Owning a cryptocurrency can be a nice thing these days, especially if used to build wealth. However, when you have your crypto in an exchange, there is always a threat lurking around the corner. One threat in particular is bankruptcy. According to Coinbase, they have mentioned that if they end up going bankrupt, then it will likely cause their cryptocurrency to be wiped out.
In fact, in the latest report of earnings, Coinbase disclosed that they currently hold more than $250 billion in investor currency. Despite this, Coinbase also disclosed that if a bankruptcy was ever filed, then the investor cryptocurrency could be affected by the bankruptcy. The proceedings would consider the investor as being a general unsecured creditor. This means each investor would be the last to receive any money that they are entitled to.
Realistically, this will not occur because of a cryptocurrency being unchangeable. It is for that fact that a cryptocurrency is so popular among investors. However, when a Coinbase account is opened, a Coinbase wallet will normally be used to store their cryptocurrency. This releases a lot of control that the investor would normally have.
For access to the cryptocurrency funds, a private key is needed, which Coinbase has access to. The investors though, have the use of a password that they create themselves. The investor is then able to use a password that they can remember easily.
However, in the end, Coinbase has the final say when and if a user may access the funds.
According to CEO Brian Armstrong, he clarified that Coinbase is not facing any bankruptcy proceedings and that all of the assets are safe. The disclosure is just a requirement that the SEC has in place for crypto companies. Plus, it is important to remember that the bankruptcy courts have no guidelines in place concerning if a crypto exchange such as Coinbase goes bankrupt. It is highly likely that the investor funds would remain untouched, regardless of the investors being affected.
Despite the reassurance that funds are safe with Coinbase, many still feel that Coinbase is not completely secure if a bankruptcy were to take place. They point this out due to the differences of holding funds in a crypto exchange as opposed to traditional methods, such as a bank account.
With a traditional account with a bank, the account holder is federally insured for the amount of $250,000. This will prevent account holders from losing the money they have held. With Coinbase, the FDIC does not offer this protection, which is why many prefer to hold their funds in a separate wallet.
Following this disclosure, it was no surprise that more than 15% of their shares dropped to only 80% beneath the debut price on the Nasdaq. On top of that, Coinbase trading also dropped to a first quarter low of $309 billion from a high of $547 billion. Coinbase believes that the decrease of trading will continue.
Conclusion
With a required disclosure in place for Coinbase, the threat of a bankruptcy is far from happening. However, the possibility is always present. If you have cryptocurrency held within Coinbase and still feel unsure, then you should give us a call today to help put your mind at ease.