Summary Property Rights & Financial Security Acknowledges
Fortune reports on Coinbase's disclosure that cryptocurrency assets held in custody could be lost in bankruptcy proceedings, highlighting a significant gap between crypto exchange protections and traditional banking safeguards like FDIC insurance. The article is factual journalism that informs readers of material property rights vulnerabilities in centralized crypto custody, though it frames the issue as a problem without advocating specific protective solutions or reforms.
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 risk adjusted rates for not having insurance.
It’s fine to invest in these products, but scary because people aren’t doing due diligence and have unrealistic expectations.
The CEO’s statement that they won’t go bankrupt it just comical. Of course he thinks they won’t. Few bank CEOs think that. But real banks and brokerages have insurance for their customers in the rare situation that they go bankrupt.
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 with the risk that entails. If that's too scary, then you probably shouldn't be in this market.
It's crazy that there are still people out there who will defend custodial wallets like this. Not you wallet, not your coins. It's as simple as that. These companies trying to take crypto mainstream are getting so much stuff wrong, it's no wonder they're losing customers and share value.
Also read the fine print about the "insurance" Coinbase carries against loss of bitcoin through an attack. It's limited to the hot wallet only. Cold storage is not insured.
In other words, the insurance is probably worthless. People with the good sense to realize that Coinbase is not a bank in any sense of the word are unlikely to be affected.
I've been messing with crypto long enough to know how this goes and my coins are already in a local wallet.
Coinbase had a good run but don't be stupid. Crypto exchanges aren't insured like consumer checking accounts are in the US and when they're gone they're gone. Geth isn't hard to set up for most of us, it took me about 20 minutes to have it up and running after not using a local wallet for nearly a decade.
Remember to write down your password (I can't emphasize that enough. I'd be retired by now if I had done that with the wallet I made in 2011) and back up your wallet. I keep mine in git.
Wait, can someone explain to me why they would explicitly announce it like this? This almost sounds like they're expecting to go bankrupt, or have plans to close the platform.
In the last 7 days they have lost over 50% value, and dropping a news bomb like this is only going to make it worse, isn't it?
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.
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.
I feel like saying "We have no risk of bankruptcy" is the same as Musk saying "Funding secured" on Twitter. The statement is provably false and will directly impact stock price.
As someone without 250k in the bank (or generally), FDIC insurance is quite reassuring. Banks pay into it like any other insurance, so it would take a huge money-doesn't-matter-anymore shock to overwhelm it. 2008 was pretty close! Crypto wouldn't do any good for me since the utility bills for all the internet infrastructure are paid for with real money (in the "most people exchange it for goods and services" sense).
There'd be nowhere to go where even a paper wallet would do me any good. You could execute a 51% attack on a solar-powered NetBSD toaster.
Can anyone tell me how to set up a wallet on my Mac in order to get my coins off coinbase. Is there any clear guide on how to do that. Every link on Google seems to be spam or downloading potentially malicious software.
It's very fustrating because so many people seem to know how to set up a wallet on their computer/Mac however I cannot for the life of me find a clear wallet to download and move my funds to or a guide on how to do it.
If I downloaded this - https://bitcoin.org/en/download - is that a way to do it? I can't download this in the UK, so is it safe to download it via a VPN and install it that way?
Thank you so much to anyone who sees this and replies.
It’s amusing for someone who works in finance to see the crypto market re-doing the last century of financial scandals and regulations in fast forward. Discovering capital gain taxes, market manipulations, the necessity to separate firm money from client money for brokers…
I have been trying, unsuccessfully for 2 years to validate my account on Coinbase. I have over 100k in ETH stored in their wallet, have the highest levels of access to their services but CANNOT trade because they have NO HUMANS available. Their systems DO NOT work and there is NO contact info nor any way to actually reach a person.
So I have been trading with others and will never use CB for anything but cold storage. (Which they're great at)...
The company is the worst I have ever dealt with. There is no way to interact with a person. So if something does happen, you have NO RECOURSE.
