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.
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.
The SEC can't prosecute anyone, they have no criminal enforcement power. However they can bring civil actions for fraud or other violations of securities law, and refer criminal fraud cases to the Justice Department.
Okay, but that isn't a liability in an accounting sense, it is a cash flow.
Edit: looking at the 10K, other than customer assets (where they have a net holding), they have like $6 billion in cash and equivalents against less than $5 billion of debts and other obligations).
So if they shut it all down, there would be funds left over.
> they have like $6 billion in cash and equivalents against less than $5 billion of debts and other obligations...if they shut it all down, there would be funds left over
Every company that ever went bankrupt had more assets than obligations before they went bankrupt.
Coinbase's quick ratio [1] adjusted for custodial assets, as of 31 March 2022, was 6.6 [2][a]. That's good. Don't adjust for custodial funds, and it's 0.15. Virtually bankrupt. With $6.2bn cash on the balance sheet and $830mm cash burned by operations in Q1, they have over 2 years of runway assuming Q1's terribleness continues. That's good. But were they to suffer a hack, that margin of safety could rapidly collapse. And in that case, customers could be left behind secured lenders. (Where USDC holders would wind up is a mystery.)
Could you explain how you got 0.15? (6,116,388, cash and cash equivalents + 346,048, accounts receivable + 1,333,333, crypto assets held) / (10,921,823, current liabilities) = 0.71
On paper, you have and can report a lot of assets. However, many companies go bankrupt with current ratios greater than one with either overinflated or overvalued assets or undervalued or understated debts or some combination. Financial reports a la 10-Ks and 10-Qs are 'boring,' difficult for most people to read, contain specialized jargon, and contain significant lag time where a going concern is, well, a concern. Audits are almost always annual and not quarterly. Disclosures may be required, but they can be broad or nonspecific enough as to delay broader acknowledgement of bankruptcy level problems. I'd take information from financial reports with a bit of salt, even if they are often our best, or only, source of information.
Grant Thornton audits Coinbase last I checked. Hopefully they do a better job than EY. I doubt a "stablecoin" holding would count as cash equivalents, but not all cash equivalents are equal and the definition has changed over the years. Commercial paper, 1-3 month maturing Treasury notes, certificates of deposit, money market accounts, and savings account funds can all be counted as cash equivalents. For example, if you hold a two month commercial paper of another cryptocurrency company as Coinbase, this might qualify as a cash equivalent. Cash equivalents are not all equally liquid or risky. Even if all of the cash and cash equivalents are there and solvent, the definition of a cryptocurrency in a bankruptcy might not be settled in a court of law in such a way that it favors account holders of Coinbase held cryptocurrency over stockholders or bondholders.
Would that be 5 billion in customer assets and associated liabilities, leaving about 1 billion of equity for Coinbase? At a burn rate of 430 million per quarter that only leaves a runway about 7-8 months.
Wouldn't a hack of the custodial holdings just mean their customers lose their money but the business is otherwise a going concern (for that few moments until everybody stops paying them)?
They get a lot/most of their money from fees with ongoing transactions. If you look at the ‘5 minutes ahead’ picture if there is a hack that either 1) steals all customer assets, or 2) requires them to freeze all activity for a serious length of time, it’s a ‘no longer going concern’ type situation.
No transactions? No income.
No trust/willingness for people to continue doing transactions? No future income.
According to Coinbase 98% of their crypto is stored in offline wallets. So hacking won’t work. You’ll have to break into wherever they have the coins stored and hope the key isn’t destroyed when you unplug the device.
I would say that's extremely likely. Make a list of your favorite tech companies from 1990 or 2000, and see how many still have technology teams qualified to tie their own shoelaces today, exist, and haven't turned into sleazeware companies.
You can calculate your annualized failure rate. That's a best-case on the odds your funds will continue to exist next year. Move fast / break things / fail fast / developer sprints / etc. speeds this process up even further. Crypto companies also have a giant target painted on their backs for hackers (including rogue state-level actors, some of whom just had large sums confiscated by Western institutions).
That actually does sound kinda impossible, 98% of their crypto is in secured cold storage, and it’s spread across distinct coins and different wallets.
I’m not saying it’s risk free, but what exchange or broker is? Does anyone else match Coinbase for security? Gemini seems at best equivalent.
He probably has a disclaimer somewhere saying his tweets are "not forward looking statements" so he is only saying that as of right now in this moment there is no risk of bankruptcy
I wouldn't be sure what the man on the clapham omnibus thinks of that kind of disclaimer. He'd be exposing himself to considerable risk by relying on it
Yes. You can only compute probabilities with respect to a probability model. There exists a model M and an outcome x, such that x has zero probability under M. For example, the probability of getting 2 heads in one coin toss has zero probability under the standard binomial model.
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.
Coinbase is publicly traded, OP is clearly referring to securities fraud as it relates to public statements that could have material impact on Coinbase stock.
Coinbase shares are a regulated security. The poster is suggesting that the statements by the CEO are securities fraud for those shares not for crypto.
If I was a CEO and saw how few and far between (as well as toothless) the repercussions have been for Elon Musk, I wouldn’t fear tweeting whatever I wanted either.
If you were a CEO, you'd often be set up for life with some level of financial prudence, and everything else after achieving that level of wealth seems like it'd just be for a lark or some pursuit of satisfaction/happiness.
To be a bit pedantic, there are CEOs of all sorts of organizations, many of which are tiny nonprofits that bring in very little money. You could be a CEO and bring home $60k a year.
Do you think it would be okay for him to say there's no risk of bankruptcy to some friends in a public bar? How about at a BBQ in his backyard? Would it be okay for him to say this on a flyer stapled to a public board?
Oh, that's backwards from what I thought the situation was. Thanks!
Apparently such information has to be released in a way that all the public, generally, can see it at once and twitter with it's faked high user numbers and famous people fulfills this. Releasing it on a small local poster board would be illegal because it is limited, where twitter is legal because everyone theoretically has access to twitter.
Eh not entirely true. Twitter throws up a login screen if you try to view more than a couple tweets. There’s probably an argument there since an account (and PII) is required.
> 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).
While I agree making a bad loan is the most likely reason for a bank to lose deposits, I wouldn't go so far as to call it "the" reason.
Robbery, embezzlement, or natural disaster [1] can also result in loss of funds that would be covered by FDIC, and those risks exist for cryptocurrency too, albeit in somewhat different forms.
If they were conservatively minded or playing it safe, the highest probability is that they left or lost a long time ago, or they haven’t entered yet. Coinbase won, effectively, which means they are well beyond taking a cut of transactions and calling it good.
The statement from the CEO is to prevent a run. Why do they need to prevent a run if they aren’t farming the float?
The only other option is “we make our money on trades” however, and especially in the bigger coins, trades are expensive, and not happening as often as they would like. They would (and will, if it comes to light) likely argue that it would be violation of their fiduciary duty to allow the custodial accounts to just sit there not making money.
If exchange revenue data are public this could probably be figured out based on comparing transaction flow and revenue. My money is they are dependent on float, and probably also directly or indirectly using it to front-run. It is SOP for finance.
Banks do not loan out deposits . This is a misunderstanding of modern banking. In modern banking systems, loans create deposits. Banks create loans out of thin air. In order to make loans they must have appropriate capital ratios. Bank deposits are a liability. When a bank deposit is debited, either via a withdrawal, check, or other transaction, it is settled using reserves. Reserves are federal money that is on deposit in accounts which banks have at the Federal reserve. Banks pay each other via interbank reserve settlements. Banks only maintain a minimal amount of reserves on deposit(Reserve Requirements). They can borrow reserves from the Fed if needed.
Sure, banks can create money "out of thin air" because the liability created when the loaned money is debited is balanced out by the asset of the loan owned to them.
But if the loan defaults, the asset disappears, and if this happens enough the bank risks becoming insolvent and no longer being able to repay other liabilities like its deposits unless bailed out.
Maybe that's what you're alluding to - the Fed will always bail them out so deposits are never lost? That's probably true in practice, but a loan from the Fed can't in of itself restore solvency, since it's still both an asset and a liability. In the most extreme case, the bank would still go bankrupt, investors would lose their money, and depositors could also lose some of their money unless individually bailed out by the FDIC.
Back to the original discussion - the key question here is are people who hold cryptocurrency at Coinbase considered "investors" or "depositors", and are they protected by the FDIC? The latter is almost certainly no, and the former determines how much they can expect to get repaid if Coinbase goes bankrupt.
Agreed on crypto. Just feel its important to understand that banks are quasi-government institutions because of the federal reserve system, heavy regulation, and FDIC insurance. All of this evolved over time to improve how they serve as financial intermediaries and most of which crypto lacks.
