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?
Say you ordered a pair of jeans from Sears, via the catalog. And unfortunately your cash transfer cleared on the day they went bankrupt.
They owe you a pair of pants, or your money back if they cannot deliver the product you ordered.
They also owe their employees money, if they have not issued payroll yet for that month.
They also owe their bondholders money.
They may have also taken out bank loans.
You, as the client, are in line behind the employees and bondholders and other creditors.
probably last in line.
In which case you've lost your pants.