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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 z

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 4y 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 4y ago
  They just posted a quarterly loss of $430 million.
  - maxerickson 4y 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 4y 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 4y ago
        No, I left custodial holdings out of those numbers. The dead reply to my comment at the top of the thread makes a good point that loss of the custodial holdings in a hack would bankrupt them.
        AdamN 4y ago
        Wouldn't a hack of the custodial holdings just mean their customers lose their money but the business is otherwise a going concern (for that few moments until everybody stops paying them)?
        lazide 4y ago
        They get a lot/most of their money from fees with ongoing transactions. If you look at the ‘5 minutes ahead’ picture if there is a hack that either 1) steals all customer assets, or 2) requires them to freeze all activity for a serious length of time, it’s a ‘no longer going concern’ type situation. No transactions? No income. No trust/willingness for people to continue doing transactions? No future income.
        tekknik 4y ago
        According to Coinbase 98% of their crypto is stored in offline wallets. So hacking won’t work. You’ll have to break into wherever they have the coins stored and hope the key isn’t destroyed when you unplug the device.
    - JumpCrisscross 4y ago
      > they have like $6 billion in cash and equivalents against less than $5 billion of debts and other obligations...if they shut it all down, there would be funds left over Every company that ever went bankrupt had more assets than obligations before they went bankrupt. Coinbase's quick ratio [1] adjusted for custodial assets, as of 31 March 2022, was 6.6 [2][a]. That's good. Don't adjust for custodial funds, and it's 0.15. Virtually bankrupt. With $6.2bn cash on the balance sheet and $830mm cash burned by operations in Q1, they have over 2 years of runway assuming Q1's terribleness continues. That's good. But were they to suffer a hack, that margin of safety could rapidly collapse. And in that case, customers could be left behind secured lenders. (Where USDC holders would wind up is a mystery.) [1] https://www.investopedia.com/terms/q/quickratio.asp https://www.investopedia.com/terms/q/quickratio.asp [2] https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/89c60d81-41a2-4a3c-86fb-b4067ab1016c.pdf https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/89c60d8... page 5 [a] (6,116,388, cash and cash equivalents + 346,048, accounts receivable + 1,333,333, crypto assets held) / (10,921,823, current liabilities - 9,742,961, custodial funds due to customers)
      - maxerickson 4y ago
        Right, I compared cash to liabilities, not assets.
      - ragnot 4y ago
        Could you explain how you got 0.15? (6,116,388, cash and cash equivalents + 346,048, accounts receivable + 1,333,333, crypto assets held) / (10,921,823, current liabilities) = 0.71
      - ricardobayes 4y ago
        What this means in layman's terms if they don't dip into custodial funds they can't cover their current liabilities?
    - formerkrogemp 4y ago
      On paper, you have and can report a lot of assets. However, many companies go bankrupt with current ratios greater than one with either overinflated or overvalued assets or undervalued or understated debts or some combination. Financial reports a la 10-Ks and 10-Qs are 'boring,' difficult for most people to read, contain specialized jargon, and contain significant lag time where a going concern is, well, a concern. Audits are almost always annual and not quarterly. Disclosures may be required, but they can be broad or nonspecific enough as to delay broader acknowledgement of bankruptcy level problems. I'd take information from financial reports with a bit of salt, even if they are often our best, or only, source of information.