So how banks actually work is important. Banks assets vs liabilities are their capital ratio and they become insolvent when the capital ratios are below fed requirements and are not allowed to continue lending. Notice these ratios were relaxed in the 2008 crisis. But bank liquidity is different from solvency. Liquidity, the ability to make interbank payments for consumers(like writing checks) or make withdrawals is guaranteed for banks because these adjustments are made in bank reserve accounts(at the fed) which are totally different from consumer checking accounts. And, the fed will cover any overdrafts in these accounts by design. So equating lending with consumer deposits and liquidity is wrong. Banks don't check deposit amounts before making loans. This is a myth. They create loans out of thin air so long as capital requirements are met because loan funding is nothing more than a bank making a deposit to the borrowers account in exchange for a signed contract (which is an asset to the bank).
The fed will cover overdrafts from banks
> 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 prevents double transactions. Likewise, Bitcoin can't be "created" like banks create fiat currency on their balance sheets.
If they are loaning out fiat cash fractionally backed by depositors' Bitcoin, who are they borrowing that cash from, and how can they guarantee to their creditors that the Bitcoin backing the loan are available as collateral?
Would they take their users' wallets' private keys to pay in the event of a default?
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.
> Their depositors wallets aren't "on the blockchain" -- if they were, they'd be in the the depositors custody not coinbase's.
If the users' wallet values are really just database entries referring to some miniscule portion of the mega-wallet whose private keys are actually owned by an exchange, then what's the point of using the blockchain at all?
What is the value provided by exchanges other than an asset database that (hopefully) has bank-level security?
Just a way for regular folks to speculate on cryptocurrency?
Couldn't that function be equally served by some kind of high-risk brokerage account that has a crypto investment option?
The exchange is just that.. an exchange, people use it as gateway to the world of dollars. When they're done trading users can (and ought to!) withdraw their funds to their own wallets. Like anything else that requires an extra step, many do not (or delay a long time before doing so).
> Couldn't that function be equally served by some kind of high-risk brokerage account that has a crypto investment option?
Absolutely. What coinbase does could be done by traditional brokerage accounts. This is one of the reasons that people have been critical of coinbase as a business.
The regulatory uncertainty around Bitcoin has so far mostly kept more traditional brokerages out of the space. Though, FWIW, Interactive Brokers has a partnership with PAXOS to support bitcoin on their platform, the integration is not amazing however.
It's also the case that cryptocurrency exchanges make a considerable amount of income from promoting varrious extremely sketchy alternative cryptocurrency and accepting massive bribes for their listings and other activities that traditional brokerages wouldn't likely be interested in engaging in because they're already illegal for the other assets they handle.
> Is Coinbase "loaning" out the Bitcoin users have deposited in it?
Maybe not Bitcoin, because I don't know if Bitcoin has any staking protocols in it.
But things like Anchor / UST / Luna participated in a staking scheme, where if you promised not to sell UST, you'd get 20% APY gains (measured in UST of course, not US-dollars).
Coinbase could be participating in those schemes in a group wallet-setting. Ex: UST holdings at Coinbase would be staked, so that Coinbase would get those gains. Or with other coins with such benefits??
I'm mostly pulling this out of my ass btw. I don't know the structure of Coinbase. But I can see the "incentivizing" from the various cryptocoins on the market or the various "protocols" that allow for exponential growth (as long as you "lend" or "stake" your coins somewhere else).
There are many issues here. First is all the crypto that coinbase must hold in order to facilitate trades. If they do not have the inventory, they must source elsewhere. Second is customer funds (cash) which is what they need to facilitate a fiat exchange for crypto for their markets. I'm not exactly sure how their operations work but in a regular stock brokerage, these are segregated from their own cash although in 2010 an incident was shown that even segregated customer funds are not so segregated.
The risk here is always the same. Liquidity in terms of cash. I dont believe there is any regulation stopping coinbase from using or investing customer cash
or anything preventing them from acting as a hedgefund (leveraging that cash) to make investments using customer funds. The real risk is there. If they are using crypto as collateral to make investments that are tanking in value, while crypto is tanking in value, they'll be forced to post more collateral in the form of cash or be forced liquidated to take a loss. Insolvency leads to bankrupcy.
I guess it depends on if those balances are kept on the books as “assets” or not. They may be subject to money transfer laws though, in which case they can’t spend ANY of the deposits.
Each US state has their own laws, and I’m sure some of them are vague enough to not specify the currency in order to regulate transfers of foreign currencies… so that could get interesting if anyone notices that they are money transfer services…
> if those balances are kept on the books as “assets” or not
Yes, they appear as a "customer custodial funds" current asset and "custodial funds due to customers" current liability on Coinbase's balance sheet [1]. Under current law, Coinbase's customers have a claim to those assets.
Look at a brokerage's balance sheet, on the other hand, and you see special line items for segregated cash and securities. If a broker-dealer goes under, "it ordinarily is liquidated under SIPA, not the Bankruptcy Code," where the SIPC "asks a federal court to appoint a trustee to liquidate the firm and protect its customers" [2]. The first priority is customer assets. Creditors second. Coinbase isn't similarly regulated, in part because it has fought tooth and nail against being needed to.
I get that's true in some situations, but is it true in all cases? Say I rent a safe deposit box, put valuable personal property in it, and the bank goes bankrupt. Does the bankruptcy court sell the box-holders' personal property until the bondholders are made whole?
It seems like depositors should be one of the first in line, certainly before bondholders.
The property in the box was never the bank’s property. They’re just renting a space for you to keep your stuff. In a bankruptcy, that contract could be sold to a third party who takes over the management of the boxes, but the contents are yours.
When you send money to Coinbase, it’s not like that. This latest disclosure makes it clear assets held at Coinbase (or other exchanges) aren’t yours in any sense.
When you get right down to it, as a purely virtual asset the crypto isn't anyone's property. Coinbase holds some keys which give it the ability to sign transactions on the blockchain, a service which has value. They owe their depositors the service of signing such a transaction on request transferring some quantity of deposited crypto to a suitable withdrawal address; the value of this service to the customer is the market value of the crypto. However, it does not seem likely to me that this service Coinbase owes to its depositors would be prioritized over their other debts, especially if that meant selling off other property to buy crypto so they could complete the transfers.
The difference here is that the bank never has any ownership of what’s in the safe deposit box.
When you buy crypto with coinbase, they hold that crypto in a custody account they have keys to. It’s not guaranteed how the court would rule on distributing those assets in case of bankruptcy.
From the article “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”.
What if you received your pants, but they were defective so you sent them back to be repaired? Do you then lose them during bankruptcy, and they get auctioned off?
“the exchange noted that 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…”
Pithy, but also not true. If a bank goes belly up, your average Joe’s bank account is first in line (via deposit insurance), as are employee entitlements.
Coinbase is most decidedly not a bank, which is why the former doesn’t apply.
Actually bond holders eat first in US bankruptcy law. Then employees, and shareholders last. So in this case, under capitalism, billionaire investors eat last. [0]
How do you short a coin on Coinbase? I have never seen the option nor heard reference to it. It sounds like you’re just assuming this is how it works to me but I’d prefer to be wrong and learn something.
I think your statement about the idea that Coinbase isn't living on the float about as likely as the notion that nobody in crypto is desperately trying to create a fiat currency fiefdom. As such, your views come across as the kind of statement that are illegal to distribute concerning regulated investment.
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.
> 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 only know what I read from the article.
But for me, it seemed like the disclosure was required, not because the crypto funds would be used to settle company debts, but rather, this has never been tested in court. So, it’s highly likely that customer accounts would be protected in a crypto bankruptcy, but we don’t have any precedent on it, so we don’t know this to be the case.
> expectation of the courts that those funds won’t be used to settle company debts
I'm not sure if this is really the case, but I was under the impression that brokerages held the customers securities in trust. i.e. there is not merely a norm that they will not be used to settle debt, but it would be illegal for them to be used to do so.
If anyone knows more about brokerages and whether this really is the case, I would be very interested to know.
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 depends very much on the subreddit. There are still some fantastic communities with top-notch discourse! On the other hand, I don't remember discourse being worthwhile on large subreddits even in the good old days of 2015.
Unfortunately doubly true for their crytocurrency-themed subreddits with millions of followers where each and every post that isn't about 'number goes up' gets moderated.
Even a post got deleted where the user warned others to invest carefully, only funds that they don't mind losing. Or posts where a user posts a proof of their losses.
The subreddit you’re in is what decides whether your opinion will be upvoted. If you go to a video game’s specific subreddit and say “I know you all like Call of Duty, but Call of Duty sucks”, then you will be downvoted into oblivion even if you’re “correct”. Same goes for things like politics and bitcoin. The subreddits all end up attracting people who have a certain opinion and outcasting the rest.
