Coinbase CEO says funds are safe amid bankruptcy protection fears

Following the Coinbase report where the company declared its losses, a disclosure that suggests that users are not protected in the case of bankruptcy has been gaining traction on social media. However, Coinbase CEO Brian Armstrong explained that funds are safe “as they’ve always been.” 

In the company's first-quarter report for 2022, Coinbase reported its first loss amounting to $430 million. Apart from this, the firm also reported the number of users transacting in the exchange has also dropped from 11.4 million to 9.2 million.

After the loss was posted, concerns over bankruptcy protection were brought up on Twitter, quoting lines from the disclosure that said, “In the event of a bankruptcy, the crypto assets we hold on behalf of our customers may be subject to bankruptcy proceedings.”

Additionally, the disclosure mentioned that the users will be treated as “unsecured creditors” when this happens. This led to speculation that if Coinbase went bankrupt, the coins that they hold will be company property.

In response to these concerns, Armstrong assured the users that the company has “no risk of bankruptcy” and that customer funds are safe. However, he said that if the company goes bankrupt, there is an “unlikely” possibility that a court would decide to consider consumer assets as part of the company in the proceedings “even if it harmed customers.”

2/ We have no risk of bankruptcy, however 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. https://t.co/lwmgb1kFtA

— Brian Armstrong - barmstrong.eth (@brian_armstrong) May 11, 2022

Armstrong also explained that their prime and custody customers have strong legal protections within the terms of service. Furthermore, these terms protect the assets even in the case of bankruptcy. He also noted that their team is working on updating their terms to also apply the same protections to retail users.

Related: Indian central bank’s ‘informal pressure’ disrupted payments: Coinbase CEO

Despite the negativity surrounding the loss report, the Coinbase CEO remains bullish. Armstrong said that as a company, Coinbase survived many crypto cycles including some of the most major drawdowns and this makes them "well suited to operate" within these harsh waters.