      - maxerickson 4y ago
        If "cash and cash equivalents" is wrong, that's fraud, not something I should have taken with a grain of salt.
        formerkrogemp 4y ago
        Cash and cash equivalents can be very wrong, even when audited by firms such as Ernst and Young, one of the big four accounting firms. Wirecard is a good example. https://www.ft.com/content/bcadbdcb-5cd7-487e-afdd-1e926831e9b7 https://www.ft.com/content/bcadbdcb-5cd7-487e-afdd-1e926831e... Grant Thornton audits Coinbase last I checked. Hopefully they do a better job than EY. I doubt a "stablecoin" holding would count as cash equivalents, but not all cash equivalents are equal and the definition has changed over the years. Commercial paper, 1-3 month maturing Treasury notes, certificates of deposit, money market accounts, and savings account funds can all be counted as cash equivalents. For example, if you hold a two month commercial paper of another cryptocurrency company as Coinbase, this might qualify as a cash equivalent. Cash equivalents are not all equally liquid or risky. Even if all of the cash and cash equivalents are there and solvent, the definition of a cryptocurrency in a bankruptcy might not be settled in a court of law in such a way that it favors account holders of Coinbase held cryptocurrency over stockholders or bondholders.
        maxerickson 4y ago
    - randomsearch 4y ago
      There are 14 billion tether in circulation, don’t they need enough to back it?
- Proven 4y ago
  Nonsense. They can get hacked or introduce a bug into their stack and go bust in under an hour. That's extremely unlikely, but not impossible.
  - toong 4y ago
    Just like it was for all the other crypto brokers that went down, exactly like that ;-) I might tone it down just a bit to "Somewhat unlikely to happen. Today."
  - blagie 4y ago
    I would say that's extremely likely. Make a list of your favorite tech companies from 1990 or 2000, and see how many still have technology teams qualified to tie their own shoelaces today, exist, and haven't turned into sleazeware companies. You can calculate your annualized failure rate. That's a best-case on the odds your funds will continue to exist next year. Move fast / break things / fail fast / developer sprints / etc. speeds this process up even further. Crypto companies also have a giant target painted on their backs for hackers (including rogue state-level actors, some of whom just had large sums confiscated by Western institutions). Tulips, anyone?
  - dahdum 4y ago
    That actually does sound kinda impossible, 98% of their crypto is in secured cold storage, and it’s spread across distinct coins and different wallets. I’m not saying it’s risk free, but what exchange or broker is? Does anyone else match Coinbase for security? Gemini seems at best equivalent.
- kolbe 4y ago
  Every single user account is a liability.
  - TheOtherHobbes 4y ago
    Every single user account is an IOU. There is - as some people seem likely to discover - a difference.
    - kolbe 4y ago
      The vast majority of bankruptcy courts place customer accounts ahead of creditors.
superkuh 4y ago
Do you think it would be okay for him to say there's no risk of bankruptcy to some friends in a public bar? How about at a BBQ in his backyard? Would it be okay for him to say this on a flyer stapled to a public board? Why is twitter special?
- JumpCrisscross 4y ago
  > Why is twitter special? The SEC's Rule FD [1]. [1] https://www.sec.gov/news/press-release/2013-2013-51htm https://www.sec.gov/news/press-release/2013-2013-51htm
  - superkuh 4y ago
    Oh, that's backwards from what I thought the situation was. Thanks! Apparently such information has to be released in a way that all the public, generally, can see it at once and twitter with it's faked high user numbers and famous people fulfills this. Releasing it on a small local poster board would be illegal because it is limited, where twitter is legal because everyone theoretically has access to twitter.
    - tekknik 4y ago