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.
> I'd be shocked if creditors could search through the user data for things of value.
dropbox don't own any copyright to the content from the user's uploads. So even if the creditors find any valuable IP or content, there's no way they can claim ownership over it.
Coinbase, on the other hand, is given custody of actual assets (the cryptos).
The entire point of Twitter and FB is to commercialise the user content, IMO.
While I wouldn’t a priori assume any given cloud storage user agreement includes a perpetual IP license to anything the user uploads, I also wouldn’t assume it to be free of such a clause.
Either way, read closely. And get legal advice if it matters, because jargon doesn’t mean what outsiders think it means.
> It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments.
The problem isn't crypto, it's these exchanges. Nearly everyone just leaves their coins in the exchanges. They're essentially banks but with none of the protections. They even offer cryptocurrency loans, savings accounts and everything.
Cryptocurrencies were supposed to replace banks but they ended up reinventing the whole thing badly. It was supposed to be a dollars -> electricity -> CPU -> bitcoins closed decentralized system, but now it's just dollars <-> bitcoin within centralized exchanges.
I'm not sure who first said it, but crypto feels like a solution in search of a problem. Something akin to "when all you have is a hammer, everything looks like a nail" - forcing crypto/blockchains as solutions to problems that are either already solved, or could be solved in other more traditional ways, only acts as a disservice to wider adoption imo.
> crypto feels like a solution in search of a problem
Well, to me the problem is absolutely real. Decades ago, my country suffered from hyperinflation. We went through several inflationary currencies like it was nothing until some economist managed to dupe everyone into believing it was gonna be different this time. Not before desperate attempts to control inflation were implemented, though. In the 90s the president just froze everybody's bank accounts.
I simply don't trust governments. I want them to have zero authority and influence over my money. I don't care what it costs to achieve this, as long as governments are successfully exorcised from this economy it's worth it. The way I see it, pure blockchain solutions are the only way this could possibly work and even then only if sufficiently decentralized. Exchanges are the complete opposite of this vision, they're literally banks with all of the downsides and none of the upsides.
In order for a cryptocurrency to be the solution to that problem - an authoritarian government routinely destabilizing a currency, or freezing financial accounts - that cryptocurrency would have to be ubiquitously in use by everyone involved in any financial interaction. Grocery stores, clothing outlet malls, lawyers, healthcare services, rent/mortgage services, etc. would all have to be on-board with using that cryptocurrency and have the infrastructure to facilitate it. If they didn't, you might as well have a frozen bank account, or a hyper inflated currency.
If you're in a state that can freeze bank accounts and completely retool the national currency on a whim, what prevents them from strong-arming every one of those above-mentioned institutions into not accepting that cryptocurrency? If you can freeze everyone's bank account, you can certainly enforce jail time for a store owner who is found to be doing transactions in whatever cryptocurrency.
Basically, for cryptocurrency to solve the problem you describe, it would have to become the same structure that caused/causes the problem to begin with. You'd be back to square one.
Or you make that your central bank is independent from your president, and that only qualified majority + accords from your judicial power can modify the target of your central bank. (Edit: to be clear: target and not policy. The central bank can still choose how they will reach their target).
But you need an effective republic for this, and one that have a hint of democracy.
> Cryptocurrencies were supposed to replace banks but they ended up reinventing the whole thing badly.
The only way that statement could be true is if anyone every assumed it's feasible or desirable for everyone to have physical wallets and self-host everything
What i don't understand is why don't people create their own wallet and keep their funds there? Isn't that the entire purpose?
Of course they could still use coinbase as an exchange. But if everyone let's another party "manage" their wallet in what way is it really decentralized...
> What i don't understand is why don't people create their own wallet and keep their funds there? Isn't that the entire purpose? Of course they could still use coinbase as an exchange. But if everyone let's another party "manage" their wallet in what way is it really decentralized...
The real purpose of Bitcoin is to speculate on the roller coaster. Everything else is basically woo that's needed to fuel it. The "future of money" where people by their coffee with a super-secure private wallet is a lie.
> 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.
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.
AFAICT, the main intention of the original product was to undermine fiat currency, and by proxy, the institutions that are built on and support it, primarily governments and central banks but extending beyond that to broader societal institutions that use taxes and monetary policy as their tools.
I'm not so sure it's done with that yet.
The financial FOMO that fuels that goal just seems like a means to that end, and the climate damage from it's energy consumption seems like an (unintended?) second order effect whose problematic nature needs to be rationalized post hoc.
You can 100% create and manage your own wallets on your own hardware. However, most exchanges have transfer fees, on top of whatever costs are incurred on the network by the transfer. And, if you want to sell on an exchange, you likely need to transfer the tokens into the exchange wallet anyways.
If someone is buying crypto to hold it for years, then wallets and hardware keys and 12-word passphrases make the most sense.
If you're not sure if you'll hold a coin for long, or are speculating, or have less than $5k on the exchange, it might not be worth the hassle (for the indeterminate 'you') to create and manage your own wallets.
> However, most exchanges have transfer fees, on top of whatever costs are incurred on the network by the transfer.
Most might, but Coinbase does not. Outgoing transfers are free—they even cover the network fee. For incoming transfers the sender pays the network fee but there is no additional charge.
It's a bit of a hassle to shift funds around, and not having your funds instantly available on the exchange limits your ability to take advantage of short-term opportunities, but in general I would still recommend self-custody over leaving "large" amounts of crypto on an exchange for very long. That's less due to the risk of bankruptcy and more due to the risk of the exchange getting hacked—practically speaking we have more real-world examples of the latter case, discounting bankruptcy directly resulting from a previous hack.
It’s the obvious thing, convenience. Humans love convenience. People build billion-dollar businesses like Steam and Spotify that basically sell convenience.
Makes sense that a lot of people just want an easy way to manage their crypto. If you’re not ideologically dedicated to decentralization, why not do the easy thing?
It takes discipline to keep a wallet safe. I used to discount the risk of that, but over time I feel less and less confident in the average person's ability to not lose a wallet or have it hacked.
To me Coinbase feels more like bank. Once I deposit money I no longer worry about the physical security of that money. Clearly that isn't the case given it's not FDIC insured, but the fact that it's a multi-billion dollar publicly-traded corporation instills some confidence.
> To me Coinbase feels more like bank. Once I deposit money I no longer worry about the physical security of that money. Clearly that isn't the case given it's not FDIC insured, but the fact that it's a multi-billion dollar publicly-traded corporation instills some confidence.
And that is the danger. It feels like a bank, and lots of other people also feel it is like a bank, so you figure you are safe.
But it is not a bank. It does not offer the regulator protection of a bank. Feelings don't change that. A good UI does not change that. Only regulation change that.
Unless Coinbase is regulated like a bank or brokerage, what it feels like is irrelevant if you're in the U.S. Short of your deposits being FDIC or SIPC insured you know all you need to know: every cent and/or coin you have with them is at risk.
Early on I had some Bitcoin hacked from a wallet. That was before wallets even had passwords, if I remember correctly.
I bought a hardware wallet years ago and then decided not to use it. If Coinbase goes down crypto as a whole will probably be brought under with it, so I’d rather have someone else manage it for me.
Would you like to explain to my 70 year old mother that she should install a Chrome extension, transfer her coins to it and expect her not to lose that? Oh and then explain to her that she is going to print out a piece of paper with 12 words on it. That's her backup in case she loses everything...so "Mom, do not lose this piece of paper you're screwed!"
Then crypto will never be the future of money. That's their point.
But honestly, most HN uses password managers -- if crypto became primary currency, that would make hacking someplace like Bitwarden or Coinbase enormous world shattering honeypots -- like Nation state targets.
This and also arguably 70 year old moms are probably just fine at "don't lose this crucial piece of paper" given stuff like social security cards, birth certificates, savings bonds, and all the other bits that have been important pieces of paper for most of their lives.
Surprised that customer positions aren't considered loans with first rights over all other lenders in a bankruptcy proceeding. The company shouldn't be playing around with these, but based on this statement it sounds like they are doing something odd and trying to run a fractional reserve system, or leveraging customer deposits for other high risk activity such that the money may not be there.
Makes me think that I should move my crypto back to my own wallet/sell the crypto.
They don't have my keys, but they are holding the asset as a custodian. From a practical perspective, I'm not certain they are actually holding my BTC in a dedicated wallet or a central wallet with an off blockchain ledger.
The only exception I might take to what you're saying is that one of the main reasons for crypto is resistance to central authority, so the emergence of a situation where something like this can happen should be edifying.
