what’s the best way to do that these days? Anything that can support more than just Bitcoin?

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.

Re: Coinbase warns that bankruptcy could wipe out user funds

#390

Post by Animats »

AdamN wrote: post #67
ceejayoz wrote: post #47

Earlier quoted context omitted.

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).

This is not entirely true, especially if you have a margin account.

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.

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