      Eh not entirely true. Twitter throws up a login screen if you try to view more than a couple tweets. There’s probably an argument there since an account (and PII) is required.
thesuperbigfrog 4y ago
>> For a public company ceo to say that, isn't that securities fraud? Cryptocurrencies are not regulated securities. What laws protect cryptocurrency "investors"?
- kasey_junk 4y ago
  Coinbase shares are a regulated security. The poster is suggesting that the statements by the CEO are securities fraud for those shares not for crypto.
- rchaud 4y ago
  Coinbase is publicly traded, OP is clearly referring to securities fraud as it relates to public statements that could have material impact on Coinbase stock.
- lallysingh 4y ago
  Their product isn't regulated, but the company is still subject to securities law as it's public.
nradov 4y ago
The SEC can't prosecute anyone, they have no criminal enforcement power. However they can bring civil actions for fraud or other violations of securities law, and refer criminal fraud cases to the Justice Department.
- eatonphil 4y ago
  Thanks for the clarification, makes sense.
gitfan86 4y ago
He probably has a disclaimer somewhere saying his tweets are "not forward looking statements" so he is only saying that as of right now in this moment there is no risk of bankruptcy
- RugnirViking 4y ago
  I wouldn't be sure what the man on the clapham omnibus thinks of that kind of disclaimer. He'd be exposing himself to considerable risk by relying on it
  - jjgreen 4y ago
    The last time I was on a Clapham omnibus, there was an old chap in the back seats in the process of taking his trousers off
    - rebuilder 4y ago
      Ah, an institutionalized investor.
      - arbitrary_name 4y ago
        But obviously recently escaped from the institution, if he is on the omnibus...
        rebuilder 4y ago
        Escaped the regulatory framework.
- IMTDb 4y ago
  Couldn't the same be said of any company that isn't currently filing for bankruptcy ?
devin 4y ago
“everything is securities fraud” —Matt Levine
- eatonphil 4y ago
  You can see I read him too much.
Forgeties79 4y ago
If I was a CEO and saw how few and far between (as well as toothless) the repercussions have been for Elon Musk, I wouldn’t fear tweeting whatever I wanted either.
- formerkrogemp 4y ago
  If you were a CEO, you'd often be set up for life with some level of financial prudence, and everything else after achieving that level of wealth seems like it'd just be for a lark or some pursuit of satisfaction/happiness.
  - Forgeties79 4y ago
    Honestly I was being somewhat tongue-in-cheek, but I guess it didn’t go over well. Lesson learned.
    - formerkrogemp 4y ago
      I'm bad at recognizing sarcasm online I guess. It was my mistake and misunderstanding. I don't think it was you at all.
  - mrtranscendence 4y ago
    To be a bit pedantic, there are CEOs of all sorts of organizations, many of which are tiny nonprofits that bring in very little money. You could be a CEO and bring home $60k a year.
misja111 4y ago
There are all kinds of way out of this in case he would get sued: he could say that with 'there is no risk', he just meant shorthand for 'there is no more than a negligible risk'. Or he could say that with 'there is no risk' he was merely expressing his strong personal opinion based on the vision and faith he had in his company.
- somenewaccount1 4y ago
  Officers of a company are held to a different standard when it comes to public statement. Declaring it as personal opinion would not likely absolve him. 'Funding Secured' was also a personal believe, from the SEC standard it had to be substantiated in a meaningful way though, or gets fined.
mmazing 4y ago
Does anything have a zero chance of happening?
- da39a3ee 4y ago
  Yes. You can only compute probabilities with respect to a probability model. There exists a model M and an outcome x, such that x has zero probability under M. For example, the probability of getting 2 heads in one coin toss has zero probability under the standard binomial model.

