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Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. And they aren’t SPIC insured in

Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. And they aren’t SPIC insured in the situations where crypto is a security. It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are risk adjusted rates for not having insurance. It’s fine to invest in these products, but scary because people aren’t doing due diligence and have unrealistic expectations. The CEO’s statement that they won’t go bankrupt it just comical. Of course he thinks they won’t. Few bank CEOs think that. But real banks and brokerages have insurance for their customers in the rare situation that they go bankrupt.

derbOac 5y ago
The only exception I might take to what you're saying is that one of the main reasons for crypto is resistance to central authority, so the emergence of a situation where something like this can happen should be edifying. It's not the first time this has happened; people seem to forget about Mt Gox. These exchanges need to be part of the crypto schema. Crypto theory is so focused on the chain and not the infrastructure that builds up around it. Anyway, I completely agree with what you're saying but it has special meaning when you're talking about something that's supposed to transcend the need for regulatory structures like FDIC.
- Melting_Harps 5y ago
  > The only exception I might take to what you're saying is that one of the main reasons for crypto is resistance to central authority, so the emergence of a situation where something like this can happen should be edifying. Explain. > It's not the first time this has happened; people seem to forget about Mt Gox. False equivalence, MTGOX wasn't a Publically traded company with tons of VC money and lots of institutional funds (Ark et al) backing them; Mark embezzled funds and had horrible OPSEC that led to a massive hack. He tried covering this up, Coinbase reporting a massive loss is definitely not the same thing. > These exchanges need to be part of the crypto schema. Crypto theory is so focused on the chain and not the infrastructure that builds up around it. Coinbase has been the bane of the Bitcoin ecosystem since MTGOX folded. They are not a representation of what the 'Crypto' schema needs, in fact I'd argue CASH is a superior product in very conceivable way. And what exactly is Crypto theory, exactly? The Infrastructure was meant to be P2P, as noted in the White paper by Satoshi: exchanges are merely a response from the growing Market to cater to the increase in demand, and the truth is they still exist. Kraken, Binance, Gemini etc... still exist and will for some time. The number of exchanges isn't the issue in 'Cryoto land,' it's the scams and I'm glad Coinbase being a pusher of these worthless alts deserves to suffer. My worry is what happens to their BTC if they decided to unload to cover losses.
  - derbOac 5y ago
    > Explain. I wouldn't read into that comment (of mine) too much. I meant what I said in an abstract sense. > False equivalence, MTGOX wasn't a Publically traded company with tons of VC money and lots of institutional funds (Ark et al) backing them; Mark embezzled funds and had horrible OPSEC that led to a massive hack. He tried covering this up, Coinbase reporting a massive loss is definitely not the same thing. Fair enough; good point. They are different. But I do think these intermediary, exchange entities, whatever you want to call them, tend to emerge repeatedly, with their own vulnerabilities, in a way that isn't always fully recognized in a lot of the discussion of cryptocurrency. My sense (which could certainly be wrong) is there's a bit of a gap between blockchain-level issues and macroeconomic theory as it comes up in discussions of cryptocurrency. > And what exactly is Crypto theory, exactly? I just meant academic computer science - economic theory about cryptocurrency, like you might have in conference proceedings, academic journal articles, or technical papers openly distributed for critique and discussion. Maybe the sort of thing that might get discussed in formal policy reports by various public and private profit and nonprofit institutions. > The Infrastructure was meant to be P2P, as noted in the White paper by Satoshi: exchanges are merely a response from the growing Market to cater to the increase in demand, I think that's part of what I'm getting at. From the very beginning it's been clear to me people generally don't actually want pure cryptocurrency P2P in the sense they don't actually want to store the entire blockchain on their laptop. So these kinds of intermediary structures will emerge. > and the truth is they still exist. Kraken, Binance, Gemini etc... still exist and will for some time. The number of exchanges isn't the issue in 'Cryoto land,' it's the scams I don't mean to imply I have a problem with exchanges per se, it's that it would be nice if there was some kind of robustness built in surrounding them. Maybe fraud is inherent to all economic systems (people lose money all the time on traditional stock exchanges and in investment schemes), but it would be nice if there was something like, just say hypothetically, a higher-order layer akin to the FDIC etc (in the absence of the FDIC etc), but distributed or something? I just think these things aren't really well-worked out -- the idea that someone could exchange USD into crypto and then have it disappear because a central entity collapses is going against the grain of what crypto is supposed to prevent.
eatonphil 5y ago
I do wonder why he's allowed to say on Twitter there is no risk of bankruptcy [0]. While the risk could be minimal and maybe negligible saying "no risk" means zero chance. That can't be true of any company. For a public company ceo to say that, isn't that securities fraud? I guess even if it is fraud and they do get prosecuted by the SEC they'd just get fined for it. And maybe the fine here would be much less than the price of a run on coinbase. [0] https://mobile.twitter.com/brian_armstrong/status/1524233602661109760 https://mobile.twitter.com/brian_armstrong/status/1524233602...
- maxerickson 5y ago
  If you don't have significant liabilities you can't really go bankrupt. (I didn't look to see if that was the case, just making the point in general)
  - IfOnlyYouKnew 5y ago
    They just posted a quarterly loss of $430 million.
    - maxerickson 5y ago
      Okay, but that isn't a liability in an accounting sense, it is a cash flow. Edit: looking at the 10K, other than customer assets (where they have a net holding), they have like $6 billion in cash and equivalents against less than $5 billion of debts and other obligations). So if they shut it all down, there would be funds left over.
      - WJW 5y ago
        Would that be 5 billion in customer assets and associated liabilities, leaving about 1 billion of equity for Coinbase? At a burn rate of 430 million per quarter that only leaves a runway about 7-8 months.
        maxerickson 5y ago
core-utility 5y ago
> Since coinbase isn’t FDIC insured Coinbase Pro is FDIC insured, makes one wonder why Coinbase itself isn't. https://pro.coinbase.com/?1416 https://pro.coinbase.com/?1416
- mupuff1234 5y ago
  Afaict only fiat holdings are FDIC insured (for both pro and non-pro).
- Melting_Harps 5y ago
  > Coinbase Pro is FDIC insured, makes one wonder why Coinbase itself isn't. This is exactly what those not familiar with Coinbase don't understand, the two systems are tiered and reflect that: Coinbase is by far the worst exchange experience, and they do not car about their customers unless they are Pro customers. This gives the average person with limited knowledge the worst possible UX into thinking this is how things are and likely deters them from ever trying againg when their order doesn't get completed because of some arbitrary reason. They did this to themselves, I can assure you this was a long time coming.
- ceejayoz 5y ago
  “All USD balances are covered by FDIC insurance”; most people aren’t using them as a USD bank account. Crypto assets aren’t covered by this.
  - Alex3917 5y ago
    > most people aren’t using them as a USD bank account. Crypto assets aren’t covered by this. There are lots of people who keep USD there with open flash crash orders. Of course if Coinbase fails, the prices may basically flash crash to zero and your orders will be filled, and then you are no longer FDIC insured.
  - core-utility 5y ago
    Ahhh, good catch. Maybe it's time to buy a Ledger.
patrickthebold 5y ago
I'm not familiar with how any of this works, but I kind of thought coinbase was less like a bank—paying interest on deposits—and more like a user friendly web ui for managing your assets, because dealing with private keys is hard for a user. If, for example, Dropbox declares bankruptcy I'd be shocked if creditors could search through the user data for things of value. It seems like there would be plenty of money to be made just charging transaction fees and holding assets 1-1 for the users, but what do I know.