It's not the first time this has happened; people seem to forget about Mt Gox.
These exchanges need to be part of the crypto schema. Crypto theory is so focused on the chain and not the infrastructure that builds up around it.
Anyway, I completely agree with what you're saying but it has special meaning when you're talking about something that's supposed to transcend the need for regulatory structures like FDIC.
> The only exception I might take to what you're saying is that one of the main reasons for crypto is resistance to central authority, so the emergence of a situation where something like this can happen should be edifying.
Explain.
> It's not the first time this has happened; people seem to forget about Mt Gox.
False equivalence, MTGOX wasn't a Publically traded company with tons of VC money and lots of institutional funds (Ark et al) backing them; Mark embezzled funds and had horrible OPSEC that led to a massive hack. He tried covering this up, Coinbase reporting a massive loss is definitely not the same thing.
> These exchanges need to be part of the crypto schema. Crypto theory is so focused on the chain and not the infrastructure that builds up around it.
Coinbase has been the bane of the Bitcoin ecosystem since MTGOX folded. They are not a representation of what the 'Crypto' schema needs, in fact I'd argue CASH is a superior product in very conceivable way.
And what exactly is Crypto theory, exactly?
The Infrastructure was meant to be P2P, as noted in the White paper by Satoshi: exchanges are merely a response from the growing Market to cater to the increase in demand, and the truth is they still exist. Kraken, Binance, Gemini etc... still exist and will for some time. The number of exchanges isn't the issue in 'Cryoto land,' it's the scams and I'm glad Coinbase being a pusher of these worthless alts deserves to suffer. My worry is what happens to their BTC if they decided to unload to cover losses.
I wouldn't read into that comment (of mine) too much. I meant what I said in an abstract sense.
> False equivalence, MTGOX wasn't a Publically traded company with tons of VC money and lots of institutional funds (Ark et al) backing them; Mark embezzled funds and had horrible OPSEC that led to a massive hack. He tried covering this up, Coinbase reporting a massive loss is definitely not the same thing.
Fair enough; good point. They are different. But I do think these intermediary, exchange entities, whatever you want to call them, tend to emerge repeatedly, with their own vulnerabilities, in a way that isn't always fully recognized in a lot of the discussion of cryptocurrency. My sense (which could certainly be wrong) is there's a bit of a gap between blockchain-level issues and macroeconomic theory as it comes up in discussions of cryptocurrency.
> And what exactly is Crypto theory, exactly?
I just meant academic computer science - economic theory about cryptocurrency, like you might have in conference proceedings, academic journal articles, or technical papers openly distributed for critique and discussion. Maybe the sort of thing that might get discussed in formal policy reports by various public and private profit and nonprofit institutions.
> The Infrastructure was meant to be P2P, as noted in the White paper by Satoshi: exchanges are merely a response from the growing Market to cater to the increase in demand,
I think that's part of what I'm getting at. From the very beginning it's been clear to me people generally don't actually want pure cryptocurrency P2P in the sense they don't actually want to store the entire blockchain on their laptop. So these kinds of intermediary structures will emerge.
> and the truth is they still exist. Kraken, Binance, Gemini etc... still exist and will for some time. The number of exchanges isn't the issue in 'Cryoto land,' it's the scams
I don't mean to imply I have a problem with exchanges per se, it's that it would be nice if there was some kind of robustness built in surrounding them. Maybe fraud is inherent to all economic systems (people lose money all the time on traditional stock exchanges and in investment schemes), but it would be nice if there was something like, just say hypothetically, a higher-order layer akin to the FDIC etc (in the absence of the FDIC etc), but distributed or something? I just think these things aren't really well-worked out -- the idea that someone could exchange USD into crypto and then have it disappear because a central entity collapses is going against the grain of what crypto is supposed to prevent.
The Fortune article in the HN link is writing only about the crypto assets, which lack FDIC insurance. Cash assets are FDIC insured.
From Coinbase: "To the extent U.S. customer funds are held as cash, they are maintained in pooled custodial accounts at one or more banks insured by the FDIC."
> "To the extent U.S. customer funds are held as cash, they are maintained in pooled custodial accounts at one or more banks insured by the FDIC."
Doesn't that mean Coinbase is insulated from the banks going bust? I don't know why a "pooled custodial account" would help the Coinbase user. It's still Coinbase's money held for them (just like the BTC).
If this was a brokerage with stocks, the customers own those stocks. There is no reason crypto shouldn't be the same. There is no reason crypto shouldn't have top priority to their owners. It isn't okay for a company to put other creditors above the owners of that crypto
> this was a brokerage with stocks, the customers own those stocks
Sort of. Most individuals' shares are held in "street name,"[1][2].
You have a claim against the broker for those shares, but that could be impaired if the broker went under. Losses are rare because American brokers are highly regulated. Coinbase has fought vigorously against being similarly regulated [3].
If you look closely you’ll find that the broker and the holding company have similar but distinct names - it’s supposed to be setup so that if the broker goes under the holding company can be transferred and continue.
Similar to banks and FDIC the financial industry is good at this kind of thing and brokers can go bankrupt without customers ever really noticing.
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).
No, the SIPC, like the FDIC, can step in and make people whole if assets go missing. FDIC's for deposit accounts, SIPC is the equivalent for brokerage assets.
"SIPC oversees the liquidation of member firms that close when the firm is bankrupt or in financial trouble, and customer assets are missing."
In Coinbase's case, holding in a custodian account doesn't save them if the Bitcoin in it gets sent to an attacker's wallet. They're just gone, and neither the SIPC nor FDIC cover that asset class.
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.
You don't seem to understand how bankruptcy works. Creditor seniority is set by the court, following the bankruptcy code. The insolvent company has very little control over that process.
FDIC insurance is for banks, not brokers. I think what protects you from a broker going bust is the separation of client money from firm money. Though I think that separation failed in the most recent major broker bankruptcy (MF Global) and probably many others. FDIC would protect the broker against its own bank going bust (though I am sure there are guarantee caps).
> 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.
You are missing the point. We are shocked that even if Coinbase keeps users' deposits 100% safe, users could still lose their deposits if a judge decides so. Why isn't there a way to segregate those deposits from assets on which creditors have a claim? This kind of simple arrangement ought to be possible without new regulations or FDIC-style protection.
Needless to say, "not your keys not your Bitcoin" continues to be good advice.
Bankruptcy rules are weird, and it's not just crypto companies that work that way. Lots of uninsured companies could lose depositors' accounts in bankruptcy. Witness grain elevators, or storage companies, or safe deposit companies - it took special laws to protect depositors. Which protection Coinbase doesn't have, apparently.
It's always more nuanced than first glance. And (rich) creditors have always had more sway in court than common depositors, unless special rules are enacted that say otherwise.
It's weird indeed. I admit I believed there was a law that protected depositors (in general) from creditors in the event of a bankruptcy. Are you saying that there's a law that's specifically for grain companies, one specifically for safe deposit companies, etc.? What if you park your car in a garage which goes bankrupt, can you lose your car? I'm kind of mind blown right now...
You are missing the point. The regulations on banking created and enforce those legally binding separations in assets that you are shocked don’t exist.
Seems like a more robust solution would be to just fix the bad bankruptcy laws instead of "regulating" every possible variant of "company has custody of X which is actually owned by customer Y". There ought to be a simple way to declare: "this is not company property and is off limits to company creditors in the event of a liquidation".
These aren’t bad bankruptcy laws. They are actually good and protect things that are most important- bondholders and higher priority creditors.
I don’t think letting companies set their own creditor priorities would really be feasible if we want to have predictable securities markets.
I assume that if we let companies protect certain assets from creditors during bankruptcy they would set aside massive bonuses and all sorts of other shenanigans.
Coinbase could purchase and maintain insurance against such an act. That’s what E*Trade/etc do to protect against the same risk should they go into bankruptcy.
>> Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well.
No it doesn't. Well if coinbase is lending crypto like a bank then sure. But if they are acting like a stock broker, they should be holding real assets on behalf of customers and those assets should go to the customers who actually own them.
Longer term investors can actually (could? it's been a while) get their stock certificate mailed and hold it themselves.
They are acting like what is best for them, which is neither. They are taking as much as they can because that is how finance works.
For being on HN this post is confusingly full of people who assume tech companies are run for the public benefit, or at least with some moral obligation of protecting your assets.
I mean with over 250 billion in assets managed, they should be able to get bought out and / or attract investors instead of go bankrupt. I'm sure there's rich folk who have an interest in owning an established crypto exchange.
Although on the other, with that much in assets, there may also be people with an interest in having it go bankrupt - or just to spread these rumors, to further help crash the price of crypto.
