Potential Coinbase Bankruptcy Could Leave People Without Millions in Bitcoin

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Potential Coinbase Bankruptcy Could Leave People Without Millions in Bitcoin

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Coinbase Global, one of the world’s largest cryptocurrency platforms, announced losses of $430 million in the last quarter and a 19% drop in the number of users.

As reported by Bloomberg, the company’s shares fell as much as 31% to $50.15 on Wednesday the 11th, a far cry from its first-day closing price of $328.28 when it went public last April. Its bonds also tumbled, trading in line with some of the riskier junk-rated notes, signaling investor skepticism about the crypto exchange’s prospects in a worsening bear market.

In its quarterly report, Coinbase added a risk disclosure that raised concerns among some users about the safety of their crypto assets in company custody in the event of bankruptcy: if the company were to file for bankruptcy, the court could deal with customer assets. that the exchange is custodian of (your bitcoin, dogecoin, or whatever) as Coinbase assets.

This would put private crypto investors at the back of the queue for payment. Ahead of them would be senior debt holders (Coinbase has $2 billion in senior unsecured bonds outstanding), along with the lawyers and bankers who help any company navigate bankruptcy, racking up potentially huge bills along the way, Bloomberg explains. .

As of March 31, the company had about $256 billion of customer money in escrow, according to the filing.

However, Brian Armstrong, CEO of Coinbase, took to Twitter to clarify that “there is no risk of bankruptcy” and that user funds are safe, while also apologizing for not proactively communicating about the disclosure.

Adam Levitin, a Georgetown University law professor, says the insolvency proceeding would likely prevent customers from selling or exchanging their currencies because of the so-called automatic stay imposed on creditors.

“The bankruptcy of a cryptocurrency exchange has yet to be dealt with by US courts, and there are a host of open legal and regulatory issues. However, one thing is clear enough: if Coinbase users were to become so-called general unsecured creditors, and the company’s disclosure says they could have a nasty time,” says Armstrong.

Users would have to fill out paperwork demanding what they are owed, file it on time, and possibly wait months or years for payment. Low-ranking creditors often keep pennies on the dollar.

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