- chii 5y ago
  > I'd be shocked if creditors could search through the user data for things of value. dropbox don't own any copyright to the content from the user's uploads. So even if the creditors find any valuable IP or content, there's no way they can claim ownership over it. Coinbase, on the other hand, is given custody of actual assets (the cryptos).
  - pjc50 5y ago
    Check your cloud storage user agreements. A lot of them involve handing a perpetual irrevocable right to the data to the company storing it.
    - prepend 5y ago
      For purposes of operating the service. Not for commercializing IP. If I on Titanic and upload it to Dropbox. A creditor during bankruptcy couldn’t use those rights to sell streams of Titanic. For coinbase, a creditor could sell the crypto stored.
      - mattashii 5y ago
        > Not for commercializing IP. Last time I checked it included commercializing IP, in at least Facebook and Twitter.
        5y ago
kasey_junk 5y ago
Coinbase looks more like a brokerage to me than a bank. While SPIC insurance covers some of your assets the bigger protection comes from brokerage rules around segregating user funds from company funds and the expectation of the courts that those funds won’t be used to settle company debts. So it is a little surprising to me that crypto assets wouldn’t be treated similarly, which is probably why the SEC is demanding this disclosure.
- mathattack 5y ago
  Banks have rules around commingled funds (banks can’t gamble with customer accounts) but this doesn’t look like a bank.
- mbreese 5y ago
  > So it is a little surprising to me that crypto assets wouldn’t be treated similarly, which is probably why the SEC is demanding this disclosure. I only know what I read from the article. But for me, it seemed like the disclosure was required, not because the crypto funds would be used to settle company debts, but rather, this has never been tested in court. So, it’s highly likely that customer accounts would be protected in a crypto bankruptcy, but we don’t have any precedent on it, so we don’t know this to be the case.
- hbrav 5y ago
  > expectation of the courts that those funds won’t be used to settle company debts I'm not sure if this is really the case, but I was under the impression that brokerages held the customers securities in trust. i.e. there is not merely a norm that they will not be used to settle debt, but it would be illegal for them to be used to do so. If anyone knows more about brokerages and whether this really is the case, I would be very interested to know.
seaourfreed 5y ago
If this was a brokerage with stocks, the customers own those stocks. There is no reason crypto shouldn't be the same. There is no reason crypto shouldn't have top priority to their owners. It isn't okay for a company to put other creditors above the owners of that crypto
- ceejayoz 5y ago
  Stocks in brokerages are safe in part because the SIPC exists. Being a priority creditor doesn’t help if, say, someone siphoned off all the Bitcoin.
  - AdamN 5y ago
    SIPC is just the framework. The primary thing is that customer assets are held in custodian accounts and not intermingled with the brokerage assets themselves. This is different than a bank which can lose your money if it does go bankrupt - it's just that FDIC steps in and makes whole the customers that qualify for the insurance (and pays out to other customers above the limits first before other creditors).
    - ceejayoz 5y ago
      No, the SIPC, like the FDIC, can step in and make people whole if assets go missing. FDIC's for deposit accounts, SIPC is the equivalent for brokerage assets. https://www.sipc.org/about-sipc/sipc-mission https://www.sipc.org/about-sipc/sipc-mission "SIPC oversees the liquidation of member firms that close when the firm is bankrupt or in financial trouble, and customer assets are missing." In Coinbase's case, holding in a custodian account doesn't save them if the Bitcoin in it gets sent to an attacker's wallet. They're just gone, and neither the SIPC nor FDIC cover that asset class.
    - Animats 5y ago
      This is not entirely true, especially if you have a margin account. In the US, there is Government insurance up to the SIPC limit of $500,000 of securities and $250,000 of cash. But coverage ends at that point. I have had the annoying experience of having to pry restricted stock certificates out of the vaults of a failed broker. Fear of the regulatory agencies is strong enough that a week of phone calls produced the certificates.
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sureglymop 5y ago
What i don't understand is why don't people create their own wallet and keep their funds there? Isn't that the entire purpose? Of course they could still use coinbase as an exchange. But if everyone let's another party "manage" their wallet in what way is it really decentralized...
- apozem 5y ago
  It’s the obvious thing, convenience. Humans love convenience. People build billion-dollar businesses like Steam and Spotify that basically sell convenience. Makes sense that a lot of people just want an easy way to manage their crypto. If you’re not ideologically dedicated to decentralization, why not do the easy thing?
- patwolf 5y ago
  It takes discipline to keep a wallet safe. I used to discount the risk of that, but over time I feel less and less confident in the average person's ability to not lose a wallet or have it hacked. To me Coinbase feels more like bank. Once I deposit money I no longer worry about the physical security of that money. Clearly that isn't the case given it's not FDIC insured, but the fact that it's a multi-billion dollar publicly-traded corporation instills some confidence.
  - mellavora 5y ago
    > To me Coinbase feels more like bank. Once I deposit money I no longer worry about the physical security of that money. Clearly that isn't the case given it's not FDIC insured, but the fact that it's a multi-billion dollar publicly-traded corporation instills some confidence. And that is the danger. It feels like a bank, and lots of other people also feel it is like a bank, so you figure you are safe. But it is not a bank. It does not offer the regulator protection of a bank. Feelings don't change that. A good UI does not change that. Only regulation change that.
  - blihp 5y ago
    Unless Coinbase is regulated like a bank or brokerage, what it feels like is irrelevant if you're in the U.S. Short of your deposits being FDIC or SIPC insured you know all you need to know: every cent and/or coin you have with them is at risk.
aaaaaaaaata 5y ago
> Few bank CEOs think that aloud.
300bps 5y ago
Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. No, it doesn't make sense at all. It is incredible to me that these are all solved problems in traditional finance. Coinbase could utilize the services of a custodian to hold the crypto. In fact, that's what any responsible financial services company would do. It makes perfect sense because if there is a dislocation in crypto, it could bring Coinbase down but it won't bring Bank of New York down. So hold all the customer crypto at Bank of New York. Or they could have individual wallets titled to customers. More difficult and doesn't allow them to do off-chain transfers but possible. There are a million ways to do this, this is a solved problem in finance. Coinbase chose not to do it and now is paying for that by having to disclose the truth - retail customers are screwed if Coinbase declares bankruptcy. Whose fault is that? The CEO apologizes for it so that should tell you. >For our retail customers, we’re taking further steps to update our user terms such that we offer the same protections to those customers in a black swan event. We should have had these in place previously, so let me apologize for that. https://nitter.net/brian_armstrong/status/1524233480040710144 https://nitter.net/brian_armstrong/status/152423348004071014...
giancarlostoro 5y ago
> It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are risk adjusted rates for not having insurance. You don't need to hold your crypto within coinbase, you can transfer it to a wallet you fully control.
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Cthulhu_ 5y ago
I mean with over 250 billion in assets managed, they should be able to get bought out and / or attract investors instead of go bankrupt. I'm sure there's rich folk who have an interest in owning an established crypto exchange. Although on the other, with that much in assets, there may also be people with an interest in having it go bankrupt - or just to spread these rumors, to further help crash the price of crypto.
0daystock 5y ago
- JumpCrisscross 5y ago