Based on my experience, they will be bankrupt. This is a certainty. You cannot have a financial entity that has ZERO human interaction or service. No trust, none at all...
Coinbase limits withdrawals in times when crypto crashes by removing the 'financial services' header in the settings where your connected bank accounts are listed. I don't know if they still do that, but I saw this as recently as a few months ago. You can still empty your account by going through the account deletion process. It will give you the option to sell all your crypto (and maybe to send it to a wallet, I don't know) and do a full withdrawal. Afterwards you can still stop the deletion process if you think you want to keep the account anyway (e.g. I was worried the transaction would somehow not complete and then not have access to the account).
Those of us who were around in 2008 remember when Lehman went bankrupt.
In that case they were the custodian for hedge funds assets. Lehman held those assets, in some cases because the British government force them to.
This really caused 2008 to spiral as now hedge funds that were perfectly fine got locked up and had to pull assets from the market due to Lehman holding their assets which caused even more selling and the feed back loop continued as funds sold their best assets first(think the Microsofts of stock world).
A coin bankruptcy would be the same thing, retail probably doesn't matter too much but if COIN held institutional funds, those guys do need to have liquidity for redemptions. This would mean alto of sell pressure on other exchanges and would lead to the best and highest quality crypto assets getting hammered down as funds fled to cash/stable coins.
Solana would probably crash and then shut down the network, even though they still try to claim they are a decentralized network:)
ETH and BTC would see very sharp drops in the first few days and then bounce back as people need to put money somewhere.
DEFI would feel this sell pressure and have alot of failings due to liquidity pools bein drained in this rush to quality. At best they'd get shutdown, at worst they'd just fail and go away.
You'd also expect the algo based stable coins to break the peg, even the well collateralized DAI would probably break.
Tether would probably continue on just fine as that's probably what most institutional funds would go to and I've given up on trying to predict its demise,
Coinbase popping and everyone with their funds/crypto still there gets ruined is probably in my top 5 signs that the crypto apocalypse is nigh and the Ponzi ends.
I still expect that the current downturn reverses later this year, and Coinbase isn't popping yet they're just having to disclose that risk. But given a real melt down in the broader economy and something like commercial mortgage backed securities popping, I expect that Coinbase would melt down.
Even though I'm not as negative as everyone else over current conditions, it is probably time to seek shelter (or that if there is a bounce later this year it is probably a profit taking opportunity before the crash)
>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.
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 the price of a run on coinbase.
This feels similar to buying a stock’s street name (a proxy for the actual share) vs directly registering a stock in your name. A key selling point of crypto has always been eliminating central control. If someone else is managing your keys, it’s a given that they’ll borrow against those entries in one way or another (putting the money to work so to speak). Risk assessment depends on which someone thinks is more likely, a lost key, or a default. We are living in some pretty wild times given that the later may trump the former.
I'm not familiar with how any of this works, but I kind of thought coinbase was less like a bank—paying interest on deposits—and more like a user friendly web ui for managing your assets, because dealing with private keys is hard for a user.
If, for example, Dropbox declares bankruptcy I'd be shocked if creditors could search through the user data for things of value.
It seems like there would be plenty of money to be made just charging transaction fees and holding assets 1-1 for the users, but what do I know.
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 this disclosure.
I'm sure someone could. To quote, "In comments shared on Twitter, Coinbase CEO and founder Brian Armstrong said the exchange had "no risk of bankruptcy," and that the disclosure was made due to new rules set by the U.S. Securities and Exchange Commission regarding public companies that hold crypto assets on behalf of others."
3 months ago J Powell (of Kraken, not Fed lol) adviced his users not to keep their crypto on his exchange[0]. Not the best business move either. A possible explanation might be provided here: https://twitter.com/jespow/status/1498112744754606081
This is a formal filing with the SEC [1]. Companies are either incentivized or outright mandated to disclose every possible risk, even those which are highly improbable. In this case, due to new regulations that directly affect Coinbase, customers' claims in a Coinbase bankruptcy are clarified. Also, some implications for the accounting thereof. Coinbase is not a bank, and assets of customers are not insured. Thus, customers would probably not be made whole in the event of a bankruptcy. Coinbase says it is possible that these facts could harm business if current or potential customers find this risk sufficient to reduce, halt, or not start doing business with Coinbase.
