Coinbase Warns Customers Of Losing Crypto If Company Goes Bankrupt; CEO Offers Assurances

Crypto exchange Coinbase has warned customers that they stand to lose their investments in crypto should the company declare bankruptcy. It announced in a filing with the US Securities and Exchange Council (SEC) that the crypto assets they hold in custody on behalf of their customers could be subject to bankruptcy proceedings.

“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,” the company said, according to a report in Fortune.

“Any failure to increase our customer base, discontinuation or reduction in use of our platform and products by existing customers as a result could adversely impact our business, operating results, and financial condition,” the report quoted Coinbase as saying in its SEC filing.

In a related development, Zerodha co-founder and CEO, Nithin Kamath has also warned in a Tweet that Indian crypto investors should take note of the development, adding that if Coinbase goes bankrupt, they would lose their holdings.

“Indian crypto investors on exchanges also need to be aware of this. Unlike the stock market where stocks are held in demat with a depository & have no broker risk, crypto with exchanges carry a risk,” read his tweet post.

Coinbase co-founder and CEO Brian Armstrong has, however, assured customers that they are not at risk of bankruptcy. “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. 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,” he said in a series of Tweet.

“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,” he said in a Tweet.

Incidentally, Armstrong had earlier said that informal pressure from the Reserve Bank of India (RBI) had led to them disabling Unified Payments Interface (UPI) options on their system, and they are now considering launching other options soon.

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