  > have enough to cover maybe 1-2% of all deposits? When the real stuff hits the fan and the buck breaks, there won't be any FDIC to protect any investment The FDIC "is backed by the full faith and credit of the United States government" [1]. Its reserves (a) provide quick cash in case of limited problems, (b) insulate the Treasury and Congress and (c) hold the FDIC leadership accountable. On account of (c), the FDIC oversees its insurees, including by implementing reserve requirements [2]. [1] https://www.fdic.gov/resources/deposit-insurance/faq/ https://www.fdic.gov/resources/deposit-insurance/faq/ [2] https://www.fdic.gov/regulations/laws/rules/7500-500.html#fdic7500204.5 https://www.fdic.gov/regulations/laws/rules/7500-500.html#fd...
  - 0daystock 5y ago
    > As required by the Federal Deposit Insurance Act, the FDIC Board adopted a Restoration Plan on September 15, 2020, to restore the DIF to at least 1.35 percent by September 30, 2028. The Plan requires the FDIC to update its analysis and projections for the DIF balance and reserve ratio at least semiannually. https://www.fdic.gov/news/speeches/2021/spjun1521a.html https://www.fdic.gov/news/speeches/2021/spjun1521a.html They can't even keep up with their legally mandated deposit reserve rate of 1.35% but they're going to bail out several failed banks? Come on.
  - deleted 5y ago
    [deleted]
phkahler 5y ago
>> Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. No it doesn't. Well if coinbase is lending crypto like a bank then sure. But if they are acting like a stock broker, they should be holding real assets on behalf of customers and those assets should go to the customers who actually own them. Longer term investors can actually (could? it's been a while) get their stock certificate mailed and hold it themselves.
- svnt 5y ago
  They are acting like what is best for them, which is neither. They are taking as much as they can because that is how finance works. For being on HN this post is confusingly full of people who assume tech companies are run for the public benefit, or at least with some moral obligation of protecting your assets.
dboreham 5y ago
> it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well Others have said this, but just to reiterate : this is quite wrong. This is like saying that because you hold Amazon stock via a Schwab brokerage account, if Schwab were to declare bankruptcy, then you would lose your Amazon stock. Needless to say that wouldn't happen because you are the owner of the stock, not Schwab. FDIC insurance covers a totally different scenario where the money you deposit doesn't really exist (lent to someone else in the meantime). What makes sense is that Coinbase isn't the owner of customers' crypto assets. This thread is about the fact that apparently that's _not_ necessarily true.
- junofan 5y ago
  You might wanna check the fine print on your Schwab brokerage account.
  - kasey_junk 5y ago
    Not sure what you are insinuating but the Schwab fine print definitely says that the customer assets are not Schwabs (because that's the rules of the regulatory environment they work in). No court in the US would would use customer shares to settle Schwab debt.
- iamthirsty 5y ago
  > Others have said this, but just to reiterate : this is quite wrong. This is like saying that because you hold Amazon stock via a Schwab brokerage account, if Schwab were to declare bankruptcy, then you would lose your Amazon stock. Needless to say that wouldn't happen because you are the owner of the stock, not Schwab. But that isn't how Coinbase works. They aren't holding a share for you, they are holding your actual assets, with nothing in force that they would have to return them, bar what is in USD.
- ldoughty 5y ago
  There's no FDIC or other protections in play here, except for the small amount of money a customer might have in "cash", held by Coinbase pending or resulting from a crypto transaction. Once you buy a bitcoin, you have a digital good, not money/currency (as defined by most governments/courts -- which is the point that matters here) If you buy a skin in Fortnite, and Fortnite goes under, you no longer have that skin, even it if was made by another player and put on a public marketplace offered by Fortnite. You can't get Forenite to return that skin to you, and you can't ask the author to send you a copy to save. If Coinbase goes under, the crypto would likely be treated as digital goods by the court, not as "currency".. or perhaps that case would solidify crypto's definition as a security or currency... but I'd argue that it's unclear right now, and that creditors would want Coinbase to liquidate the digital assets to pay off employees, creditors first.
xur17 5y ago
> Coinbase users would become “general unsecured creditors,” meaning they have no right to claim any specific property from the exchange in proceedings. Their funds would become inaccessible. I'm curious about this bit - are they required to structure their company in this way, or was it a choice that they made?
- nmfisher 5y ago
  Perhaps someone with closer knowledge of USA finance law can fill me in - is there anything legal preventing Coinbase acting as trustee for customers as beneficiary? Surely that would avoid this situation (though there are probably commercial considerations why they don’t want to do that).
  - xur17 5y ago
    And if there isn't, I'm curious if there are other US exchanges that are structured in such a way (acting as a trustee for customers).
lumost 5y ago
Surprised that customer positions aren't considered loans with first rights over all other lenders in a bankruptcy proceeding. The company shouldn't be playing around with these, but based on this statement it sounds like they are doing something odd and trying to run a fractional reserve system, or leveraging customer deposits for other high risk activity such that the money may not be there. Makes me think that I should move my crypto back to my own wallet/sell the crypto.
- post-it 5y ago
  You probably should. You wouldn't give Coinbase your SSH private keys, crypto keys are no different.
  - lumost 5y ago
    They don't have my keys, but they are holding the asset as a custodian. From a practical perspective, I'm not certain they are actually holding my BTC in a dedicated wallet or a central wallet with an off blockchain ledger.
- svnt 5y ago
  You should. Crypto is about to prove (again) why banking needs regulatory bodies.
rmbyrro 5y ago
I think main issue is not lack of insurance. Stocks aren't insured, for example. Crypto being a novel space where no one truly understand its risks and that is (sadly, still) welcoming to scammers is the real issue, in my opinion.
- prepend 5y ago
  Stocks are insured by SPIC. I’m not sure it’s possible to find a US brokerage in business that doesn’t insure stocks against this kind of loss in bankruptcy.
  - rmbyrro 5y ago
    I'm no specialist in the topic, but AFAIK you're insured for monetary funds held in a brokerage account. Stocks themselves don't need insurance from the brokerage, as they're in custody somewhere else. Depends on the country, I presume. What I meant is there's no insurance against the company you own going bankrupt. If you buy Tesla and it goes south, nobody will rescue your funds.
andy_ppp 5y ago
Yes, if they definitely won't go bankrupt that means the insurance will be extremely cheap! If this insurance isn't cheap then that means there is a reasonable chance they could go bankrupt. In my opinion all it takes is one insider taking a copy of everyone's private keys and they are toast. I would advise to not put all your eggs in one basket.
jpmattia 5y ago
> Since coinbase isn’t FDIC insured, The Fortune article in the HN link is writing only about the crypto assets, which lack FDIC insurance. Cash assets are FDIC insured. From Coinbase: "To the extent U.S. customer funds are held as cash, they are maintained in pooled custodial accounts at one or more banks insured by the FDIC." https://help.coinbase.com/en/coinbase/other-topics/legal-policies/how-is-coinbase-insured https://help.coinbase.com/en/coinbase/other-topics/legal-pol...
- thr0wawayf00 5y ago
  yeah but why on earth would you store cash in Coinbase? Are you even getting a savings account interest rate on that?
- HWR_14 5y ago
  > "To the extent U.S. customer funds are held as cash, they are maintained in pooled custodial accounts at one or more banks insured by the FDIC." Doesn't that mean Coinbase is insulated from the banks going bust? I don't know why a "pooled custodial account" would help the Coinbase user. It's still Coinbase's money held for them (just like the BTC). But maybe it does. I'm slightly ignorant here.
cm2187 5y ago
FDIC insurance is for banks, not brokers. I think what protects you from a broker going bust is the separation of client money from firm money. Though I think that separation failed in the most recent major broker bankruptcy (MF Global) and probably many others. FDIC would protect the broker against its own bank going bust (though I am sure there are guarantee caps).