> when crypto doesn’t have the protections of regular banking and investments
Coinbase is not 'crypto' though. Nobody's coins go down if one exchange crashes, unless they are careless enough to leave them there. The real problem is that cryptocoins are hard to use , and so exchanges are used as banks (they shoudn't) . But that is something that tech can fix
Yes, if they definitely won't go bankrupt that means the insurance will be extremely cheap! If this insurance isn't cheap then that means there is a reasonable chance they could go bankrupt. In my opinion all it takes is one insider taking a copy of everyone's private keys and they are toast. I would advise to not put all your eggs in one basket.
> it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well
Others have said this, but just to reiterate : this is quite wrong. This is like saying that because you hold Amazon stock via a Schwab brokerage account, if Schwab were to declare bankruptcy, then you would lose your Amazon stock. Needless to say that wouldn't happen because you are the owner of the stock, not Schwab.
FDIC insurance covers a totally different scenario where the money you deposit doesn't really exist (lent to someone else in the meantime).
What makes sense is that Coinbase isn't the owner of customers' crypto assets. This thread is about the fact that apparently that's _not_ necessarily true.
There's no FDIC or other protections in play here, except for the small amount of money a customer might have in "cash", held by Coinbase pending or resulting from a crypto transaction.
Once you buy a bitcoin, you have a digital good, not money/currency (as defined by most governments/courts -- which is the point that matters here)
If you buy a skin in Fortnite, and Fortnite goes under, you no longer have that skin, even it if was made by another player and put on a public marketplace offered by Fortnite. You can't get Forenite to return that skin to you, and you can't ask the author to send you a copy to save.
If Coinbase goes under, the crypto would likely be treated as digital goods by the court, not as "currency".. or perhaps that case would solidify crypto's definition as a security or currency... but I'd argue that it's unclear right now, and that creditors would want Coinbase to liquidate the digital assets to pay off employees, creditors first.
> Others have said this, but just to reiterate : this is quite wrong. This is like saying that because you hold Amazon stock via a Schwab brokerage account, if Schwab were to declare bankruptcy, then you would lose your Amazon stock. Needless to say that wouldn't happen because you are the owner of the stock, not Schwab.
But that isn't how Coinbase works. They aren't holding a share for you, they are holding your actual assets, with nothing in force that they would have to return them, bar what is in USD.
Not sure what you are insinuating but the Schwab fine print definitely says that the customer assets are not Schwabs (because that's the rules of the regulatory environment they work in). No court in the US would would use customer shares to settle Schwab debt.
Stocks are insured by SPIC. I’m not sure it’s possible to find a US brokerage in business that doesn’t insure stocks against this kind of loss in bankruptcy.
Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well.
No, it doesn't make sense at all. It is incredible to me that these are all solved problems in traditional finance.
Coinbase could utilize the services of a custodian to hold the crypto. In fact, that's what any responsible financial services company would do. It makes perfect sense because if there is a dislocation in crypto, it could bring Coinbase down but it won't bring Bank of New York down. So hold all the customer crypto at Bank of New York.
Or they could have individual wallets titled to customers. More difficult and doesn't allow them to do off-chain transfers but possible.
There are a million ways to do this, this is a solved problem in finance. Coinbase chose not to do it and now is paying for that by having to disclose the truth - retail customers are screwed if Coinbase declares bankruptcy. Whose fault is that? The CEO apologizes for it so that should tell you.
>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.
> 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.
You don't need to hold your crypto within coinbase, you can transfer it to a wallet you fully control.
Coinbase is FDIC insured but that's only relevant for USD. The SEC mandates disclosures of all risk and given that a crypto company like this has not gone bankrupt there, isn't precedent on how bankruptcy courts will consider crypto assets held under custody. Therefore it's a risk that should be made transparent.
> Coinbase users would become “general unsecured creditors,” meaning they have no right to claim any specific property from the exchange in proceedings. Their funds would become inaccessible.
I'm curious about this bit - are they required to structure their company in this way, or was it a choice that they made?
Perhaps someone with closer knowledge of USA finance law can fill me in - is there anything legal preventing Coinbase acting as trustee for customers as beneficiary? Surely that would avoid this situation (though there are probably commercial considerations why they don’t want to do that).
> most people aren’t using them as a USD bank account. Crypto assets aren’t covered by this.
There are lots of people who keep USD there with open flash crash orders. Of course if Coinbase fails, the prices may basically flash crash to zero and your orders will be filled, and then you are no longer FDIC insured.
> Coinbase Pro is FDIC insured, makes one wonder why Coinbase itself isn't.
This is exactly what those not familiar with Coinbase don't understand, the two systems are tiered and reflect that: Coinbase is by far the worst exchange experience, and they do not car about their customers unless they are Pro customers.
This gives the average person with limited knowledge the worst possible UX into thinking this is how things are and likely deters them from ever trying againg when their order doesn't get completed because of some arbitrary reason.
They did this to themselves, I can assure you this was a long time coming.
Who's shocked? The journalist? It's their job to appear shocked so stories sound more interesting. You might be imagining some fantasy fool to laugh at.
Yes, thank you. What’s odd is I thought I typed that but autocorrect changed it and that’s a bit concerning since it changed it to a pretty not cool term.
> have enough to cover maybe 1-2% of all deposits? When the real stuff hits the fan and the buck breaks, there won't be any FDIC to protect any investment
The FDIC "is backed by the full faith and credit of the United States government" [1].
Its reserves (a) provide quick cash in case of limited problems, (b) insulate the Treasury and Congress and (c) hold the FDIC leadership accountable. On account of (c), the FDIC oversees its insurees, including by implementing reserve requirements [2].
> As required by the Federal Deposit Insurance Act, the FDIC Board adopted a Restoration Plan on September 15, 2020, to restore the DIF to at least 1.35 percent by September 30, 2028. The Plan requires the FDIC to update its analysis and projections for the DIF balance and reserve ratio at least semiannually.
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.
"We have no risk of bankruptcy" - objectively false statement
"it is possible, however unlikely, that a court would decide to consider customer assets as part of the company in bankruptcy proceedings" - goes against the entire point of his thread, and is also exactly why this disclosure was required
The quote above seems like a completely accurate and fair characterization.
I would argue that's the people's problem. How important is what they have to say anyway if they won't read the source and can't detect sarcasm?
edit: also, even if it's not a direct quote.. c'mon, it is what he's saying. The SEC made a rule that applies _specifically for crypto companies_, saying they have to disclose that crypto assets under their custody could potentially be taken in a bankruptcy.. and this guy goes on to say what he was just forced to disclose is not true. It doesn't get more obvious.
“It is what he’s saying” is subjective. A quote is not (or shouldn’t be, despite far too many violations in the real world). Just say “Summary: blah blah” if you want to post your subjective summary.
You already write why that is mathematically impossible, so the logical conclusion would be that it is not meant to be interpreted like that no? Language is not maths, no risk doesn't mean the risk is zero. It means the risk is unlikely.
These are complicated topics. The people buying crypto at Coinbase are not sophisticated investors.
It is entirely reasonable to believe that a large proportion of Coinbase users would read, "We have no risk of bankruptcy" and choose to leave their money at Coinbase believing that the CEO must have used some financial mechanism to 100% prevent bankruptcy.
Words have meaning, and when you say, "no risk of bankruptcy" there are a lot of people that will be duped into believing that literally.
It's not a people problem if you're making up quotes and people don't realize it. Use quoting for quotes. Everything else is in your own words, not someone elses, even if you are paraphrasing.
Thank you for summing it up this way. It certainly sounds like the original author wants to be taken seriously. In that case they should probably respect the fact that there is literally a word for what they've done. Misquote and its synonyms do not have good connotations, and in their worst form are simply libel...
If only we took this much care in the news. How many times has both sides misquoted someone? Yet people only seem to care when it’s misquoting the Coinbase CEO.
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.
I don't think regulatory capture is the issue here. We're talking about a disclosure of risks ... that seems reasonable to me.
Dude says there is no risk of bankruptcy and is predicting court case outcomes... and it is clearly in his financial interest to make the arguments he is making.
The system is rigged and other truthy arguments are all but standard operating procedure for whatever crytpo idea someone comes up with. Those arguments doesn't make mean we shouldn't be skeptical.
The problem is that the disclosure of risks is written in such a way that captures the existing situatio nand makes it hard for a valid crypto firm to not post... exactly this.
> The system is rigged and other truthy arguments are all but standard operating procedure for whatever crytpo idea someone comes up with.
But remember that applies to both sides of the coin - the SEC disclosure of risks claiming there's a huge risk of monetary loss _is_ true, but it's also unavoidable as (to my understanding) there isn't currently a way for coinbase to be FDIC insured.
