What Happens to Your Crypto if Coinbase Goes Bankrupt?
Reading Time: 3 minutesIt’s one of the world’s biggest crypto exchanges. So, what would happen if it ran out of cash?
In May 2022, cryptocurrency exchange giant Coinbase made an SEC disclosure that created turmoil in the crypto space. It warned that customer assets could be subject to proceedings if the company went bankrupt, raising questions about the risks of Coinbase’s bankruptcy risk.
With Coinbase shares plummeting by more than 27% after the filing, the company has since released a statement to clarify its position. But the big question is, if Coinbase goes bankrupt, what happens to Coinbase wallets owned by normal users like you?
Is Coinbase Going Bankrupt?
The 2022 statement by Coinbase [PDF] was part of a quarterly report filing and what started the conversation around Coinbase going bankrupt—but the company did not say it is getting close to insolvency. Instead, they were detailing a new risk factor per a new SEC requirement called SAB 121, specifically aimed at companies holding crypto-assets for customers.
Rescinding Job Offers
The situation gets a little more complicated when you consider Coinbase’s 2022 recruitment issues and rescinded job offers in the weeks following the quarterly report. In addition, the company has decided to slow down recruitment to focus on improving other aspects of its operations.
Based on the evidence, it would be pure speculation to say that Coinbase may go bankrupt. Coinbase CEO Brian Armstrong denied that Coinbase is at risk, and other cryptocurrency exchanges will have to add similar risk factors to their own reports. Unfortunately, though, trust is a significant factor in the crypto sector. At the time, Coinbase’s falling stock value was a good indication that people didn’t trust the exchange, but its stock performance was also symptomatic of wider issues with tech stocks and, indeed, the global economy as a whole.
Now, in February 2023, Coinbase’s stock has risen since reaching historic lows in early January 2023, as per the chart above.
What Happens if Coinbase Goes Bankrupt?
There is little precedent for a cryptocurrency exchange going bankrupt, making it difficult to say exactly how a situation like this would play out. However, as of February 2023, Coinbase was the custodian of $101 billion in customer assets and money (a huge decrease from the $256 billion held in March 2022), so a lot is on the line if it goes bankrupt.
While Coinbase’s bankruptcy risk is low and insurance is provided for funds, users don’t enjoy the same protection as those putting money in the bank. If an exchange like Coinbase goes bankrupt, the customer assets it holds may be subject to bankruptcy proceedings.
But is your Coinbase wallet safe from bankruptcy?
If Coinbase filed for bankruptcy, all of the company’s assets and the customer assets it holds would first be divided up to cover money owed to creditors. This means that if Coinbase’s debt exceeds the value of the company’s own assets, money would be taken from the customer pool to cover the difference. Only once this is done will customers be able to claim to get their money back.
Keeping Your Cryptocurrency Investment Safe
Whether you think Coinbase will go bankrupt or not, it always makes sense to do everything you can to keep your investment safe. The only money at risk in a bankruptcy situation is that which is stored in custodial wallets owned by an exchange.
Exchanges use custodial wallets to store cryptocurrencies on behalf of their customers, making trades faster but also taking power away from users. Avoiding a custodial wallet is the best way to keep your cryptocurrencies safe.
Non-Custodial Cryptocurrency Wallets
This is where non-custodial wallets come in. No matter which exchange you buy your cryptocurrencies from, you always have the right to move your money into a wallet under your control. New wallets can be made with ease with all major cryptocurrencies, from Bitcoin to Ether and beyond; you just need to take the step to move your money.
Will Coinbase Go Bankrupt in 2023?
As a market rife with speculation, rumors about Coinbase’s collapse are still circulating amongst crypto owners. This has left many people wondering what happens if Coinbase goes out of business, even though the company may be set to soar in 2023 and the Coinbase bankruptcy risk is low.
Users on this platform enjoy insurance coverage for at least a portion of their funds if Coinbase goes bankrupt or the funds are stolen. And Coinbase has committed to keeping 100% of its users’ funds accessible. With trust hard to find in the crypto space, especially after the FTX bankruptcy, it makes sense that a secure platform like Coinbase is seeing a surge in popularity.
What Happens to Your Crypto if Coinbase Goes Bankrupt?
Coinbase doesn’t appear to be on the verge of bankruptcy, but it’s always worth securing your investments. You can avoid this loss entirely by storing your currencies in your own wallets, making it worth learning about this side of crypto investment before you start.
Reference: https://www.makeuseof.com/what-happens-crypto-coinbase-goes-bankrupt/
Ref: makeuseof
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