4 ms·

Is this Coinbase throwing a Hail Mary on the way down? What happens to the wallets if they go under? Is it hard to disentangle the coins?

elliekelly 8y ago
It doesn't look like it would be easy. From their FAQ[1]: >U.S. Customers - Coinbase stores all customer fiat currency (government-issued currency) in, custodial bank accounts, or in U.S. Treasuries. >Non-U.S. Customers - Coinbase stores all customer fiat currency (government-issued currency) in segregated, custodial bank accounts. You'll notice the non-U.S. customer cash is held in segregated, custodial bank accounts while the U.S. customer cash is held in custodial bank accounts and U.S. Treasuries. This leads me to believe the corporate cash is co-mingled with cash that's earmarked as belonging to investors. That might not sound like a problem but if Coinbase goes under then creditors will stake a claim against the entire account. The best case scenario there would be that Coinbase keeps meticulous records and a bankruptcy court would return client funds in a few years. [1]https://support.coinbase.com/customer/portal/articles/1662379-how-is-coinbase-insured- https://support.coinbase.com/customer/portal/articles/166237...
- mathattack 8y ago
  That is if there are funds, no? I’m surprised they can do this. Is it because US laws are more lax or vague on crypto?
  - elliekelly 8y ago
    You're correct, that's all assuming they don't "accidentally" spend customer funds on corporate expenses which is obviously fairly easy to do when all of the funds are in the same account. I'm honestly a bit surprised this hasn't come up with regulators yet. Even under current U.S. law I'm not sure how Coinbase can take custody of client funds without being either an OCC chartered bank or an SEC (or NFA) registered broker. Coinbase is absolutely functioning as a bank and there's a pretty strong argument they're operating as a forex broker. Banks and broker-dealers have strict rules around segregation of client funds and securities for the exact purpose of protecting customers' ability to promptly access their funds/assets in the event the custodian goes under.

elliekelly 8y ago

It doesn't look like it would be easy. From their FAQ[1]: >U.S. Customers - Coinbase stores all customer fiat currency (government-issued currency) in, custodial bank accounts, or in U.S. Treasuries. >Non-U.S. Customers - Coinbase stores all customer fiat currency (government-issued currency) in segregated, custodial bank accounts. You'll notice the non-U.S. customer cash is held in segregated, custodial bank accounts while the U.S. customer cash is held in custodial bank accounts and U.S. Treasuries. This leads me to believe the corporate cash is co-mingled with cash that's earmarked as belonging to investors. That might not sound like a problem but if Coinbase goes under then creditors will stake a claim against the entire account. The best case scenario there would be that Coinbase keeps meticulous records and a bankruptcy court would return client funds in a few years. [1]https://support.coinbase.com/customer/portal/articles/1662379-how-is-coinbase-insured- https://support.coinbase.com/customer/portal/articles/166237...

mathattack 8y ago
That is if there are funds, no? I’m surprised they can do this. Is it because US laws are more lax or vague on crypto?
- elliekelly 8y ago
  You're correct, that's all assuming they don't "accidentally" spend customer funds on corporate expenses which is obviously fairly easy to do when all of the funds are in the same account. I'm honestly a bit surprised this hasn't come up with regulators yet. Even under current U.S. law I'm not sure how Coinbase can take custody of client funds without being either an OCC chartered bank or an SEC (or NFA) registered broker. Coinbase is absolutely functioning as a bank and there's a pretty strong argument they're operating as a forex broker. Banks and broker-dealers have strict rules around segregation of client funds and securities for the exact purpose of protecting customers' ability to promptly access their funds/assets in the event the custodian goes under.