- kasey_junk 5y ago
  All client assets were returned during the MF Global bankruptcy.
shoulderfake 5y ago
tablespoon 5y ago
> Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. And they aren’t SPIC insured in the situations where crypto is a security. Is Coinbase "loaning" out the Bitcoin users have deposited in it? The reason banks need the FDIC is that they loan your deposits out instead of throwing it in a vault and sitting on it, so if they go under they don't have those assets to distribute in a bankruptcy. Given how immature and non-economic cryptocurrency is, it wouldn't surprise me if Coinbase was sitting on all/most of its users desposits. So it's possible the users might get most of their deposits back after a bankruptcy proceeding (assuming the reason wasn't massive theft of assets or something).
- retcon 5y ago
  I think your statement about the idea that Coinbase isn't living on the float about as likely as the notion that nobody in crypto is desperately trying to create a fiat currency fiefdom. As such, your views come across as the kind of statement that are illegal to distribute concerning regulated investment.
  - tablespoon 5y ago
    > As such, your views come across as the kind of statement that are illegal to distribute concerning regulated investment. What kind of nonsense is that? I'm just some rando on the internet.
- rileyphone 5y ago
  No, but the users would be last in liquidation preference, so would end up screwed anyways.
  - tablespoon 5y ago
    > No, but the users would be last in liquidation preference, so would end up screwed anyways. Cite please, because if true that would be mind-boggling.
2OEH8eoCRo0 5y ago
It's funny but if crypto really does crash you can bet that all of us will be paying for it one way or another.
pandemicsoul 5y ago
I was on reddit and someone called bitcoin a "useful savings account" and I was like, "NO, STOP. Do not tell people this stuff is for savings!" I was downvoted to hell and people were like "lmao noob." Got into a back and forth where I was trying to delineate an investment and savings and people just kept replying stuff like, "it goes up, that means you beat inflation, do you not understand how this works???" Sigh.
- AYoung010 5y ago
  Sadly, discourse on reddit has not been worth the time of day since 2015 or so.
  - bckygldstn 5y ago
    This depends very much on the subreddit. There are still some fantastic communities with top-notch discourse! On the other hand, I don't remember discourse being worthwhile on large subreddits even in the good old days of 2015.
  - ricardobayes 5y ago
    Unfortunately doubly true for their crytocurrency-themed subreddits with millions of followers where each and every post that isn't about 'number goes up' gets moderated. Even a post got deleted where the user warned others to invest carefully, only funds that they don't mind losing. Or posts where a user posts a proof of their losses.
- aaronbrethorst 5y ago
  Tulip mania, indeed.
- sexy_seedbox 5y ago
  Let me guess, you were on the wrong sub-reddit? Try /r/buttcoin instead, you'll get upvoted to heaven.
- Simp4Zuck 5y ago
  The subreddit you’re in is what decides whether your opinion will be upvoted. If you go to a video game’s specific subreddit and say “I know you all like Call of Duty, but Call of Duty sucks”, then you will be downvoted into oblivion even if you’re “correct”. Same goes for things like politics and bitcoin. The subreddits all end up attracting people who have a certain opinion and outcasting the rest.
seydor 5y ago
> when crypto doesn’t have the protections of regular banking and investments Coinbase is not 'crypto' though. Nobody's coins go down if one exchange crashes, unless they are careless enough to leave them there. The real problem is that cryptocoins are hard to use , and so exchanges are used as banks (they shoudn't) . But that is something that tech can fix
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matheusmoreira 5y ago
> It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. The problem isn't crypto, it's these exchanges. Nearly everyone just leaves their coins in the exchanges. They're essentially banks but with none of the protections. They even offer cryptocurrency loans, savings accounts and everything. Cryptocurrencies were supposed to replace banks but they ended up reinventing the whole thing badly. It was supposed to be a dollars -> electricity -> CPU -> bitcoins closed decentralized system, but now it's just dollars <-> bitcoin within centralized exchanges.
- its_ethan 5y ago
  I'm not sure who first said it, but crypto feels like a solution in search of a problem. Something akin to "when all you have is a hammer, everything looks like a nail" - forcing crypto/blockchains as solutions to problems that are either already solved, or could be solved in other more traditional ways, only acts as a disservice to wider adoption imo.
  - matheusmoreira 5y ago
    > crypto feels like a solution in search of a problem Well, to me the problem is absolutely real. Decades ago, my country suffered from hyperinflation. We went through several inflationary currencies like it was nothing until some economist managed to dupe everyone into believing it was gonna be different this time. Not before desperate attempts to control inflation were implemented, though. In the 90s the president just froze everybody's bank accounts. I simply don't trust governments. I want them to have zero authority and influence over my money. I don't care what it costs to achieve this, as long as governments are successfully exorcised from this economy it's worth it. The way I see it, pure blockchain solutions are the only way this could possibly work and even then only if sufficiently decentralized. Exchanges are the complete opposite of this vision, they're literally banks with all of the downsides and none of the upsides.
    - orwin 5y ago
      Or you make that your central bank is independent from your president, and that only qualified majority + accords from your judicial power can modify the target of your central bank. (Edit: to be clear: target and not policy. The central bank can still choose how they will reach their target). But you need an effective republic for this, and one that have a hint of democracy.
olalonde 5y ago
> It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are risk adjusted rates for not having insurance. You are missing the point. We are shocked that even if Coinbase keeps users' deposits 100% safe, users could still lose their deposits if a judge decides so. Why isn't there a way to segregate those deposits from assets on which creditors have a claim? This kind of simple arrangement ought to be possible without new regulations or FDIC-style protection. Needless to say, "not your keys not your Bitcoin" continues to be good advice.
- JoeAltmaier 5y ago
  Bankruptcy rules are weird, and it's not just crypto companies that work that way. Lots of uninsured companies could lose depositors' accounts in bankruptcy. Witness grain elevators, or storage companies, or safe deposit companies - it took special laws to protect depositors. Which protection Coinbase doesn't have, apparently. It's always more nuanced than first glance. And (rich) creditors have always had more sway in court than common depositors, unless special rules are enacted that say otherwise.
  - olalonde 5y ago
    It's weird indeed. I admit I believed there was a law that protected depositors (in general) from creditors in the event of a bankruptcy. Are you saying that there's a law that's specifically for grain companies, one specifically for safe deposit companies, etc.? What if you park your car in a garage which goes bankrupt, can you lose your car? I'm kind of mind blown right now...
- svnt 5y ago
  Sorry to say it, but no, you. You are missing the point. The regulations on banking created and enforce those legally binding separations in assets that you are shocked don’t exist.
  - olalonde 5y ago
MaxfordAndSons 5y ago
I think you mean SIPC?
- prepend 5y ago
  Yes, thank you. What’s odd is I thought I typed that but autocorrect changed it and that’s a bit concerning since it changed it to a pretty not cool term.
shapefrog 5y ago
They could simply have a ringfenced seperate legal entity hold the customer funds. Begs the question, why not...
syshum 5y ago
sacrosancty 5y ago
Who's shocked? The journalist? It's their job to appear shocked so stories sound more interesting. You might be imagining some fantasy fool to laugh at.
patricklorio 5y ago
Coinbase is FDIC insured but that's only relevant for USD. The SEC mandates disclosures of all risk and given that a crypto company like this has not gone bankrupt there, isn't precedent on how bankruptcy courts will consider crypto assets held under custody. Therefore it's a risk that should be made transparent.