> Those arguments doesn't make mean we shouldn't be skeptical.
You should be incredibly skeptical, but you should be informed of what you're skeptical about.
>The problem is that the disclosure of risks is written in such a way that captures the existing situatio nand makes it hard for a valid crypto firm to not post... exactly this.
Because ... they aren't FDIC insured nor do they provide any reliable protections for their user's money?
The problem is that there is no alternative statement for them to make. The disclosure of risks require them to be FDIC insured or state there is a risk of loss in bankruptcy, and given they don't have the option of FDIC insurance, they have to declare the risk. The problem is that coinbase don't have the choice to be insured, yet they get labelled as though they're yolo'ing it _whether they are or not_ because the FDIC don't insure the asset class they're trading.
Coinbase is insured. Crypto balances are insured against theft, and fiat balances are deposited into accounts that are then FDIC (or whatever is equivalent for other countries) insured.
It is probably because we don't understand finance, economics or their history. There is an obligatory xkcd somewhere but I'm too lazy to find it. Software people occasionally find great solutions for existing problems pre-tech X. As experts in tech X they tend to trivialize existing domain knowledge because obviously X has disrupted all that.
> 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.
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.
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.
> Your funds are safe at Coinbase, just as they’ve always been.
You won't lose your funds, don't worry.
> 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.
Unless we have your keys, in which case I'm sorry we're not protecting you yet (but don't worry, everything's fine).
> We have no risk of bankruptcy
Said directly after their worst quarter to date. Always a lie regardless.
> however we 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.
A rule made specifically for their type of companies that clarifies risks of storing assets in a non regulated bank.. somehow shouldn't make you scared that your assets might get taken away since it's very "unlikely".
“Pay no attention to the man behind the curtain” would have worked just as well.
Before reading that tweet chain I was on the “SEC always requires horribly pessimistic outlooks” and now I’m in the “they’re going bankrupt very soon” camp.
You say "doom and gloom" as if the media is being unfair in their coverage of Coinbase. The same Coinbase that saw a 43% decline in share price in four days before releasing their earnings.
In said earnings report, they:
- Posted a net loss of $430m (defying analyst expectations of a profit)
- reported a decrease in monthly active users.
- reported a decrease in transaction volume.
Their bonds have been downgraded, they are facing increased financial regulation and two of the largest stablecoins have become unpegged in the last few days.
Coinbase then files an SEC disclosure stating in plain terms that it will use the assets of its users to pay off secured creditors in the event of a bankruptcy.
His twitter thread was definitely not a reasonable response.
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.
i don't use twitter that much so i don't know if this type of multi-tweet message is common place on the platform or not. especially for conveying important information in any sort of manner that should be taken seriously.
i recently experienced a ~20 tweet "story" that was explaining a pretty serious and important shift in the posting parties operations. it was the first time i recall ever having encountered this sort of "tweet" and, at least to me, it did not seem like an ideal or effective means of communication.
i get that they want to reach their audience and that's what i feel like twitter is good, well, probably the best at. the whole intent of the platform had always been geared toward sending short, articulate messages. a substance-filled, important message like this one and the one i had to read before no doubt took a few "practice runs in the mirror", so to speak. i read both of these messages from the comfort of my desktop PC using nitter. as difficult as that was, i can't imagine having view it using a phone.
regardless of the topic of the message, my thoughts are, if you have something to say, say it in a single tweet with a link to an officially hosted post or webpage. any more than that, especially on any sort of usual basis, is not only inconvenient for both parties involved, but confusing, unprofessional, and, in a lot of cases, like you said, quite off-putting.
> i don't use twitter that much so i don't know if this type of multi-tweet message is common place on the platform or not. especially for conveying important information in any sort of manner that should be taken seriously.
It’s so common there’s bots that place the thread posts on a single page.
I dunno, these headlines are always a bit silly. "Snapchat's IPO filing says that they might never turn a profit ever!" Yeah, the risks section of an IPO filing are dry and always filled with this stuff. They aren't some secret code the company is sending out. I see this as the same.
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.
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).
> I'm almost sure Coinbase practices fractional reserve
I'm not a crypto guy, so excuse the naive question: Can coinbase loan out money without actually transferring some sort of single-ownership keys for the amount loaned? If so, then indeed, they should be able to engage in fractional reserve "banking".
> and other forms of market manipulation
Modern money markets are based on fractional reserve banking. That's how most money gets created these days. I'm no fan of the prevailing economic system but it isn't some manipulation which moves you away from some pristine state.
The issue isn’t that modern banks all do this. It’s that crypto was supposed to be different, a response to the financial crisis where people were affected that didn’t even gamble on housing, a way to truly own and prove your money is your money.
> Modern money markets are based on fractional reserve banking
Bitcoin was developed to solve this.
> That's how most money gets created these days
Bitcoin is a deflationary asset. It’s not supposed to be “made” because a bank/Coinbase says so, but only via mathematical proof of work.
> I'm no fan of the prevailing economic system but…
Satoshi wasn’t either. That’s why he made Bitcoin. If the argument for Bitcoin becomes “it sucks but we need banks to lie to us for the economy” then there is no core argument for Bitcoin.
It is different. Nothing is stopping people from moving their crypto from the exchanges, and at least with crypto people have the opportunity to do that. What hasn't changed is human behavior and our affinity for the path of least resistance.
Bitcoin has no opinion on fractional reserve banking. If entrust your assets to someone else, your contract with them can specify what they do with those assets until you ask for them. If you don’t like that, find someone else to hold your assets who doesn’t ask for those terms, or hold your assets yourself. But then you become responsible for preventing theft and destruction.
> crypto was supposed to be ... a response to the financial crisis where people were affected that didn’t even gamble on housing, a way to truly own and prove your money is your money.
I really don't see how that is the case. In fact, there is no such thing as "truly owning" things. Ownership is a social construct.
> Bitcoin ... is not supposed to be “made” because a bank/Coinbase says so, but only via mathematical proof of work.
Well, so is, say, gold, but once it seems some significant use as money, financial institutions start dealing in debts-of-gold, or debts-of-X, which _are_ supposed to be made because a bank/Coinbase says so.
> Satoshi wasn’t either. That’s why he made Bitcoin.
I dunno, it seems like he started Bitcoin to get filthy rich off of a pyramid scheme, which he has. Wikipedia estimates "his" worth at 73 Billion USD in BitCoin. Although.... it's BitCoin, so maybe it's not really worth that much.
Money is not created through fractional reserve banking. Money is loaned into existence by commercial banks.
Similarly Coinbase can sell you coins which don't exist. Like a bank it doesn't have to make good on this IOU until you withdraw your funds.
It is fractional reserve banking which allows banks to loan money into existence, as long as their reserve is at least a certain fraction of their total loans. The alternative is full reserve banking, where banks aren't allowed to do that - or no-reserve banking I suppose...
Which with the volatility of Bitcoin puts them in a situation where they can underprice an asset if they loan it out. Bitcoin loaning is rather rare because of this.
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.
In the case of cede & co going bankrupt (a nearly impossible thought) your street side shares would not be used to settle their debts. You don’t need direct registration for that protection. The same is true for your brokerage.
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.
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.
Most hardware wallets use the same standard to generate your keys (BIP39, BIP32 and BIP44 I think) from a long recovery phrase of words. So you could for example restore your wallet in a wallet software if your hw wallets dies. As long as you have all the words and the correct order you should be able to restore your funds somewhere else.
The problem with your current approach, and software wallets in general (as well as these recoverable wallets) is the private key is retrievable. Which sorta negates the protections given by having a single owner of the cert (the hardware wallet).
I’m not terribly worried about that scenario. I haven’t had my 1password breached — lots of bad things could happen if I did. I don’t own enough crypto to make this my biggest concern. I’d rather have a robust system that will hold it without failure, or in Coinbase’s case, bankruptcy.
It's all about ones personal trade offs. I have more faith in cryptography in a software world with backups than I do in a random hardware device with a maker that's unlikely to last the test of time.
Oh I’m right there with you on hardware wallets, I’m just pointing out that your software based wallets are very vulnerable. The only safe key is one that nobody can retrieve.
Isn’t that because you converted your ETH to ETH2 for staking? They are pretty clear ETH2 cannot be transferred or traded, and it’s because the ETH2 network isn’t ready yet, not some sinister plan of theirs.
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…
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,
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.
I usually don't bother to login to comment, but I felt compelled in this case. The other replies include a lot of bad advice. You sound like you don't have much of experience actually using bitcoin (or cryptocurrencies). So the best (most secure and easiest) solution is to buy a hardware wallet and use the wallet app which they provide. I suggest either Trezor [1] or Ledger [2]. Do not buy a hardware wallet from secondary marketplaces or second-hand resale websites - buy direct from the developer's website only.
