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> 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/art

> 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.
  - YawningAngel 4y ago
    Sorry, _why_ shouldn't the above apply to Coinbase?
    - teh64 4y ago
      As I understand it, because the Cryptocurrencies are not legal tender: "Cryptocurrency is not legal tender and is not backed by the government. Cryptocurrency, (including but not limited to tokens such as bitcoin, litecoin and ethereum, and stablecoins such as USDC), is not subject to Federal Deposit Insurance Corporation (“FDIC”) or Securities Investor Protection Corporation protections." [https://help.coinbase.com/en/coinbase/other-topics/legal-policies/how-is-coinbase-insured https://help.coinbase.com/en/coinbase/other-topics/legal-pol...] So any Bitcoin etc... you hold in your wallet at Coinbase could just be sold off to pay for debt if a bankruptcy occurs (which doesn't happen if a FDIC bank goes bankrupt).
    - JumpCrisscross 4y ago
      > _why_ shouldn't the above apply to Coinbase? Running the banking system on permissioned blockchains, where it makes sense, is simpler than extending federal protection to what currently behaves like a gambling industry. Also, spending the tax dollars of the young, poor and/or financially-conservative to subsidise a demographically-constrained pursuing a high risk / high reward strategy is inefficient.
    - lottin 4y ago
      Because their customers' assets are not segregated.
    - graeme 4y ago
      I don’t know about “should” but those protections don’t extend for Coinbase customers Taking those protections would mean a lot more regulation for the industry, regulation they’ve worked hard to avoid
- 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.

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.
- YawningAngel 4y ago
  Sorry, _why_ shouldn't the above apply to Coinbase?
  - teh64 4y ago
    As I understand it, because the Cryptocurrencies are not legal tender: "Cryptocurrency is not legal tender and is not backed by the government. Cryptocurrency, (including but not limited to tokens such as bitcoin, litecoin and ethereum, and stablecoins such as USDC), is not subject to Federal Deposit Insurance Corporation (“FDIC”) or Securities Investor Protection Corporation protections." [https://help.coinbase.com/en/coinbase/other-topics/legal-policies/how-is-coinbase-insured https://help.coinbase.com/en/coinbase/other-topics/legal-pol...] So any Bitcoin etc... you hold in your wallet at Coinbase could just be sold off to pay for debt if a bankruptcy occurs (which doesn't happen if a FDIC bank goes bankrupt).
  - JumpCrisscross 4y ago
    > _why_ shouldn't the above apply to Coinbase? Running the banking system on permissioned blockchains, where it makes sense, is simpler than extending federal protection to what currently behaves like a gambling industry. Also, spending the tax dollars of the young, poor and/or financially-conservative to subsidise a demographically-constrained pursuing a high risk / high reward strategy is inefficient.
  - lottin 4y ago
    Because their customers' assets are not segregated.
  - graeme 4y ago
    I don’t know about “should” but those protections don’t extend for Coinbase customers Taking those protections would mean a lot more regulation for the industry, regulation they’ve worked hard to avoid
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.