derbOac 5y ago

The only exception I might take to what you're saying is that one of the main reasons for crypto is resistance to central authority, so the emergence of a situation where something like this can happen should be edifying. It's not the first time this has happened; people seem to forget about Mt Gox. These exchanges need to be part of the crypto schema. Crypto theory is so focused on the chain and not the infrastructure that builds up around it. Anyway, I completely agree with what you're saying but it has special meaning when you're talking about something that's supposed to transcend the need for regulatory structures like FDIC.

Melting_Harps 5y ago
> The only exception I might take to what you're saying is that one of the main reasons for crypto is resistance to central authority, so the emergence of a situation where something like this can happen should be edifying. Explain. > It's not the first time this has happened; people seem to forget about Mt Gox. False equivalence, MTGOX wasn't a Publically traded company with tons of VC money and lots of institutional funds (Ark et al) backing them; Mark embezzled funds and had horrible OPSEC that led to a massive hack. He tried covering this up, Coinbase reporting a massive loss is definitely not the same thing. > These exchanges need to be part of the crypto schema. Crypto theory is so focused on the chain and not the infrastructure that builds up around it. Coinbase has been the bane of the Bitcoin ecosystem since MTGOX folded. They are not a representation of what the 'Crypto' schema needs, in fact I'd argue CASH is a superior product in very conceivable way. And what exactly is Crypto theory, exactly? The Infrastructure was meant to be P2P, as noted in the White paper by Satoshi: exchanges are merely a response from the growing Market to cater to the increase in demand, and the truth is they still exist. Kraken, Binance, Gemini etc... still exist and will for some time. The number of exchanges isn't the issue in 'Cryoto land,' it's the scams and I'm glad Coinbase being a pusher of these worthless alts deserves to suffer. My worry is what happens to their BTC if they decided to unload to cover losses.
- derbOac 5y ago
  > Explain. I wouldn't read into that comment (of mine) too much. I meant what I said in an abstract sense. > False equivalence, MTGOX wasn't a Publically traded company with tons of VC money and lots of institutional funds (Ark et al) backing them; Mark embezzled funds and had horrible OPSEC that led to a massive hack. He tried covering this up, Coinbase reporting a massive loss is definitely not the same thing. Fair enough; good point. They are different. But I do think these intermediary, exchange entities, whatever you want to call them, tend to emerge repeatedly, with their own vulnerabilities, in a way that isn't always fully recognized in a lot of the discussion of cryptocurrency. My sense (which could certainly be wrong) is there's a bit of a gap between blockchain-level issues and macroeconomic theory as it comes up in discussions of cryptocurrency. > And what exactly is Crypto theory, exactly? I just meant academic computer science - economic theory about cryptocurrency, like you might have in conference proceedings, academic journal articles, or technical papers openly distributed for critique and discussion. Maybe the sort of thing that might get discussed in formal policy reports by various public and private profit and nonprofit institutions. > The Infrastructure was meant to be P2P, as noted in the White paper by Satoshi: exchanges are merely a response from the growing Market to cater to the increase in demand, I think that's part of what I'm getting at. From the very beginning it's been clear to me people generally don't actually want pure cryptocurrency P2P in the sense they don't actually want to store the entire blockchain on their laptop. So these kinds of intermediary structures will emerge. > and the truth is they still exist. Kraken, Binance, Gemini etc... still exist and will for some time. The number of exchanges isn't the issue in 'Cryoto land,' it's the scams I don't mean to imply I have a problem with exchanges per se, it's that it would be nice if there was some kind of robustness built in surrounding them. Maybe fraud is inherent to all economic systems (people lose money all the time on traditional stock exchanges and in investment schemes), but it would be nice if there was something like, just say hypothetically, a higher-order layer akin to the FDIC etc (in the absence of the FDIC etc), but distributed or something? I just think these things aren't really well-worked out -- the idea that someone could exchange USD into crypto and then have it disappear because a central entity collapses is going against the grain of what crypto is supposed to prevent.

eatonphil 5y ago

I do wonder why he's allowed to say on Twitter there is no risk of bankruptcy [0]. While the risk could be minimal and maybe negligible saying "no risk" means zero chance. That can't be true of any company. For a public company ceo to say that, isn't that securities fraud? I guess even if it is fraud and they do get prosecuted by the SEC they'd just get fined for it. And maybe the fine here would be much less than the price of a run on coinbase. [0] https://mobile.twitter.com/brian_armstrong/status/1524233602661109760 https://mobile.twitter.com/brian_armstrong/status/1524233602...

maxerickson 5y ago
If you don't have significant liabilities you can't really go bankrupt. (I didn't look to see if that was the case, just making the point in general)
- IfOnlyYouKnew 5y ago
  They just posted a quarterly loss of $430 million.
  - maxerickson 5y ago
    Okay, but that isn't a liability in an accounting sense, it is a cash flow. Edit: looking at the 10K, other than customer assets (where they have a net holding), they have like $6 billion in cash and equivalents against less than $5 billion of debts and other obligations). So if they shut it all down, there would be funds left over.
    - WJW 5y ago
      Would that be 5 billion in customer assets and associated liabilities, leaving about 1 billion of equity for Coinbase? At a burn rate of 430 million per quarter that only leaves a runway about 7-8 months.
      - maxerickson 5y ago

core-utility 5y ago

> Since coinbase isn’t FDIC insured Coinbase Pro is FDIC insured, makes one wonder why Coinbase itself isn't. https://pro.coinbase.com/?1416 https://pro.coinbase.com/?1416

mupuff1234 5y ago
Afaict only fiat holdings are FDIC insured (for both pro and non-pro).
Melting_Harps 5y ago
> Coinbase Pro is FDIC insured, makes one wonder why Coinbase itself isn't. This is exactly what those not familiar with Coinbase don't understand, the two systems are tiered and reflect that: Coinbase is by far the worst exchange experience, and they do not car about their customers unless they are Pro customers. This gives the average person with limited knowledge the worst possible UX into thinking this is how things are and likely deters them from ever trying againg when their order doesn't get completed because of some arbitrary reason. They did this to themselves, I can assure you this was a long time coming.
ceejayoz 5y ago
“All USD balances are covered by FDIC insurance”; most people aren’t using them as a USD bank account. Crypto assets aren’t covered by this.
- Alex3917 5y ago
  > most people aren’t using them as a USD bank account. Crypto assets aren’t covered by this. There are lots of people who keep USD there with open flash crash orders. Of course if Coinbase fails, the prices may basically flash crash to zero and your orders will be filled, and then you are no longer FDIC insured.
- core-utility 5y ago
  Ahhh, good catch. Maybe it's time to buy a Ledger.

patrickthebold 5y ago

I'm not familiar with how any of this works, but I kind of thought coinbase was less like a bank—paying interest on deposits—and more like a user friendly web ui for managing your assets, because dealing with private keys is hard for a user. If, for example, Dropbox declares bankruptcy I'd be shocked if creditors could search through the user data for things of value. It seems like there would be plenty of money to be made just charging transaction fees and holding assets 1-1 for the users, but what do I know.

