Coinbase Has No Risk of Bankruptcy

Coinbase Has No Risk of Bankruptcy

Coinbase Has No Risk of Bankruptcy

The new language used by Coinbase points out that customers could be treated as general unsecured creditors if there ever were to be such proceedings.

“In a bankruptcy proceeding, customer assets are typically segregated from company assets and are not used to satisfy claims of the company’s creditors,” Coinbase wrote. “However, there is no guarantee that in a bankruptcy proceeding our customers’ assets would not be considered part of our estate.”

The new language comes as the cryptocurrency exchange faces increased scrutiny from regulators. In March, the U.S. Securities and Exchange Commission (SEC) charged Coinbase with operating an unlicensed securities exchange. The SEC’s complaint alleged that Coinbase allowed the trading of securities without proper registration.

Coinbase has responded to the SEC’s charges, saying that it does not believe that it violated any laws.

Coinbase founder and CEO Brian Armstrong via twitter last Wednesday that the new language found in its latest 10-Q filing is simply a new requirement of the U.S. Securities and Exchange Commission and that Coinbase is in no danger of bankruptcy.

“It’s important to remember that we are a regulated financial institution with $5 billion in revenue last year, and we have never been at risk of bankruptcy,” Armstrong said. Armstrong further said that the exchange had “included a new risk factor based on an SEC requirement called SAB 121, which is a newly required disclosure for public companies that hold crypto assets for third parties.”

Coinbase went public on the Nasdaq last month through a direct listing, becoming the first major crypto company to do so. The company is now valued at over $86 billion.

Armstrong’s comments come as the crypto industry is facing increased scrutiny from regulators around the world. Just last week, the U.S. SEC sent letters to a number of exchanges and trading platforms, asking for information on their operations.

The SEC has also been investigating Coinbase since at least 2018 over its possible violation of securities laws.

In his blog post, Armstrong said that Coinbase is “committed to cooperating with regulators,” and that it has already “spent millions of dollars” on compliance.

“We have a dedicated team of over 60 people working on compliance full time, and our general counsel was previously the Chief Compliance Officer at the SEC,” he wrote .

“We have also been transparent about our work with regulators from the very beginning.”

In spite of all this, Armstrong said that he is “confident” that Coinbase will not be shut down, and that the company is “built to last.”

“Coinbase has always been a regulated company,” he wrote. “We have always complied with all applicable laws and regulations. And we will continue to do so.”

“There is no risk of Coinbase going bankrupt,” he concluded. “We have the resources we need to continue serving our customers and fulfilling our mission.”

The reason for concern from customers is that in the event of bankruptcy, a general unsecured creditor would be considered as having the most to lose, as they are last in line for claims.

However, given that Coinbase is a digital currency exchange and not a traditional bank, it is unlikely that it would seek bankruptcy protection. In addition, even if Coinbase were to file for bankruptcy, customers’ digital currency assets would not be impacted, as they are stored in wallets that are not subject to the claims of creditors.

Thus, while there is always some risk associated with investing in any company, it appears that the risk of Coinbase going bankrupt and impacting customers’ digital currency holdings is relatively low.

Martin K
Martin K author check sign Pro Investor

I am a bitcoin and crypto currency writer. I also work as a professional trader, and I have experience with stock trading and bitcoin trading. In my work, I aim to provide clear and concise information that helps people understand these complex topics.