““We have no risk of bankruptcy.””
That’s a quote from Brian Armstrong, chief executive and co-founder of cryptocurrency exchange platform Coinbase COIN, -0.35%.
In a series of tweets on May 10, Armstrong addressed a recent Coinbase 10-Q document filing with the Securities and Exchange Commission (SEC) that detailed potential risk factors with retail investors’ crypto assets in the event that Coinbase files for bankruptcy — to be clear, Armstrong stated that bankruptcy is not likely.
But if such a “black swan event,” as Armstrong labeled it, ever occurred, some retail investors on the exchange may lose out on their crypto if a court deems those assets as part of the company in legal proceedings, he said.
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“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,” Coinbase wrote in the SEC filing.
In a message on its website, Coinbase tried to reassure users. “TLDR: Your funds on Coinbase are protected, secure, and yours,” the company said. “You may have heard some noise recently about who owns your assets and what claims Coinbase creditors may have to them. The reality is that your assets are… your assets. Not ours or anyone else’s.”
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As opposed to crypto, equities held by a registered brokerage like Charles Schwab SCHW, +2.05% or Robinhood HOOD, +2.14% are legally separate from the assets of the brokerage, meaning they can’t be seized in bankruptcy proceedings, according to reporting from The Wall Street Journal.
The news come as prices for many cryptocurrencies including bitcoin BTCUSD, -2.24% and ethereum ETHUSD, -0.01% are down over 50% from its 2021 highs, highlighting a downward trend for digital assets.
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Armstrong’s tweets were posted the day before shares of Coinbase Global Inc. cratered 26% on May 11. During its May earnings call, the company claimed to be seeing a slowdown in crypto trading.
“We tend to be able to acquire great talent during those periods and others pivot, they get distracted, they get discouraged,” Armstrong said on the earnings call. “So we tend to do our best work in a down period.”
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Shares of Coinbase were down 26.8% during May 11 trading. Coinbase stock is also down 75.1% over the past three months as of May 11, compared to a 14% drop by the S&P 500 Index SPX, -0.06% over the same period