chii 5y ago
> I'd be shocked if creditors could search through the user data for things of value. dropbox don't own any copyright to the content from the user's uploads. So even if the creditors find any valuable IP or content, there's no way they can claim ownership over it. Coinbase, on the other hand, is given custody of actual assets (the cryptos).
- pjc50 5y ago
  Check your cloud storage user agreements. A lot of them involve handing a perpetual irrevocable right to the data to the company storing it.
  - prepend 5y ago
    For purposes of operating the service. Not for commercializing IP. If I on Titanic and upload it to Dropbox. A creditor during bankruptcy couldn’t use those rights to sell streams of Titanic. For coinbase, a creditor could sell the crypto stored.
    - mattashii 5y ago
      > Not for commercializing IP. Last time I checked it included commercializing IP, in at least Facebook and Twitter.
      - 5y ago

kasey_junk 5y ago

Coinbase looks more like a brokerage to me than a bank. While SPIC insurance covers some of your assets the bigger protection comes from brokerage rules around segregating user funds from company funds and the expectation of the courts that those funds won’t be used to settle company debts. So it is a little surprising to me that crypto assets wouldn’t be treated similarly, which is probably why the SEC is demanding this disclosure.

mathattack 5y ago
Banks have rules around commingled funds (banks can’t gamble with customer accounts) but this doesn’t look like a bank.
mbreese 5y ago
> So it is a little surprising to me that crypto assets wouldn’t be treated similarly, which is probably why the SEC is demanding this disclosure. I only know what I read from the article. But for me, it seemed like the disclosure was required, not because the crypto funds would be used to settle company debts, but rather, this has never been tested in court. So, it’s highly likely that customer accounts would be protected in a crypto bankruptcy, but we don’t have any precedent on it, so we don’t know this to be the case.
hbrav 5y ago
> expectation of the courts that those funds won’t be used to settle company debts I'm not sure if this is really the case, but I was under the impression that brokerages held the customers securities in trust. i.e. there is not merely a norm that they will not be used to settle debt, but it would be illegal for them to be used to do so. If anyone knows more about brokerages and whether this really is the case, I would be very interested to know.

seaourfreed 5y ago

If this was a brokerage with stocks, the customers own those stocks. There is no reason crypto shouldn't be the same. There is no reason crypto shouldn't have top priority to their owners. It isn't okay for a company to put other creditors above the owners of that crypto

ceejayoz 5y ago
Stocks in brokerages are safe in part because the SIPC exists. Being a priority creditor doesn’t help if, say, someone siphoned off all the Bitcoin.
- AdamN 5y ago
  SIPC is just the framework. The primary thing is that customer assets are held in custodian accounts and not intermingled with the brokerage assets themselves. This is different than a bank which can lose your money if it does go bankrupt - it's just that FDIC steps in and makes whole the customers that qualify for the insurance (and pays out to other customers above the limits first before other creditors).
  - ceejayoz 5y ago
    No, the SIPC, like the FDIC, can step in and make people whole if assets go missing. FDIC's for deposit accounts, SIPC is the equivalent for brokerage assets. https://www.sipc.org/about-sipc/sipc-mission https://www.sipc.org/about-sipc/sipc-mission "SIPC oversees the liquidation of member firms that close when the firm is bankrupt or in financial trouble, and customer assets are missing." In Coinbase's case, holding in a custodian account doesn't save them if the Bitcoin in it gets sent to an attacker's wallet. They're just gone, and neither the SIPC nor FDIC cover that asset class.
  - Animats 5y ago
    This is not entirely true, especially if you have a margin account. In the US, there is Government insurance up to the SIPC limit of $500,000 of securities and $250,000 of cash. But coverage ends at that point. I have had the annoying experience of having to pry restricted stock certificates out of the vaults of a failed broker. Fear of the regulatory agencies is strong enough that a week of phone calls produced the certificates.

deleted 5y ago

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sureglymop 5y ago

What i don't understand is why don't people create their own wallet and keep their funds there? Isn't that the entire purpose? Of course they could still use coinbase as an exchange. But if everyone let's another party "manage" their wallet in what way is it really decentralized...

apozem 5y ago
It’s the obvious thing, convenience. Humans love convenience. People build billion-dollar businesses like Steam and Spotify that basically sell convenience. Makes sense that a lot of people just want an easy way to manage their crypto. If you’re not ideologically dedicated to decentralization, why not do the easy thing?
patwolf 5y ago
It takes discipline to keep a wallet safe. I used to discount the risk of that, but over time I feel less and less confident in the average person's ability to not lose a wallet or have it hacked. To me Coinbase feels more like bank. Once I deposit money I no longer worry about the physical security of that money. Clearly that isn't the case given it's not FDIC insured, but the fact that it's a multi-billion dollar publicly-traded corporation instills some confidence.
- mellavora 5y ago
  > To me Coinbase feels more like bank. Once I deposit money I no longer worry about the physical security of that money. Clearly that isn't the case given it's not FDIC insured, but the fact that it's a multi-billion dollar publicly-traded corporation instills some confidence. And that is the danger. It feels like a bank, and lots of other people also feel it is like a bank, so you figure you are safe. But it is not a bank. It does not offer the regulator protection of a bank. Feelings don't change that. A good UI does not change that. Only regulation change that.
- blihp 5y ago
  Unless Coinbase is regulated like a bank or brokerage, what it feels like is irrelevant if you're in the U.S. Short of your deposits being FDIC or SIPC insured you know all you need to know: every cent and/or coin you have with them is at risk.

aaaaaaaaata 5y ago

> Few bank CEOs think that aloud.

300bps 5y ago

Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. No, it doesn't make sense at all. It is incredible to me that these are all solved problems in traditional finance. Coinbase could utilize the services of a custodian to hold the crypto. In fact, that's what any responsible financial services company would do. It makes perfect sense because if there is a dislocation in crypto, it could bring Coinbase down but it won't bring Bank of New York down. So hold all the customer crypto at Bank of New York. Or they could have individual wallets titled to customers. More difficult and doesn't allow them to do off-chain transfers but possible. There are a million ways to do this, this is a solved problem in finance. Coinbase chose not to do it and now is paying for that by having to disclose the truth - retail customers are screwed if Coinbase declares bankruptcy. Whose fault is that? The CEO apologizes for it so that should tell you. >For our retail customers, we’re taking further steps to update our user terms such that we offer the same protections to those customers in a black swan event. We should have had these in place previously, so let me apologize for that. https://nitter.net/brian_armstrong/status/1524233480040710144 https://nitter.net/brian_armstrong/status/152423348004071014...

giancarlostoro 5y ago

deleted 5y ago

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Cthulhu_ 5y ago

I mean with over 250 billion in assets managed, they should be able to get bought out and / or attract investors instead of go bankrupt. I'm sure there's rich folk who have an interest in owning an established crypto exchange. Although on the other, with that much in assets, there may also be people with an interest in having it go bankrupt - or just to spread these rumors, to further help crash the price of crypto.