- Use a temporary email address on the order form (e.g. mailinator or similar).
- Do not ship the goods to your home address. Pick-up your order in-person at a drop-off spot, post-office, or have it delivered to your workplace.
A bit more information about hardware vs. software/app wallet:
- Hardware wallets protect your bitcoin and cryptocurrencies by keeping your private keys secure on a dedicated USB (or air-gapped) device. The private keys never leave the device.
- If you use an app on your phone or desktop computer, your private keys could be stolen by malware. This is the exact attack vector that hardware wallets are designed to protect against.
This is good advice. Notably, you don't need to use the vendor wallet software either but can use either with e.g. Electrum.
If you really don't want to get a dedicated hardware wallet, the poor-persons choice would be to (in order of preference):
* In case you're really just holding and won't be wanting to transact with it anytime soon, a paper wallet can work. Generate it on an airgapped device and never let the private keys touch a connected device.
* Use a dedicated boot environment. For example: Set up Tails on a USB drive and boot into it on your laptop, or make a fresh install on a raspberry pi or similar. Use Electrum (or bitcoin core qt / cli), store the wallet file only on a separate encrypted USB drive. Don't use this OS install for other things. Prefer connecting only over Tor, I2P, or cjdns.
* A reputable smartphone wallet. A downside here is that you will have to be very diligent with your system updates and have to keep a peripheral eye on if the author gets acquired or goes rouge etc. You'd have to do your own research but Bluewallet seems decent.
* Ignore all the advice and access the keys on your PC anyway. It's possible to do safely but as noted above it has increased risks and requires a lot of diligence.
What happens if ledger goes out of business? I recall users being able to access their funds when Ledger had a systems outage some time in the past few years.
With both Trezor and Ledger it is possible to use Electrum as the GUI (interface) app. So if they go out of business and/or stop supporting the specific hardware wallet model that you own, you can continue using it with Electrum. Alternatively, you can import the seed backup (12 or 24 words) into a new hardware wallet.
The users weren't unable to access their funds. However, Ledger Live (their desktop and mobile app) uses nodes hosted by Ledger, so effectively this meant that non-technical users who relied on their hosted nodes couldn't access their funds.
One could (and should!) still use the same wallet with a self-hosted node, or a third-party one, by using the wallet with a different software (which is also officially supported; Ledger provides docs for doing so).
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.
Tens (hundreds?) of millions of Americans "invest" in stocks they have no idea how to "use" (disclosure: I'm one of them). They're just numbers on a computer screen and nothing more.
Should be more encouraging that this guy wants to figure it out instead of pointing and jeering at him.
How do you "use" a stock? You give a company money in the hope they are able to turn it into more money over a certain period of time than you would holding it in a bank account.
If the company pays a dividend it gets sent to you (or to whoever holds the stock on your behalf), but that doesn't seem like "using" the stock. I suppose you could "use" it by voting at the AGM.
Crypto you can make use of (such as it is), but no one does that. They hold it like a stock, same as the OP who doesn't know how to create a wallet.
First of all, I don’t even have any idea what this means:
> I suppose you could "use" it by voting at the AGM
Is my stock anything other than the number of shares I see on TDAmeritrade.com? If I wanted to take this thing that I supposedly own and sell it or store it in a way that doesn’t involve TDAmeritrade.com, is that even possible? No fucking clue.
Of course it is possible, you don't have to use "TDAmeritrade.com" to manage your investments. You can hold the contract paper yourself if you like. A broker will charge more for those type of direct holdings when a trade is made however. Which is why it is popular to use the retail brokers that manage the contract for you.
My point was, there is really no "use" for a stock holding aside from the obvious as an investment. So simply investing in and holding a stock is fine.
The popular Crypto coins are supposed to have other uses, like a cash replacement. In fact cash replacement was intended to be the primary use for Bitcoin. But most people treat them as an investment they can just sit on and watch go up, like a stock.
It's not that hard for me to fathom. Cryptocurrency is a speculative bubble, and it has attracted a huge number of investors who are looking for easy ways to invest. Coinbase makes speculating in cryptocurrency easy. Managing your own wallet is not easy for the average speculator.
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.
You can't download your assets. They are virtual. What you can do is generate an address locally and transfer your bitcoin funds from coinbase to that. Remember to save your secret of you are just throwing (virtual) money in a canyon.
Craig Wright (obviously falsely) claims to be Satoshi Nakamoto and thereby copyright on the (MIT licensed but whatever apparently) Bitcoin whitepaper. A UK court ruled in his favor and bitcoin.org are therefore not allowed to distribute it in the UK. They responded with restricting access to both the whitepaper and the software for UK IPs.
If you only hold bitcoin that wallet would work, another popular one is electrum. If you want to store multiple coins in one application then Exodus or Atomic would be two good choices. You're looking for a non-custodial wallet and as always, protect your keys to protect your coins, you are the bank at this point.
Disclaimer: I've only done this a couple times and really am not good with this stuff.
After you download the app you mentioned, it's going to sit and grind your CPU for a long time. After that, you can click on the 'Receive' tab. Every field here is optional, but you might want to fill in the label with something like "from Coinbase". Click "Create new receiving address" and a new window will appear with a QR code and some other info. Copy the address. Then in Coinbase, send your Bitcoin to this address.
Again, this is probably a little watered down, but I hope it helps. Hopefully someone more knowledgeable writes up a better explanation.
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...
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.
Why do you say Coinbase is good for cold storage? It’s not custodied so in the event they went bankrupt/sanctions compliance/TOS violation, they could lock you out forever. A hardware wallet is good for cold storage. Coinbase is a hot wallet.
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?
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."
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.
They're extremely fun to read sometimes bordering of fantasy and fiction. I don't think I've seen one mentioning the undead crawling their way to the surface from their earthen tombs but I probably just haven't read enough
Rest assured if I ever go public I'll insist on putting a few in there. A battalion of armored octopi marching ashore with undefeatable sea ordnances enslaving humanity by tentacle could prevent us from hitting our quarterly numbers...
I've put so many hidden jokes like that in terms of service and privacy policies over the years.
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
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."
It's fully backed by cash held at US banks and by US Treasuries, per my understanding. And this disclosure did not pertain to those reserves, which are held in trust on behalf of customers as per state money-transmitter laws, which customers would presumably not be treated as unsecured creditors, but only to cryptocurrencies held in Coinbase-controlled wallets.
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.
yeah lite/pruned/fast mode is a good way to get your feet wet, "using your own node" is just so far removed from "use an unhosted wallet outside of exchanges"
Why on earth would the typical customer that is scared by this announcement choose to run a node instead of just withdrawing to Metamask or a hardware wallet?
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 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.
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.
Coinbase has locked a lot of people's ETH2 funds - there is no way to currently withdraw them. This was always a strange concept to me, but there are a good chunk of customer's who are literally just stuck with Coinbase, like it or not, with their funds being held hostage.
I know it's a choice, but it's also been like that for many, many months at this point, when I can imagine most people thought "this would only be this way for a few days/weeks".
Well, it's objectively true that any company can go bankrupt.
And an easy scenario to picture for Coinbase would be if crypto assets all dropped 90% or more in value in a short span of time, and went the way of the beanie baby. Is it a high probability? No, but at least a few percent chance.
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).
>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.
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)
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.
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.
In UK at least client money should be segregated especially in the context of custody assets. Really shouldn't enter the same pool of assets as Coinbase's office chairs in case of liquidation
Yes, that is how it would work if Coinbase was regulated as a custodian. Have you confirmed that they are indeed classified in this way, and that your crypo holdings are indeed covered by that classification?
Or are you duck-typing Coinbase as a securities/brokerage firm based only on "look" and "quack"? (where "look" was a quick look without going into the difference between crypto assets and regulated securities issued by a regulated public company)
As I understand it, English law custody model is a trust arrangement and pure delegate custodian should be safe in the case of bankruptcy.
Shouldn't does not mean that it does not happen in the UK too. The Lehman Client Money Litigation in the UK is a good example. Lehman Brothers International fell short $2.6 billion in client money under CASS 7 (statutory trust, segregation and pooling).
Coinbase is not operating with that model. Coninbase customers can be just general unsecured creditors
> because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody
on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors
Didn't it take a fairly long while before client money laws came in even in traditional banking? I don't have a date so I could be wrong, but taking the history of british banking I have a feeling this was a relatively recent thing. Being generous, we're still within the first decade of crypto as an investment instrument, I imagine regulations haven't quite caught up so really it's no surprise newer crypto companies like Coinbase aren't particularly serious about keeping client money/assets separate.
