If Coinbase goes bankrupt, everybody loses

Should Coinbase crumble, it’s taking everyone else down with it. 

The fear factor 

The crypto crash has gone from bad to worse – and now panic is setting in. The speed and scale of the collapse has caught almost all crypto investors by surprise. Reddit forums are littered with despairing people losing fortunes (please seek financial and mental health support if you need it), and now, attention is turning to the coin exchanges themselves. 

The latest revelation? Oh, just the small matter of Coinbase users’ crypto disappearing if the company goes bankrupt. The largest cryptocurrency exchange in the US announced in its latest earnings report that it holds $256 billion in fiat and crypto currencies. But hidden in the same report, which lists a Q1 loss of $430 million, there’s a frightening sentence: “The crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings.”  

When does the cool-off turn to ice?  

In theory, if you own crypto then it should be untouchable. Like, that’s sort of the point. But since Coinbase holds the private key to its users’ cryptowallets, it also has the capacity to block their access.

But before everyone panics, Coinbase CEO and founder, Brian Armstrong, has been quick to say that there is “no risk of bankruptcy”, and the disclosure surrounding customers’ crypto assets was only made because of new rules set by the US Securities and Exchange Commission.  

With crypto continuing to cool off though, the mounting risks of having your money in crypto are making a lot of investors twitchy. So, you’ve got to ask yourself a question: ‘Do I feel lucky?’