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> the security of something backed by the US government. What do you mean? If Coinbase goes bust or steals your assets you’re just an unsecured creditor. It i

by graeme 4y ago

> the security of something backed by the US government. What do you mean? If Coinbase goes bust or steals your assets you’re just an unsecured creditor. It isn’t like a brokerage in regulated markets or a bank, which have specific rules protecting your money.

mudrockbestgirl 4y ago
Crypto assets may not be FDIC insured, but Coinbase can't just steal and run away with your assets without facing legal ramifications in the U.S. And that would also mean founders/shareholders face consequences (look at Theranos). Of course they can still go bankrupt. But then, again, the U.S. courts would decide what happens to their assets and yours. In either case it's up to the U.S. legal system, i.e. government. That's very different from managing your own keys. Nobody can take anything from you. But you also have zero legal protection against an attacker stealing your keys. In other words, you are in full control, for better or worse.
- entropy47 4y ago
  > The U.S. legal system, i.e. government I agree with your overall point, but these two things are not the same.
- paywallasinbeer 4y ago
  > Coinbase can't just steal and run away with your assets That seems hard to believe in light of Coinbase's own recent disclosure: https://www.barrons.com/articles/coinbase-customers-crypto-bankruptcy-51652302126 https://www.barrons.com/articles/coinbase-customers-crypto-b...
  - danuker 4y ago
    > Coinbase: Customers Could Lose Crypto if It Ever Went Bankrupt Investment funds suffer from the same problem. And so do banks, for amounts exceeding the FDIC insurance.
    - JumpCrisscross 4y ago
      > Investment funds suffer from the same problem. And so do banks, for amounts exceeding the FDIC insurance. This hand-waves away a century of banking and investment protections everyone with assets at Coinbase willingly waives. Your funds at Fidelity are insured up to $500k by the SIPC [1]. Every person at Chase is insured up to $250k by the U.S. government, which backs the FDIC with its full “faith and credit” [2], a number which happily doubles with your account at Bank of America. (People concerned about this sweep [3] their money across multiple banks.) When Lehman went bankrupt, customers’ assets were ringfenced [4]. A private equity firm can’t buy a bank, lever it up and gamble away customers’ deposits and assets. None of the above apply to Coinbase. Nor should they. Everyone in crypto opted out of that system. [1] https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects [2] https://www.fdic.gov/resources/ https://www.fdic.gov/resources/ [3] https://en.m.wikipedia.org/wiki/Sweep_account https://en.m.wikipedia.org/wiki/Sweep_account [4] https://corpgov.law.harvard.edu/wp-content/uploads/2008/10/092608-overview-fdicasconvervator-receiver.pdf https://corpgov.law.harvard.edu/wp-content/uploads/2008/10/0...
      - DennisP 4y ago
        Cash held at Coinbase is insured by the FDIC to $250,000. https://help.coinbase.com/en/coinbase/other-topics/legal-policies/how-is-coinbase-insured https://help.coinbase.com/en/coinbase/other-topics/legal-pol...
        JumpCrisscross 4y ago
        > Cash held at Coinbase is insured by the FDIC to $250,000 You’re protected “against the risk of loss should any FDIC-insured bank(s) where [Coinbase] maintain custodial accounts fail[s]” [1]. If Coinbase maintains “accurate records,” which nobody is checking, and “on determinations of the FDIC as receiver at the time of a receivership of a bank holding a custodial account.” If Coinbase itself fails, you’re just another unsecured creditor. Maybe a bankruptcy judge will find your deposits to be a § 507(a)(7) customer deposit, in which case $2,600 of it is a priority claim [2]. For the rest of it, you’re a general unsecured creditor. Behind every lender. Note that the Coinbase FAQ we cite is worded in an intentionally misleading manner. That copy wouldn’t fly at a bank, or, at the very least, produce liability for it in a manner that would actually pay out. [1] https://help.coinbase.com/en/coinbase/other-topics/legal-policies/how-is-coinbase-insured https://help.coinbase.com/en/coinbase/other-topics/legal-pol... [2] https://www.bdo.com/insights/industries/retail-consumer-products/treatment-of-customer-deposits-after-bankruptcy https://www.bdo.com/insights/industries/retail-consumer-prod...
- 9935c101ab17a66 4y ago
  > In either case it's up to the U.S. legal system, i.e. government. This is an incredibly misleading way to describe the difference between unsecured deposits in Coinbase and FDIC insured deposits. Because the U.S. Government is involved in both bankruptcy proceedings and FDIC liquidations, there's no difference in how likely it is a person will be made whole? No, that's not how it works. > Of course they can still go bankrupt. But then, again, the U.S. courts would decide what happens to their assets and yours. Right, but Coinbase has explicitly stated that in the case of bankruptcy, users with deposits are considered unsecured creditors. In the case of bankruptcy, your assets are now coinbase's assets, coinbase's other creditors can go after the assets you deposited and you are last in line to salvage whatever is left. Coinbase wanted people to think it was as conventional and safe as any other federally-insured brokerage because that's the only way they were going to appeal to the average casual investor. But they aren't a brokerage, and you're fucked if they go bankrupt, which is the reason coinbase stock plunged in May when they updated the risk disclosure to their quaterly statement.
tlb 4y ago
Being an unsecured creditor under US law is much better than the law of the jungle, where rug-pulls are just tough luck. Unsecured creditors are still ahead of stockholders in the event of a bankruptcy.
- graeme 4y ago
  That’s very cold comfort. As an unsecured creditor you’re back of the line among creditors in a situation when there manifestly are not enough assets to pay creditors

by graeme 4y ago

mudrockbestgirl 4y ago

Crypto assets may not be FDIC insured, but Coinbase can't just steal and run away with your assets without facing legal ramifications in the U.S. And that would also mean founders/shareholders face consequences (look at Theranos). Of course they can still go bankrupt. But then, again, the U.S. courts would decide what happens to their assets and yours. In either case it's up to the U.S. legal system, i.e. government. That's very different from managing your own keys. Nobody can take anything from you. But you also have zero legal protection against an attacker stealing your keys. In other words, you are in full control, for better or worse.

