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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

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...
      - jcranmer 4y ago
        Reading the text a couple of times, it's actually far, far less secure than that: > Fiat balances, such as U.S. dollars, British pounds, or euros, are held in your Coinbase e-money wallets as a balance in your Coinbase or Coinbase Pro account(s). For U.S. customers, Coinbase combines your balance with the balances of other customers and holds those funds in either: custodial accounts at U.S. banks and/or invests those funds in liquid U.S. Treasuries, or USD denominated money market funds in accordance with state money transmitter laws. > Funds could be held in any one of these three manners so customers should not assume that funds are being held in one manner over the other. So, if your funds were held in the custodial account (which you're explicitly told not to assume), and if Coinbase maintained "accurate records" (lolwut?), and if the bank where the custodial account is failed, then you're going to be made whole. Notably, Coinbase itself failing isn't part of that "if" chain.
  - PeterisP 4y ago
    Many types of financial organizations such as stock brokers (which seem an appropriate analogy for coinbase) have specific legal protections for customer funds in their custody, where even in bankruptcy the creditors of the organization do not have any claim on the customer assets, which are not treated as part of the organizations' debt but is held separately from their own balance sheet assets/liabilities.
  - danaris 4y ago
    Anyone who has to worry about losing money above $250k per bank can bloody well afford it. To handwave away the FDIC insurance like that makes you sound like you think everyone under that threshold just doesn't matter.
    - HWR_14 4y ago
      It's not $250k per bank. It's $250k per account type. So you get your savings, money market, checking and CD and boom, it's a million at a single bank FDIC insured.
      - johntb86 4y ago
        It's $250k per per depositor, per insured bank, for each account ownership category. So if you'd need to move your CD, savings, checking, etc. into separate ownership categories (e.g. one held in a single account, another held in a joint account, another held in a revocable trust) for that to work.
        HWR_14 4y ago
        Ah, I missed the nuance. I knew that it was possible to duplicate coverage and misunderstood how.
      - danaris 4y ago
        My apologies; I was unaware of that nuance. I doubt I'll ever be able have over $250k in savings at any one time, so it wasn't something that seemed too much worth my time to learn more about.
        HWR_14 4y ago
        Sorry, I had the wrong nuance. According to the other poster, it's by ownership type, not account type.
  - HWR_14 4y ago
    If my broker goes bankrupt, the shares I have through them are indisputably mine, and the government will help me retain them.
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.

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...
    - jcranmer 4y ago
      Reading the text a couple of times, it's actually far, far less secure than that: > Fiat balances, such as U.S. dollars, British pounds, or euros, are held in your Coinbase e-money wallets as a balance in your Coinbase or Coinbase Pro account(s). For U.S. customers, Coinbase combines your balance with the balances of other customers and holds those funds in either: custodial accounts at U.S. banks and/or invests those funds in liquid U.S. Treasuries, or USD denominated money market funds in accordance with state money transmitter laws. > Funds could be held in any one of these three manners so customers should not assume that funds are being held in one manner over the other. So, if your funds were held in the custodial account (which you're explicitly told not to assume), and if Coinbase maintained "accurate records" (lolwut?), and if the bank where the custodial account is failed, then you're going to be made whole. Notably, Coinbase itself failing isn't part of that "if" chain.
- PeterisP 4y ago
  Many types of financial organizations such as stock brokers (which seem an appropriate analogy for coinbase) have specific legal protections for customer funds in their custody, where even in bankruptcy the creditors of the organization do not have any claim on the customer assets, which are not treated as part of the organizations' debt but is held separately from their own balance sheet assets/liabilities.
- danaris 4y ago
  Anyone who has to worry about losing money above $250k per bank can bloody well afford it. To handwave away the FDIC insurance like that makes you sound like you think everyone under that threshold just doesn't matter.
  - HWR_14 4y ago
    It's not $250k per bank. It's $250k per account type. So you get your savings, money market, checking and CD and boom, it's a million at a single bank FDIC insured.
    - johntb86 4y ago
      It's $250k per per depositor, per insured bank, for each account ownership category. So if you'd need to move your CD, savings, checking, etc. into separate ownership categories (e.g. one held in a single account, another held in a joint account, another held in a revocable trust) for that to work.
      - HWR_14 4y ago
        Ah, I missed the nuance. I knew that it was possible to duplicate coverage and misunderstood how.
    - danaris 4y ago
      My apologies; I was unaware of that nuance. I doubt I'll ever be able have over $250k in savings at any one time, so it wasn't something that seemed too much worth my time to learn more about.
      - HWR_14 4y ago
        Sorry, I had the wrong nuance. According to the other poster, it's by ownership type, not account type.
- HWR_14 4y ago
  If my broker goes bankrupt, the shares I have through them are indisputably mine, and the government will help me retain them.

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.