The filing says nothing about how probable a bankruptcy is, but Brian Armstrong, Coinbase CEO, has given his perspective on this topic here: [2] Here is the lede: "We have no risk of bankruptcy."
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.
Read any company annual report and you'll see all sorts of risks listed. Amazon lists war and other geopolitical events for example. This isn't to minimize that bankruptcy is a risk, just that it doesn't mean it is imminent.
I don't have skin in the game (not a crypto fan, not in the US and not an investor in coinbase), but I don't think your sarcasm is warranted here (side note for any other readers, that's _not_ what his linked thread says).
Regulatory capture is _real_, and dispraportionately favours incumbents. As regulations are tightened on crypto in general, firms that are not involved in the creation of said regulations are going to find themselves on the wrong side of the law. Furthermore, if _any_ organization has a reputation of taking sides, it's the SEC.
> 3. We believe our Prime and Custody customers have strong legal protections in their terms of service that protects their assets, even in a black swan event like this
> 4. For our retail customers, we’re taking further steps to update our user terms such that we offer the same protections to those customers in a black swan event. We should have had these in place previously, so let me apologize for that.
> 5. ...and it is possible, however unlikely, that a court would decide to consider customer assets as part of the company in bankruptcy proceeding
The term people might want to google is "bail-in". And it is likely that Coinbase has less protections related to that than a conventional bank.
If I had any cryptocurrencies in Coinbase, I’d be transferring it out ASAP after reading this and the CEO’s response on Twitter trying to downplay the risk. That’s a red flag.
I'm almost sure Coinbase practices fractional reserve and other forms of market manipulation, let's see how that bank run works for people.
Some examples:
- NuCypher goes up quickly on binance (a few months ago) because a whale is buying there, lots of people try to withdraw on CB to sell on binance, withdrawals start off working but then get locked for 5 hours straight, reddit and other social media had people complaining, no explanation given by CB, just technical issues as always.
- Try to sell a few tokens a few weeks ago, it doesn't allow me to put big orders, instead they make me do it in multiple times, in which time the bots (some of which are theirs), front run me and instead of sell at a 5% lower price in one hit I lose 10% just waiting for the UI to allow me to make small order after small order.
- Always blocking withdrawals in the most suspicious moments imaginable, just happened to me 3 days ago trying to withdraw USDC, had to wait an hour until that "unexpected error occurred" disappeared.
- Human greed, why would they be different from the banks? I see most people don't withdraw their coins, I lend their coins for interest and profit from it, shareholders are happy, I sell my stocks and make money, if a bank run occurs I'll declare bankruptcy or ask the government for help because like a bank if my customers lose their money they might become unhappy and cause the government problems (Coinbase will eventually become a bank if crypto hype keeps growing).
> 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't have those assets to distribute in a bankruptcy. Given how immature and non-economic cryptocurrency is, it wouldn't surprise me if Coinbase was sitting on all/most of its users desposits. So it's possible the users might get most of their deposits back after a bankruptcy proceeding (assuming the reason wasn't massive theft of assets or something).
I'm sorry but I can't fathom why you would "invest" in a cryptocurrency you yourself don't even know how to use. This comment reads as an object lesson in exactly what is wrong with the current world of crypto. The entire value prop of crypto currency is that you are in control not major financial institutions, but it sounds like you are very much not in control.
I think the best strategy for someone in your case is to cashout from coinbase into whatever fiat currency you use locally and put that into your bank account.
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???"
This should either be so obvious it doesn't have to be said at all, or so important to those unaware that its the top comment. Somehow HN failed both of those but given their predilections on 'crypto' I'm not surprised.