maxerickson 4y 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 4y ago
They just posted a quarterly loss of $430 million.
- maxerickson 4y 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 4y 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 4y ago
      No, I left custodial holdings out of those numbers. The dead reply to my comment at the top of the thread makes a good point that loss of the custodial holdings in a hack would bankrupt them.
      - AdamN 4y ago
        Wouldn't a hack of the custodial holdings just mean their customers lose their money but the business is otherwise a going concern (for that few moments until everybody stops paying them)?
        lazide 4y ago
        They get a lot/most of their money from fees with ongoing transactions. If you look at the ‘5 minutes ahead’ picture if there is a hack that either 1) steals all customer assets, or 2) requires them to freeze all activity for a serious length of time, it’s a ‘no longer going concern’ type situation. No transactions? No income. No trust/willingness for people to continue doing transactions? No future income.
        tekknik 4y ago
        According to Coinbase 98% of their crypto is stored in offline wallets. So hacking won’t work. You’ll have to break into wherever they have the coins stored and hope the key isn’t destroyed when you unplug the device.
  - JumpCrisscross 4y ago
    > they have like $6 billion in cash and equivalents against less than $5 billion of debts and other obligations...if they shut it all down, there would be funds left over Every company that ever went bankrupt had more assets than obligations before they went bankrupt. Coinbase's quick ratio [1] adjusted for custodial assets, as of 31 March 2022, was 6.6 [2][a]. That's good. Don't adjust for custodial funds, and it's 0.15. Virtually bankrupt. With $6.2bn cash on the balance sheet and $830mm cash burned by operations in Q1, they have over 2 years of runway assuming Q1's terribleness continues. That's good. But were they to suffer a hack, that margin of safety could rapidly collapse. And in that case, customers could be left behind secured lenders. (Where USDC holders would wind up is a mystery.) [1] https://www.investopedia.com/terms/q/quickratio.asp https://www.investopedia.com/terms/q/quickratio.asp [2] https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/89c60d81-41a2-4a3c-86fb-b4067ab1016c.pdf https://d18rn0p25nwr6d.cloudfront.net/CIK-0001679788/89c60d8... page 5 [a] (6,116,388, cash and cash equivalents + 346,048, accounts receivable + 1,333,333, crypto assets held) / (10,921,823, current liabilities - 9,742,961, custodial funds due to customers)
    - maxerickson 4y ago
      Right, I compared cash to liabilities, not assets.
    - ragnot 4y ago
      Could you explain how you got 0.15? (6,116,388, cash and cash equivalents + 346,048, accounts receivable + 1,333,333, crypto assets held) / (10,921,823, current liabilities) = 0.71
    - ricardobayes 4y ago
      What this means in layman's terms if they don't dip into custodial funds they can't cover their current liabilities?
  - formerkrogemp 4y ago
    On paper, you have and can report a lot of assets. However, many companies go bankrupt with current ratios greater than one with either overinflated or overvalued assets or undervalued or understated debts or some combination. Financial reports a la 10-Ks and 10-Qs are 'boring,' difficult for most people to read, contain specialized jargon, and contain significant lag time where a going concern is, well, a concern. Audits are almost always annual and not quarterly. Disclosures may be required, but they can be broad or nonspecific enough as to delay broader acknowledgement of bankruptcy level problems. I'd take information from financial reports with a bit of salt, even if they are often our best, or only, source of information.
    - maxerickson 4y ago
      If "cash and cash equivalents" is wrong, that's fraud, not something I should have taken with a grain of salt.
      - formerkrogemp 4y ago
        Cash and cash equivalents can be very wrong, even when audited by firms such as Ernst and Young, one of the big four accounting firms. Wirecard is a good example. https://www.ft.com/content/bcadbdcb-5cd7-487e-afdd-1e926831e9b7 https://www.ft.com/content/bcadbdcb-5cd7-487e-afdd-1e926831e... Grant Thornton audits Coinbase last I checked. Hopefully they do a better job than EY. I doubt a "stablecoin" holding would count as cash equivalents, but not all cash equivalents are equal and the definition has changed over the years. Commercial paper, 1-3 month maturing Treasury notes, certificates of deposit, money market accounts, and savings account funds can all be counted as cash equivalents. For example, if you hold a two month commercial paper of another cryptocurrency company as Coinbase, this might qualify as a cash equivalent. Cash equivalents are not all equally liquid or risky. Even if all of the cash and cash equivalents are there and solvent, the definition of a cryptocurrency in a bankruptcy might not be settled in a court of law in such a way that it favors account holders of Coinbase held cryptocurrency over stockholders or bondholders.
        maxerickson 4y ago
  - randomsearch 4y ago
    There are 14 billion tether in circulation, don’t they need enough to back it?
Proven 4y ago
Nonsense. They can get hacked or introduce a bug into their stack and go bust in under an hour. That's extremely unlikely, but not impossible.
- toong 4y ago
  Just like it was for all the other crypto brokers that went down, exactly like that ;-) I might tone it down just a bit to "Somewhat unlikely to happen. Today."
- blagie 4y ago
  I would say that's extremely likely. Make a list of your favorite tech companies from 1990 or 2000, and see how many still have technology teams qualified to tie their own shoelaces today, exist, and haven't turned into sleazeware companies. You can calculate your annualized failure rate. That's a best-case on the odds your funds will continue to exist next year. Move fast / break things / fail fast / developer sprints / etc. speeds this process up even further. Crypto companies also have a giant target painted on their backs for hackers (including rogue state-level actors, some of whom just had large sums confiscated by Western institutions). Tulips, anyone?
- dahdum 4y ago
  That actually does sound kinda impossible, 98% of their crypto is in secured cold storage, and it’s spread across distinct coins and different wallets. I’m not saying it’s risk free, but what exchange or broker is? Does anyone else match Coinbase for security? Gemini seems at best equivalent.
kolbe 4y ago
Every single user account is a liability.
- TheOtherHobbes 4y ago
  Every single user account is an IOU. There is - as some people seem likely to discover - a difference.
  - kolbe 4y ago
    The vast majority of bankruptcy courts place customer accounts ahead of creditors.

