if Coinbase goes bankrupt, customers could go broke

The Coinbase crypto exchange platform is not in the best condition. In the event of bankruptcy, customers may not receive their money back.

Coinbase is doing poorly. On Tuesday, the Nasdaq-listed cryptocurrency exchange released its financial results for the first quarter of 2022. At least we can say that the results are not up to the mark. Since the company has fixed net income of $1.60 billion last year, between January and April, these figures fell to $1.17 billion. The number of transactions has also dropped sharply, with the total volume estimated at 309 billion with 9.2 million active users, down from 335 billion and 11.4 million users in 2021.

Will Coinbase go bankrupt?

The company believes this decline is due to several correlating factors, ranging from its Nasdaq listing in April 2021 to the difficult economic context for cryptocurrencies, whose prices have been heavily impacted by the Russian-Ukrainian war. In its press release, the firm explains:These market conditions had a direct impact on our first quarter results. But we have approached these market conditions with foresight and preparation, and we remain more than ever excited about the future of cryptocurrencies.”

Thus, from the top of its 10-year existence, Coinbase has no plans to go bankrupt. The company also believes that its poor quarterly results “not permanent“, and that it is considering a long-term growth plan based in part on its recent entry into the NFT market with the launch of its non-fungible token marketplace less than a month ago.

Clients facing bankruptcy?

Even more than the possible collapse of Coinbase, the platform’s clients are mostly worried about the future of their crypto portfolio in the event of bankruptcy. It must be said that in its quarterly report filed with the SEC, the firm is not particularly encouraging. Specifically, it states that assets deposited by its clients: “may be treated as bankruptcy assets and customers may be treated as general unsecured creditors.”

Concretely, this means that if Coinbase is declared bankrupt, his clients’ money may also disappear. In the context of bankruptcy proceedings, the crypto assets present in user accounts can indeed be used to recover losses from the company’s creditors. An alarming situation that logically prompted some to withdraw their holdings from the platform. For his part, firm boss Brian Armstrong took to Twitter to calm the crowd, assuring: “Your funds are safe on Coinbase, as always. (…) We have no risk of bankruptcy.”

Despite encouraging words, the company nevertheless admits that poorly explained protective measures associated with potential bankruptcywhich will especially affect some users who do not use premium services that offer strong legal guarantees. “We should have updated our retail terms earlier” inferior to Brian Armstrong.