I would not recommend using wallet software on your personal computer. It makes it a lucrative target. Instead invest in a hardware wallet - either Ledger or Trezor and follow the instructions.
Only purchase the hardware wallet directly from the company website, never used.
I've been in that situation before with Coinbase, getting ignored and slow-rolled by their know-nothing support team. I submitted a complaint to the CFPB, not expecting much as I'm not in the US, and shortly afterwards Coinbase started replying to me properly. I eventually got my account back. Maybe worth a go.
Article exercises free expression as journalism, reporting on important financial disclosure by a major company. Serves an informational function enabling readers to understand material risks affecting their property and financial security. The reporting is factual, balanced (includes CEO reassurance), and supports informed public discourse.
FW Ratio: 50%
Observable Facts
Article is published under journalist byline (Nicholas Gordon) with date and source attribution.
Article reports on official Coinbase SEC earnings disclosure, citing specific figures and regulatory context.
Inferences
The journalism advances free expression and access to information principles by reporting on material corporate disclosures.
Paywall access model undermines the informational benefit by restricting who can read the disclosure.
Preamble emphasizes fundamental rights and dignity. Article does not explicitly invoke these concepts, though the underlying issue—financial security and asset protection—relates to the spirit of welfare and security.
FW Ratio: 50%
Observable Facts
Article discusses loss of cryptocurrency assets in bankruptcy proceedings.
Inferences
The vulnerability described relates tangentially to concepts of security and welfare within the Preamble.
Article frames Coinbase's custody model as a privacy and control vulnerability, explaining that the exchange holds private keys rather than users controlling them directly. This reduces user autonomy and privacy over personal financial assets.
FW Ratio: 50%
Observable Facts
Article states that on Coinbase, 'the exchange holds the private key and lets users access the funds within the wallet using a more conventional password.'
Article explains that 'when push comes to shove, Coinbase ultimately governs whether a user gets access to those assets.'
Inferences
The custody model creates a structural privacy vulnerability in which users cannot control access to their own assets.
The article's framing emphasizes this control gap as a weakness compared to self-custody alternatives.
Article discusses financial security in the context of users' cryptocurrency holdings. Frames the standard of living implication (financial loss in bankruptcy) as a vulnerability, though this is secondary to the property rights framing.
FW Ratio: 50%
Observable Facts
Article discusses how users' financial security depends on Coinbase remaining solvent and not facing bankruptcy.
Inferences
The article's problem-focused framing of financial vulnerability relates to notions of economic security and standard of living.
Article addresses financial security and welfare by discussing the risk that users lose funds due to exchange bankruptcy. Frames this as a significant vulnerability in the crypto ecosystem compared to traditional banking safeguards.
FW Ratio: 50%
Observable Facts
Article emphasizes the security gap: 'Crypto exchanges don't offer that same protection' (as FDIC insurance for traditional banks).
Inferences
The article identifies a welfare/security gap in which cryptocurrency users lack protections comparable to traditional banking.
Article directly addresses property rights vulnerability. Reports that in bankruptcy, users' cryptocurrency could be lost because they are classified as 'general unsecured creditors' with no claim to specific assets. Frames this as a significant gap in property protection compared to traditional banking FDIC insurance. However, article is problem-focused without advocating for protective solutions.
FW Ratio: 60%
Observable Facts
Article quotes Coinbase: 'the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings.'
Article states users would become 'general unsecured creditors,' meaning 'they have no right to claim any specific property from the exchange in proceedings.'
Article contrasts crypto with traditional banking: 'Bank accounts in the U.S. are protected by deposit insurance offered by the Federal Deposit Insurance Corporation.'
Inferences
The article identifies a substantial gap in legal protections for cryptocurrency property compared to traditional financial assets.
Framing emphasizes the problem and vulnerability without offering specific advocacy for regulatory or institutional solutions.
Site paywall restricts access to this information, limiting who can benefit from the transparency. This structural limitation reduces the positive impact of the journalism.