superkuh 4y ago

Do you think it would be okay for him to say there's no risk of bankruptcy to some friends in a public bar? How about at a BBQ in his backyard? Would it be okay for him to say this on a flyer stapled to a public board? Why is twitter special?

JumpCrisscross 4y ago
> Why is twitter special? The SEC's Rule FD [1]. [1] https://www.sec.gov/news/press-release/2013-2013-51htm https://www.sec.gov/news/press-release/2013-2013-51htm
- superkuh 4y ago
  Oh, that's backwards from what I thought the situation was. Thanks! Apparently such information has to be released in a way that all the public, generally, can see it at once and twitter with it's faked high user numbers and famous people fulfills this. Releasing it on a small local poster board would be illegal because it is limited, where twitter is legal because everyone theoretically has access to twitter.
  - tekknik 4y ago
    Eh not entirely true. Twitter throws up a login screen if you try to view more than a couple tweets. There’s probably an argument there since an account (and PII) is required.

thesuperbigfrog 4y ago

>> For a public company ceo to say that, isn't that securities fraud? Cryptocurrencies are not regulated securities. What laws protect cryptocurrency "investors"?

kasey_junk 4y ago
Coinbase shares are a regulated security. The poster is suggesting that the statements by the CEO are securities fraud for those shares not for crypto.
rchaud 4y ago
Coinbase is publicly traded, OP is clearly referring to securities fraud as it relates to public statements that could have material impact on Coinbase stock.
lallysingh 4y ago
Their product isn't regulated, but the company is still subject to securities law as it's public.

nradov 4y ago

The SEC can't prosecute anyone, they have no criminal enforcement power. However they can bring civil actions for fraud or other violations of securities law, and refer criminal fraud cases to the Justice Department.

eatonphil 4y ago
Thanks for the clarification, makes sense.

gitfan86 4y ago

He probably has a disclaimer somewhere saying his tweets are "not forward looking statements" so he is only saying that as of right now in this moment there is no risk of bankruptcy

RugnirViking 4y ago
I wouldn't be sure what the man on the clapham omnibus thinks of that kind of disclaimer. He'd be exposing himself to considerable risk by relying on it
- jjgreen 4y ago
  The last time I was on a Clapham omnibus, there was an old chap in the back seats in the process of taking his trousers off
  - rebuilder 4y ago
    Ah, an institutionalized investor.
    - arbitrary_name 4y ago
      But obviously recently escaped from the institution, if he is on the omnibus...
      - rebuilder 4y ago
        Escaped the regulatory framework.
IMTDb 4y ago
Couldn't the same be said of any company that isn't currently filing for bankruptcy ?

devin 4y ago

“everything is securities fraud” —Matt Levine

eatonphil 4y ago
You can see I read him too much.

Forgeties79 4y ago

If I was a CEO and saw how few and far between (as well as toothless) the repercussions have been for Elon Musk, I wouldn’t fear tweeting whatever I wanted either.

formerkrogemp 4y ago
If you were a CEO, you'd often be set up for life with some level of financial prudence, and everything else after achieving that level of wealth seems like it'd just be for a lark or some pursuit of satisfaction/happiness.
- Forgeties79 4y ago
  Honestly I was being somewhat tongue-in-cheek, but I guess it didn’t go over well. Lesson learned.
  - formerkrogemp 4y ago
    I'm bad at recognizing sarcasm online I guess. It was my mistake and misunderstanding. I don't think it was you at all.
- mrtranscendence 4y ago
  To be a bit pedantic, there are CEOs of all sorts of organizations, many of which are tiny nonprofits that bring in very little money. You could be a CEO and bring home $60k a year.

misja111 4y ago

There are all kinds of way out of this in case he would get sued: he could say that with 'there is no risk', he just meant shorthand for 'there is no more than a negligible risk'. Or he could say that with 'there is no risk' he was merely expressing his strong personal opinion based on the vision and faith he had in his company.

somenewaccount1 4y ago
Officers of a company are held to a different standard when it comes to public statement. Declaring it as personal opinion would not likely absolve him. 'Funding Secured' was also a personal believe, from the SEC standard it had to be substantiated in a meaningful way though, or gets fined.

mmazing 4y ago

Does anything have a zero chance of happening?

da39a3ee 4y ago
Yes. You can only compute probabilities with respect to a probability model. There exists a model M and an outcome x, such that x has zero probability under M. For example, the probability of getting 2 heads in one coin toss has zero probability under the standard binomial model.