There are fears that Coinbase could go bankrupt amid the collapsing cryptocurrency market – and take users’ holdings with it.
The crypto exchange has made its first loss as a public company, with Q1 earnings a negative $430 million. Revenue also dropped 27% from the same period in 2021 to $1.17 billion, with monthly transacting users dropping to 9.2m from 11.4m in Q4.
The company’s share price, which stood at almost $350 in November, has slumped to an all-time low of $53 at the time of writing (7am UK), down massively from $130 on 4th May.
Some retail users of the crypto exchange were left panicking by a passage included deep inside the earnings report: “In the event of bankruptcy, crypto assets held by the exchange could be considered property of the bankruptcy proceedings, and customers could be treated as general unsecured creditors. An unsecured creditor would be one of the last to be paid in any bankruptcy and last in line for claims.”
In short: if Coinbase goes under, your holdings are very much at risk.
CEO Brian Armstrong attempted to reassure customers, tweeting that the firm was at ‘no risk of bankruptcy’ and funds were ‘safe… just as they have always been’.
He also apologised for failing to communicate proactively over the addition of the wording, adding: “My deepest apologies, and a good learning moment for us as we make future changes.”
Armstrong further explained: “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.
“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.
“This disclosure makes sense in that these legal protections have not been tested in court for crypto assets specifically, and it is possible, however unlikely, that a court would decide to consider customer assets as part of the company in bankruptcy proceedings… even if it harmed consumers.”