0daystock 5y ago

JumpCrisscross 5y ago
> have enough to cover maybe 1-2% of all deposits? When the real stuff hits the fan and the buck breaks, there won't be any FDIC to protect any investment The FDIC "is backed by the full faith and credit of the United States government" [1]. Its reserves (a) provide quick cash in case of limited problems, (b) insulate the Treasury and Congress and (c) hold the FDIC leadership accountable. On account of (c), the FDIC oversees its insurees, including by implementing reserve requirements [2]. [1] https://www.fdic.gov/resources/deposit-insurance/faq/ https://www.fdic.gov/resources/deposit-insurance/faq/ [2] https://www.fdic.gov/regulations/laws/rules/7500-500.html#fdic7500204.5 https://www.fdic.gov/regulations/laws/rules/7500-500.html#fd...
- 0daystock 5y ago
  > As required by the Federal Deposit Insurance Act, the FDIC Board adopted a Restoration Plan on September 15, 2020, to restore the DIF to at least 1.35 percent by September 30, 2028. The Plan requires the FDIC to update its analysis and projections for the DIF balance and reserve ratio at least semiannually. https://www.fdic.gov/news/speeches/2021/spjun1521a.html https://www.fdic.gov/news/speeches/2021/spjun1521a.html They can't even keep up with their legally mandated deposit reserve rate of 1.35% but they're going to bail out several failed banks? Come on.
- deleted 5y ago
  [deleted]

phkahler 5y ago

>> Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. No it doesn't. Well if coinbase is lending crypto like a bank then sure. But if they are acting like a stock broker, they should be holding real assets on behalf of customers and those assets should go to the customers who actually own them. Longer term investors can actually (could? it's been a while) get their stock certificate mailed and hold it themselves.

svnt 5y ago
They are acting like what is best for them, which is neither. They are taking as much as they can because that is how finance works. For being on HN this post is confusingly full of people who assume tech companies are run for the public benefit, or at least with some moral obligation of protecting your assets.

dboreham 5y ago

> it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well Others have said this, but just to reiterate : this is quite wrong. This is like saying that because you hold Amazon stock via a Schwab brokerage account, if Schwab were to declare bankruptcy, then you would lose your Amazon stock. Needless to say that wouldn't happen because you are the owner of the stock, not Schwab. FDIC insurance covers a totally different scenario where the money you deposit doesn't really exist (lent to someone else in the meantime). What makes sense is that Coinbase isn't the owner of customers' crypto assets. This thread is about the fact that apparently that's _not_ necessarily true.

junofan 5y ago
You might wanna check the fine print on your Schwab brokerage account.
- kasey_junk 5y ago
  Not sure what you are insinuating but the Schwab fine print definitely says that the customer assets are not Schwabs (because that's the rules of the regulatory environment they work in). No court in the US would would use customer shares to settle Schwab debt.
iamthirsty 5y ago
> Others have said this, but just to reiterate : this is quite wrong. This is like saying that because you hold Amazon stock via a Schwab brokerage account, if Schwab were to declare bankruptcy, then you would lose your Amazon stock. Needless to say that wouldn't happen because you are the owner of the stock, not Schwab. But that isn't how Coinbase works. They aren't holding a share for you, they are holding your actual assets, with nothing in force that they would have to return them, bar what is in USD.
ldoughty 5y ago
There's no FDIC or other protections in play here, except for the small amount of money a customer might have in "cash", held by Coinbase pending or resulting from a crypto transaction. Once you buy a bitcoin, you have a digital good, not money/currency (as defined by most governments/courts -- which is the point that matters here) If you buy a skin in Fortnite, and Fortnite goes under, you no longer have that skin, even it if was made by another player and put on a public marketplace offered by Fortnite. You can't get Forenite to return that skin to you, and you can't ask the author to send you a copy to save. If Coinbase goes under, the crypto would likely be treated as digital goods by the court, not as "currency".. or perhaps that case would solidify crypto's definition as a security or currency... but I'd argue that it's unclear right now, and that creditors would want Coinbase to liquidate the digital assets to pay off employees, creditors first.

xur17 5y ago

> Coinbase users would become “general unsecured creditors,” meaning they have no right to claim any specific property from the exchange in proceedings. Their funds would become inaccessible. I'm curious about this bit - are they required to structure their company in this way, or was it a choice that they made?

nmfisher 5y ago
Perhaps someone with closer knowledge of USA finance law can fill me in - is there anything legal preventing Coinbase acting as trustee for customers as beneficiary? Surely that would avoid this situation (though there are probably commercial considerations why they don’t want to do that).
- xur17 5y ago
  And if there isn't, I'm curious if there are other US exchanges that are structured in such a way (acting as a trustee for customers).

lumost 5y ago

Surprised that customer positions aren't considered loans with first rights over all other lenders in a bankruptcy proceeding. The company shouldn't be playing around with these, but based on this statement it sounds like they are doing something odd and trying to run a fractional reserve system, or leveraging customer deposits for other high risk activity such that the money may not be there. Makes me think that I should move my crypto back to my own wallet/sell the crypto.

post-it 5y ago
You probably should. You wouldn't give Coinbase your SSH private keys, crypto keys are no different.
- lumost 5y ago
  They don't have my keys, but they are holding the asset as a custodian. From a practical perspective, I'm not certain they are actually holding my BTC in a dedicated wallet or a central wallet with an off blockchain ledger.
svnt 5y ago
You should. Crypto is about to prove (again) why banking needs regulatory bodies.

rmbyrro 5y ago

I think main issue is not lack of insurance. Stocks aren't insured, for example. Crypto being a novel space where no one truly understand its risks and that is (sadly, still) welcoming to scammers is the real issue, in my opinion.

prepend 5y ago
Stocks are insured by SPIC. I’m not sure it’s possible to find a US brokerage in business that doesn’t insure stocks against this kind of loss in bankruptcy.
- rmbyrro 5y ago
  I'm no specialist in the topic, but AFAIK you're insured for monetary funds held in a brokerage account. Stocks themselves don't need insurance from the brokerage, as they're in custody somewhere else. Depends on the country, I presume. What I meant is there's no insurance against the company you own going bankrupt. If you buy Tesla and it goes south, nobody will rescue your funds.

andy_ppp 5y ago

Yes, if they definitely won't go bankrupt that means the insurance will be extremely cheap! If this insurance isn't cheap then that means there is a reasonable chance they could go bankrupt. In my opinion all it takes is one insider taking a copy of everyone's private keys and they are toast. I would advise to not put all your eggs in one basket.

jpmattia 5y ago

> Since coinbase isn’t FDIC insured, The Fortune article in the HN link is writing only about the crypto assets, which lack FDIC insurance. Cash assets are FDIC insured. From Coinbase: "To the extent U.S. customer funds are held as cash, they are maintained in pooled custodial accounts at one or more banks insured by the FDIC." https://help.coinbase.com/en/coinbase/other-topics/legal-policies/how-is-coinbase-insured https://help.coinbase.com/en/coinbase/other-topics/legal-pol...

thr0wawayf00 5y ago
yeah but why on earth would you store cash in Coinbase? Are you even getting a savings account interest rate on that?
HWR_14 5y ago
> "To the extent U.S. customer funds are held as cash, they are maintained in pooled custodial accounts at one or more banks insured by the FDIC." Doesn't that mean Coinbase is insulated from the banks going bust? I don't know why a "pooled custodial account" would help the Coinbase user. It's still Coinbase's money held for them (just like the BTC). But maybe it does. I'm slightly ignorant here.

cm2187 5y ago

FDIC insurance is for banks, not brokers. I think what protects you from a broker going bust is the separation of client money from firm money. Though I think that separation failed in the most recent major broker bankruptcy (MF Global) and probably many others. FDIC would protect the broker against its own bank going bust (though I am sure there are guarantee caps).