entropy47 4y ago
> The U.S. legal system, i.e. government I agree with your overall point, but these two things are not the same.
paywallasinbeer 4y ago
> Coinbase can't just steal and run away with your assets That seems hard to believe in light of Coinbase's own recent disclosure: https://www.barrons.com/articles/coinbase-customers-crypto-bankruptcy-51652302126 https://www.barrons.com/articles/coinbase-customers-crypto-b...
- danuker 4y ago
  > Coinbase: Customers Could Lose Crypto if It Ever Went Bankrupt Investment funds suffer from the same problem. And so do banks, for amounts exceeding the FDIC insurance.
  - JumpCrisscross 4y ago
    > Investment funds suffer from the same problem. And so do banks, for amounts exceeding the FDIC insurance. This hand-waves away a century of banking and investment protections everyone with assets at Coinbase willingly waives. Your funds at Fidelity are insured up to $500k by the SIPC [1]. Every person at Chase is insured up to $250k by the U.S. government, which backs the FDIC with its full “faith and credit” [2], a number which happily doubles with your account at Bank of America. (People concerned about this sweep [3] their money across multiple banks.) When Lehman went bankrupt, customers’ assets were ringfenced [4]. A private equity firm can’t buy a bank, lever it up and gamble away customers’ deposits and assets. None of the above apply to Coinbase. Nor should they. Everyone in crypto opted out of that system. [1] https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects [2] https://www.fdic.gov/resources/ https://www.fdic.gov/resources/ [3] https://en.m.wikipedia.org/wiki/Sweep_account https://en.m.wikipedia.org/wiki/Sweep_account [4] https://corpgov.law.harvard.edu/wp-content/uploads/2008/10/092608-overview-fdicasconvervator-receiver.pdf https://corpgov.law.harvard.edu/wp-content/uploads/2008/10/0...
    - DennisP 4y ago
      Cash held at Coinbase is insured by the FDIC to $250,000. https://help.coinbase.com/en/coinbase/other-topics/legal-policies/how-is-coinbase-insured https://help.coinbase.com/en/coinbase/other-topics/legal-pol...
      - JumpCrisscross 4y ago
        > Cash held at Coinbase is insured by the FDIC to $250,000 You’re protected “against the risk of loss should any FDIC-insured bank(s) where [Coinbase] maintain custodial accounts fail[s]” [1]. If Coinbase maintains “accurate records,” which nobody is checking, and “on determinations of the FDIC as receiver at the time of a receivership of a bank holding a custodial account.” If Coinbase itself fails, you’re just another unsecured creditor. Maybe a bankruptcy judge will find your deposits to be a § 507(a)(7) customer deposit, in which case $2,600 of it is a priority claim [2]. For the rest of it, you’re a general unsecured creditor. Behind every lender. Note that the Coinbase FAQ we cite is worded in an intentionally misleading manner. That copy wouldn’t fly at a bank, or, at the very least, produce liability for it in a manner that would actually pay out. [1] https://help.coinbase.com/en/coinbase/other-topics/legal-policies/how-is-coinbase-insured https://help.coinbase.com/en/coinbase/other-topics/legal-pol... [2] https://www.bdo.com/insights/industries/retail-consumer-products/treatment-of-customer-deposits-after-bankruptcy https://www.bdo.com/insights/industries/retail-consumer-prod...
9935c101ab17a66 4y ago
> In either case it's up to the U.S. legal system, i.e. government. This is an incredibly misleading way to describe the difference between unsecured deposits in Coinbase and FDIC insured deposits. Because the U.S. Government is involved in both bankruptcy proceedings and FDIC liquidations, there's no difference in how likely it is a person will be made whole? No, that's not how it works. > Of course they can still go bankrupt. But then, again, the U.S. courts would decide what happens to their assets and yours. Right, but Coinbase has explicitly stated that in the case of bankruptcy, users with deposits are considered unsecured creditors. In the case of bankruptcy, your assets are now coinbase's assets, coinbase's other creditors can go after the assets you deposited and you are last in line to salvage whatever is left. Coinbase wanted people to think it was as conventional and safe as any other federally-insured brokerage because that's the only way they were going to appeal to the average casual investor. But they aren't a brokerage, and you're fucked if they go bankrupt, which is the reason coinbase stock plunged in May when they updated the risk disclosure to their quaterly statement.

tlb 4y ago

Being an unsecured creditor under US law is much better than the law of the jungle, where rug-pulls are just tough luck. Unsecured creditors are still ahead of stockholders in the event of a bankruptcy.

graeme 4y ago
That’s very cold comfort. As an unsecured creditor you’re back of the line among creditors in a situation when there manifestly are not enough assets to pay creditors