Disclosures suggesting users were not protected in a bankruptcy situation have gained traction on social media following the company’s loss-making Coinbase report. However, Coinbase CEO Brian Armstrong explained that the funds are “as always” safe.
In the company’s first-quarter 2022 report, Coinbase reported its first loss of $430 million. In addition to this, the company also reported that the number of users trading on the exchange also dropped from 11.4 million to 9.2 million.
After the loss was announced, worry Questions about bankruptcy protection were raised on Twitter, citing the disclosure, “In the event of bankruptcy, our cryptoassets held on behalf of clients may be subject to bankruptcy proceedings.”
Additionally, the disclosure mentions that when this happens, users will be considered “unsecured creditors.” This has led to speculation that if Coinbase goes bankrupt, the tokens they hold will become company property.
In response to these concerns, Armstrong assured users that the company “is not at risk of bankruptcy” and that customer funds are safe. However, he said it was “unlikely” for a court to decide to treat consumer assets as part of the company in a lawsuit if the company went bankrupt, “even if it hurts the customer.”
2/ We are not at risk of bankruptcy, but we have added a new risk factor as required by the SEC called SAB 121, which is a new required disclosure for public companies that hold crypto assets for third parties. https://t.co/lwmgb1kFtA
— Brian Armstrong – barmstrong.eth (@brian_armstrong) May 11, 2022
Armstrong also explained that their prime and hosting customers enjoy strong legal protections within the terms of service. Furthermore, these clauses protect assets even in the event of bankruptcy. He also noted that their team is working to update their terms to apply the same protections to retail users.
Despite the negative news surrounding loss reports, Coinbase CEO remains bullishAs a company, Coinbase has gone through many cryptocurrency cycles, including some of the worst losses, which makes them “perfect for operating in these harsh waters,” Armstrong said.