kasey_junk 5y ago
All client assets were returned during the MF Global bankruptcy.

shoulderfake 5y ago

tablespoon 5y ago

> Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. And they aren’t SPIC insured in the situations where crypto is a security. Is Coinbase "loaning" out the Bitcoin users have deposited in it? The reason banks need the FDIC is that they loan your deposits out instead of throwing it in a vault and sitting on it, so if they go under they don't have those assets to distribute in a bankruptcy. Given how immature and non-economic cryptocurrency is, it wouldn't surprise me if Coinbase was sitting on all/most of its users desposits. So it's possible the users might get most of their deposits back after a bankruptcy proceeding (assuming the reason wasn't massive theft of assets or something).

retcon 5y ago
I think your statement about the idea that Coinbase isn't living on the float about as likely as the notion that nobody in crypto is desperately trying to create a fiat currency fiefdom. As such, your views come across as the kind of statement that are illegal to distribute concerning regulated investment.
- tablespoon 5y ago
  > As such, your views come across as the kind of statement that are illegal to distribute concerning regulated investment. What kind of nonsense is that? I'm just some rando on the internet.
rileyphone 5y ago
No, but the users would be last in liquidation preference, so would end up screwed anyways.
- tablespoon 5y ago
  > No, but the users would be last in liquidation preference, so would end up screwed anyways. Cite please, because if true that would be mind-boggling.

2OEH8eoCRo0 5y ago

It's funny but if crypto really does crash you can bet that all of us will be paying for it one way or another.

pandemicsoul 5y ago

I was on reddit and someone called bitcoin a "useful savings account" and I was like, "NO, STOP. Do not tell people this stuff is for savings!" I was downvoted to hell and people were like "lmao noob." Got into a back and forth where I was trying to delineate an investment and savings and people just kept replying stuff like, "it goes up, that means you beat inflation, do you not understand how this works???" Sigh.

AYoung010 5y ago
Sadly, discourse on reddit has not been worth the time of day since 2015 or so.
- bckygldstn 5y ago
  This depends very much on the subreddit. There are still some fantastic communities with top-notch discourse! On the other hand, I don't remember discourse being worthwhile on large subreddits even in the good old days of 2015.
- ricardobayes 5y ago
  Unfortunately doubly true for their crytocurrency-themed subreddits with millions of followers where each and every post that isn't about 'number goes up' gets moderated. Even a post got deleted where the user warned others to invest carefully, only funds that they don't mind losing. Or posts where a user posts a proof of their losses.
aaronbrethorst 5y ago
Tulip mania, indeed.
sexy_seedbox 5y ago
Let me guess, you were on the wrong sub-reddit? Try /r/buttcoin instead, you'll get upvoted to heaven.
Simp4Zuck 5y ago
The subreddit you’re in is what decides whether your opinion will be upvoted. If you go to a video game’s specific subreddit and say “I know you all like Call of Duty, but Call of Duty sucks”, then you will be downvoted into oblivion even if you’re “correct”. Same goes for things like politics and bitcoin. The subreddits all end up attracting people who have a certain opinion and outcasting the rest.

seydor 5y ago

> when crypto doesn’t have the protections of regular banking and investments Coinbase is not 'crypto' though. Nobody's coins go down if one exchange crashes, unless they are careless enough to leave them there. The real problem is that cryptocoins are hard to use , and so exchanges are used as banks (they shoudn't) . But that is something that tech can fix

deleted 5y ago

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matheusmoreira 5y ago

> It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. The problem isn't crypto, it's these exchanges. Nearly everyone just leaves their coins in the exchanges. They're essentially banks but with none of the protections. They even offer cryptocurrency loans, savings accounts and everything. Cryptocurrencies were supposed to replace banks but they ended up reinventing the whole thing badly. It was supposed to be a dollars -> electricity -> CPU -> bitcoins closed decentralized system, but now it's just dollars <-> bitcoin within centralized exchanges.

its_ethan 5y ago
I'm not sure who first said it, but crypto feels like a solution in search of a problem. Something akin to "when all you have is a hammer, everything looks like a nail" - forcing crypto/blockchains as solutions to problems that are either already solved, or could be solved in other more traditional ways, only acts as a disservice to wider adoption imo.
- matheusmoreira 5y ago
  > crypto feels like a solution in search of a problem Well, to me the problem is absolutely real. Decades ago, my country suffered from hyperinflation. We went through several inflationary currencies like it was nothing until some economist managed to dupe everyone into believing it was gonna be different this time. Not before desperate attempts to control inflation were implemented, though. In the 90s the president just froze everybody's bank accounts. I simply don't trust governments. I want them to have zero authority and influence over my money. I don't care what it costs to achieve this, as long as governments are successfully exorcised from this economy it's worth it. The way I see it, pure blockchain solutions are the only way this could possibly work and even then only if sufficiently decentralized. Exchanges are the complete opposite of this vision, they're literally banks with all of the downsides and none of the upsides.
  - orwin 5y ago
    Or you make that your central bank is independent from your president, and that only qualified majority + accords from your judicial power can modify the target of your central bank. (Edit: to be clear: target and not policy. The central bank can still choose how they will reach their target). But you need an effective republic for this, and one that have a hint of democracy.

olalonde 5y ago

> It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are risk adjusted rates for not having insurance. You are missing the point. We are shocked that even if Coinbase keeps users' deposits 100% safe, users could still lose their deposits if a judge decides so. Why isn't there a way to segregate those deposits from assets on which creditors have a claim? This kind of simple arrangement ought to be possible without new regulations or FDIC-style protection. Needless to say, "not your keys not your Bitcoin" continues to be good advice.

JoeAltmaier 5y ago
Bankruptcy rules are weird, and it's not just crypto companies that work that way. Lots of uninsured companies could lose depositors' accounts in bankruptcy. Witness grain elevators, or storage companies, or safe deposit companies - it took special laws to protect depositors. Which protection Coinbase doesn't have, apparently. It's always more nuanced than first glance. And (rich) creditors have always had more sway in court than common depositors, unless special rules are enacted that say otherwise.
- olalonde 5y ago
  It's weird indeed. I admit I believed there was a law that protected depositors (in general) from creditors in the event of a bankruptcy. Are you saying that there's a law that's specifically for grain companies, one specifically for safe deposit companies, etc.? What if you park your car in a garage which goes bankrupt, can you lose your car? I'm kind of mind blown right now...
svnt 5y ago
Sorry to say it, but no, you. You are missing the point. The regulations on banking created and enforce those legally binding separations in assets that you are shocked don’t exist.
- olalonde 5y ago

MaxfordAndSons 5y ago

I think you mean SIPC?

prepend 5y ago
Yes, thank you. What’s odd is I thought I typed that but autocorrect changed it and that’s a bit concerning since it changed it to a pretty not cool term.

shapefrog 5y ago

They could simply have a ringfenced seperate legal entity hold the customer funds. Begs the question, why not...

syshum 5y ago

sacrosancty 5y ago

Who's shocked? The journalist? It's their job to appear shocked so stories sound more interesting. You might be imagining some fantasy fool to laugh at.

patricklorio 5y ago

Coinbase is FDIC insured but that's only relevant for USD. The SEC mandates disclosures of all risk and given that a crypto company like this has not gone bankrupt there, isn't precedent on how bankruptcy courts will consider crypto assets held under custody. Therefore it's a risk that should be made transparent.