And as much as client money should be segregated, some big names are still getting dinged with CASS breaches - Charles Schwab in 2020, for example.
I sincerely believe that you, the user Havoc, are a responsible, sensible person who would handle client money as if you were operating a well-regulated financial services firm, even if such regulations weren't in place. However companies are not necessarily built that way - if they don't have to do follow some rule that could be considered a bit burdensome and (arguably?) not applicable to them, they likely won't. Why follow rules that might not apply to you, given that you are using a new-and-exciting instrument that you could credibly argue fall outside any existing regulations (and if doing so could permit you to speculate and make a bit of extra money)?
When you buy BTC using coinbase do you really have a wallet somewhere, do you really buy BTC? Or does coinbase allocate BTC to you from its own BTC holdings?
Now the real question is whether bankruptcy would topple USDC since Coinbase is one of the major backers [0]. It's holding steady right now, but so was UST a few days ago. USDC has $48B supply and is propping up DeFi apps on many other networks (just look at AAVE [1] and Curve [2], two multi-chain protocols), so if it falters, there could be massive fallout.
I don't think you can really compare UST and USDC like that. USDC has major backing by very large players in the space while UST is backed by... just Terra?
But I agree on the last part, if USDC looses its peg, large parts of the ecosystem will be fucked. But considering who is managing + supporting USDC, it'll take a large event for USDC to lose its peg.
This is true for any brokerage account where you have margin enabled. Check your margin agreement carefully. Or better, disable
margin on your brokerage account
“ people with margin accounts end up as just general creditors in any bankruptcy and recover only a fraction of their assets after some years in bankruptcy proceedings. During bankruptcy, their accounts are frozen and no transactions are allowed”
I'd be pretty interested to see how cash account is treated differently; I couldn't find a better reference either. But one advantage over the coinbase situation is at least the margin account falls under SIPC.
You should move your crypto out of Coinbase or any other exchange's wallet into your own cold wallet.
In Coinbase's case, you can move that crypto to any wallet, including Coinbase's Coinbase Wallet app, where you have possession of the private key and should still have access to those funds if CB were to go south.
But yeah, welcome to the world of currency not backed by guns, so to speak.
I don't think Coinbase can go bankrupt because users leave the platform. They would go bankrupt because of mismanaged funds in that case. Let's say all users withdraw their fiat currencies and also cryptocurrencies, Coinbase will still have money in their own bank for sure, unless they store their own money on their platform, which is highly unlikely.
Even if 100% users withdraw 100% of their funds, Coinbase takes a transfer fee from all of those withdrawals, so they'll get even more money in their account in that case.
This isn't an FDIC issue. This is an Securities Investor Protection Corporation ("SIPC") issue. The SIPC was greated almost 50 years ago to cover investors in a similar fashion to FDIC against the loss of custody assets in the case that a broker goes bankrupt. Like FDIC, there are limits.
The point here is that crypto isn't covered by the SIPC [1]. So the Coinbase disclosure (required by the SEC) is correct: there is no protection for your Coinbase custody assets in the cse of insolvency beyond being a general creditor.
This seems like a good thing for investors and customers to know.
So why don't people also keep their wallet keys somewhere in their homes as well? That's all you need to access your funds, coinbase is just a convenience. To do otherwise seems insane especially if you have more than $1000 in there.
Anyone want to invest whatever pennies they get on their Coinbase bankruptcy dollars on a new coin I just thought of? bankruptcoin - any coin exchange leftovers can be converted to coin and yolo’d.
Coinbase is such a shit company...My interactions with them have been absolutely awful. The ended up trying to use a AMEX gift card attached to my papal to buy some crypto, got no error but the funds never went through. Apparently they didn't like that transaction and was flagged as fraud. I was told I can't open a support ticket or have it reviewed for 2 months, "they can't disclose the reasoning behind this." So I had to dump everything I had built up in that account into USD and withdraw it.
I put $200 into a coinbase account (my second go at crypto) at the first "peak" of bitcoin, more or less to teach myself to not invest in hype and to monitor the hype cycle over time.
It's been very interesting to follow this over the recent peak. Coinbase probably doesn't settle each transaction immediately, since Bitcoin and several other cryptocoin transactions per second are still low, instead using internal accounting to satisfy the counterparty transaction.
Fun times. Good luck to Coinbase, they may have just triggered a run!
It's very unfortunate that the legal system doesn't have a way of saying: this asset is mine and I'm handing it over to you for safekeeping, but it is still 100% mine which means it cannot be used to payoff creditors in any circumstance whatsoever and can only be returned to its rightful owner, meaning me. It may be fungible, so that it can be shuffled around with assets of other customers, but that doesn't change the fact that the quantity of units I deposited still belong 100% to me.
This conversation is especially interesting given the FDIC is probably the most decentralized component of traditional financial infrastructure.
It has cost taxpayers effectively nothing and rests on mutual insurance across the system. Yes there is a line of credit to the Treasury but the overall security it has provided for 70 years is probably hard to measure compared to the Fed buying/selling activity. I know there are probably teams working on this for crypto already (without the law mandate).
I had a couple of hundred dollars with coinbase and they were going to charge me 30% to get the money out. I thought to myself want a bunch of thieving cunts.
I'm going to get a few details wrong, but mutual funds and ETFs go to creative legal efforts to prevent this. Funds are usually independent entities that pay the fund house for management and marketing services. If the fund house goes under, it doesn't hold the assets in its funds, so fundholders aren't screwed.
Do not keep funds in "hosted wallets" for more than a day or two.
Of course, Coinbase wants you to keep your money with them, so they can dip into your funds. Do they offer a service where funds in your Coinbase account sweep daily into a non-hosted wallet of your choice? No? How about that.
Why? I have no problem with this. The problem is just if you're advertising that you'r safe etc. then when you lose it isn't just a loss, it's a scam. Most of the centralized crypto will hopefully be fully replaced with defi solutions in the near future.
What is the point in using coinbase anyway? It is just an expensive place to buy crypo assets, I don't get the value proposition, since you have so many cheaper and simpler places to buy crypto...
This might have been mentioned already, but the more accurate comparison would be to stock brokers. Robinhood has SIPC insurance up to $500k in case they go bankrupt.
These types of wallets generate recovery seed phrases that are widely supported: When you install the wallet, you will be asked to write down a phrase, and you'll be able to type the same phrase into any of 20 other wallet implementations to recover your funds.
Also, correct me if I'm wrong (long time ago I used iOS), but even if Apple removes the application from the App Store doesn't mean it'll be deleted from your phone automatically. At least I remembered that I was still able to use some apps even after they were deleted from the App Store some years ago.
I'm still unhappy with this. I had ~5 BTC with them, but have never been able to give sufficient evidence for settlement, and they keep taunting me with monthly settlement emails.
If I'd get a nickel every time someone said this, I'd have tons of cash. But, seems that no matter how much people lose in cryptocurrencies, the ecosystem carries on. It might dip for a while, but sooner or later it comes back up. And then it falls... And then...
No. SIPC would make the customers whole first before letting any creditors access their shares. The issue is Coinbase is not handled by SIPC (or similarly the FDIC).
Well it of course doesn't corellate S&P 500 1:1, so it provides some diversification (same as everything else).
Gold has been down over the past week as well, it is normal for all instruments to move together at times of uncertainty (and when many folks are getting margin called).
Having a Coinbase account with funds on it is not holding crypto-currency. Everyone who knows anything has been saying since before Coinbase was around "not your keys, not your coins." If you use an uninsured bank as your vector for understanding the benefits of cryptocurrency you're bound to stay confused and continue making non-arguments dependent on poor price performance of the asset you irrationally despise because despite your technical background you still missed out on it.
It will amusing if people who bark all day about decentralized currencies lose a bunch of money because they still wanted the benefits of a centralized bank to hold their magic coin purses.
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.
Coinbase will let me transfer up to $1000 worth of crypto off their platform immediately after purchase even though the funds haven't settled in their account yet. Every other crypto platform I've used, forces a wait of 3, 7 or 10 days before you can withdraw your new crypto.
You're correct. Coinbase definitely made it easier for people looking for a quick way to onboard fiat and to join the crypto ecosystem, just like AOL made it easy for people to access the internet back in the 90s.
I like your spirit, but what makes coinbase the best onramp for me is the instant transfer feature. I can't instantly find a gig that pays in crypto or instantly sell something and find a buyer who will pay in crypto.
I just moved all my crypto off Coinbase, just to be sure. Coinmotion seems to be a stable-ish option. At least they're not looking for hockeystick growth and aquisition.
I had a wallet on my own machine when BTC was a new thing. Lost it. I've intentionally forgot how much self-mined BTC I had in there. It was more than 1.
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.