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Coinbase Warns Users Could Lose Crypto Assets If Company Goes Bankrupt
Coinbase warned that its users could lose their crypto holdings if the company ever went bankrupt, but CEO says no such risk.
Ankita K.
3:53 12th May, 2022
Markets

Coinbase warned that its users could lose their crypto holdings if the company ever went bankrupt. The global crypto exchange included the disclosure as part of its Q1 earnings report. This was the first time that the risk factor was mentioned to users. Coinbase CEO Brian Armstrong, however, tried to quell the panic by tweeting, “We have no risk of bankruptcy.” Coinbase is finding it hard to gain a foothold in India, as Armstrong said on Tuesday that the company had to disable UPI payments due to “informal pressure” from the Reserve Bank of India (RBI).

In its disclosure to customers, Coinbase warned, “Because 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 waning stirred up panic among investors, especially since this was the first time users got to know about the risk factor. Coinbase holds $256 billion in fiat currencies and virtual coins.

Armstrong on Wednesday clarified on Twitter, “Your funds are safe at Coinbase, just as they’ve always been.” He explained, “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.”

“This disclosure makes sense in that these legal protections have not been tested in court for crypto assets specifically, and it is possible, however unlikely, that a court would decide to consider customer assets as part of the company in bankruptcy proceedings even if it harmed consumers,” Armstrong added in his tweet thread.

Armstrong apologised for not updating the retail terms sooner. He wrote, “We didn't communicate proactively when this risk disclosure was added.  My deepest apologies, and a good learning moment for us as we make future changes.”

During an earnings call earlier this week, the Coinbase CEO said that the company disabled the UPI "because of some informal pressure from the Reserve Bank of India."

"There are elements in the government there, including at the Reserve Bank of India, who don't seem to be as positive on it. In the press, it's been called a 'shadow ban', basically, they're applying soft pressure behind the scenes to try to disable some of these payments, which might be going through UPI," Armstrong told analysts.

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