May 12, 2022
Coinbase, one of the most frequently used crypto exchanges, declared that its users could lose their assets if the firm ever went bankrupt, Insider reports. This risk factor was disclosed for the first time in the firm’s first-quarter earnings report. The report also stated that currently, Coinbase has $256 billion in fiat and cryptocurrencies.
Following this announcement, which came as a surprise to many users who invested in cryptocurrency, there was a 23% drop in the company’s stocks. Coinbase CEO Brian Armstrong announced that there is no danger of bankruptcy at the moment. He attempted to reassure the platform’s customers that their crypto funds were safe and apologized for not being clearer in communicating this risk as soon as it was revealed. Armstrong claimed that Coinbase had to include this disclosure due to the Securities and Exchange Commission’s new regulations.
Crypto assets are not considered traditional investments by most governments and financial institutions. That’s why they’re not subject to the same protections as traditional investments. In the event of a crypto exchange closure, involving a company like Coinbase or Gemini, users may not be able to recover their lost crypto assets.
Traditional investments, on the other hand, are typically regulated by government agencies and protected by the law. In the event of a bank or other financial company filing for bankruptcy, investors could potentially recover some of their lost investments. The Securities Investor Protection Corp. (SIPC) assists investors in the case of a broker’s or dealer’s bankruptcy, while the Federal Deposit Insurance Corp. (FDIC) insures up to $250,000 per account.