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Even an audited exchange like Coinbase that is trying to do everything right is still self reporting loses like $430M in quarter 1 of 2022 just by operating the
by godzillabrennus 4y ago
Even an audited exchange like Coinbase that is trying to do everything right is still self reporting loses like $430M in quarter 1 of 2022 just by operating their business correctly.
Not your keys, not your crypto. Anyone storing their crypto on any exchange has this risk.
- jacquesm 4y agoFor now at least with Coinbase it is the investors funds at risk, not the customers funds. And that example shows how hard it is to run such a business profitably.
- ta988 4y agoSo what does that tell about the exchanges that are managed in an unauditable way...
- jacquesm 4y agoEssentially that they are most likely dipping in to support either their operations or other projects from the customer funds. That's not proof, but I would not at all be surprised if there isn't a single one of them that is clean.
- jrumbut 4y agoThere is also the possibility that they have too many assets due to participating in money laundering or tax evasion. There really aren't a lot of good possibilities here, how did these exchanges get so large before anyone thought of audits?
- vineyardmike 4y ago> how did these exchanges get so large before anyone thought of audits? Who said no one thought of this? There was simply no one to enforce this. Look at Coinbase. They made a point of being “regulated in the US”. They’re audited. They’re legit (most likely. I’m not the auditor). They’re complying with disclosure laws as a publicly traded company. Look at Patio11, he’s been publicly making claims about tether and the crypto ecosystem for years. If it all blows up and his speculation /research was right, then who is to blame? We’ll have years of boy crying wolf and we thought it was a sheep.
- omgomgomgomg 4y agoI mean, being the custodian of funds actually costs money, one should wonder about the motives of the exchanges offering custody for the funds. There are many banks in europe that will not open accounts for people who just moged there, unless they bring along plenty of money. This simply means that having your coins on an exchange is the same a forfeiting them unless otherwise proven. But the crypto exchanges double down on that, they speculate like the banks do, but with zero risk managment and oversight, the biggest accounting firms do not want to offer their services to them. They have also leveled up their exit strategies, instead of the plain old run away, they run the business while they can extract money and then later they seek legal cover under the umbrella of bankruptcy laws.
- polygamous_bat 4y ago> ... with Coinbase it is the investors funds at risk, not the customers funds Oh boy are you in for a surprise: "In its quarterly report, Coinbase added a risk disclosure: if the company were to file for bankruptcy, the court might treat customer assets that the exchange is custodian for -- their Bitcoin, Dogecoin or whatever -- as Coinbase’s assets. And they’d be at the back of the line for repayment, forcing normal people, unaccustomed to the ins and outs of federal bankruptcy court, to claw back their money along with everybody else owed money by the exchange." From Bloomberg: https://www.bloomberg.com/news/articles/2022-05-11/coinbase-gives-256-billion-reminder-about-agonies-of-bankruptcy#xj4y7vzkg https://www.bloomberg.com/news/articles/2022-05-11/coinbase-...
- jacquesm 4y agoOuch. Thanks for that. I wonder why the normal customer funds segregation rules do not apply to crypto assets.
- cj 4y agoSee the full text from the SEC filing: "due to the novelty of crypto assets, courts have not yet considered this type of treatment for custodied crypto assets" Basically, there's no legal precedent. It's anyone's best guess.
- vineyardmike 4y ago> Basically, there's no legal precedent. We’re about to find out soon.
- exogenousdata 4y agoIt may not hold up in court. But at that point, you’re trying to claim assets back from a bankrupt entity.
- rayiner 4y agoThe disclosure isn’t a statement of what Coinbase would want to happen, but rather what a bankruptcy court might do. Bankruptcy law is very pro-debtor. An entity in bankruptcy court is like a Hoover, aggressively sucking any nearby assets into the bankruptcy estate.
- exogenousdata 4y agoThis isn’t true in the case of bankruptcy. Note that in early 2022, Coinbase updated it’s disclosures to include that customer coins could be used as collateral to pay debts. That would leave customers as unsecured creditors (ie, stuck at the back of the bankruptcy line). https://finance.yahoo.com/news/coinbase-keep-customer-balances-event-103410414.html https://finance.yahoo.com/news/coinbase-keep-customer-balanc...
- jacquesm 4y agoYes, Polygamous_bat below made the same observation, I wasn't aware of this at all.
- grey-area 4y agoEven if you have the keys, it’s not your store of value, as people will find out when this implodes. What are your keys worth if the price of Bitcoin is close to zero?
- willmadden 4y agoBitcoin has already reached 50% of the 27 year lifespan of the average fiat currency. https://cointelegraph.com/news/bitcoin-is-already-at-40-of-average-fiat-currency-lifespan-10-years https://cointelegraph.com/news/bitcoin-is-already-at-40-of-a...
- russell_h 4y agoDebunked: http://jpkoning.blogspot.com/2019/09/the-life-and-death-of-internet-monetary.html http://jpkoning.blogspot.com/2019/09/the-life-and-death-of-i...
- willmadden 4y agoThat article doesn’t “debunk” anything. Did you read it? Their argument is that a currency being “replaced” for “political, economic, and cultural reasons” isn’t a currency failing. What? If they’ve “debunked” the 27 year figure, then what is the correct average lifespan of fiat currencies?
- JumpCrisscross 4y ago> argument is that a currency being “replaced” for “political, economic, and cultural reasons” isn’t a currency failing. What? Did the Deutsche Mark fail when it was replaced by the Euro? Come on.
- willmadden 4y agoDid the Reichsmark and Rentenmark fail when they were replaced 10:1 for Deutschmarks, losing 90% of their face value? Yes! You are cherry picking by choosing the Euro. The point is that valuation loss to currency printing is currency failure. The vast majority of currency “replacements” are just abrupt failures, and generally coincide with a country being overthrown by a new authority.
- bufferoverflow 4y agoHow do you lose so much money when your business it to charge fees? You'd have to do something really stupid to not make money.
- janejeon 4y agoIt's really weird, because "typical" exchanges (NYSE, NASDAQ, CME, etc) typically charge like, what, a few basis points to trade? Coinbase is charging .60%, an order of magnitude of higher fees, and yet they're still somehow losing money?
- CydeWeys 4y agoWell for starters they have over a thousand employees, plus office leases, plus I'm sure cloud provider fees, marketing, and more. There are expenses for sure.
- kevinak 4y agoIt's definitely strange. Binance did $40 billion in volume in the last 24 hours. Even if their effective fee is only 1/100 of a percent that's $4 million. If we assume they do half that volume every day on average that's 730 million in revenue per year. Surely costs can't be that high?
- kijin 4y agoDepends on how extravagant they are with executive bonuses, employee perks, fancy offices and cloud resources.
- omgomgomgomg 4y agoI have calculated salary costs alone to be 30m a month at least. Could also be up to 80m, though, I have used the most conservative calculation I could reasonably come up with. Then comes office infrastructure, if any and cloud assets.
- vineyardmike 4y ago
- jeffreyrogers 4y agoFor many users of these exchanges their entire interest in crypto is speculation/trading, which requires them to store their crypto with an exchange so they can trade it because the costs associated with transferring to and from the exchange repeatedly would be prohibitive.
- rrdharan 4y agoTrading requires this, but pure long-$coin speculation does not.
- dannylandau 4y agoYou hit the nail on the head here. That's the main crux of the matter.
- w3ll_w3ll_w3ll 4y agoIf they are in just for speculating/trading, they could trade ETFs denominated in BTC or ETH on regulated banks.
- gjvc 4y agoreporting loses like $430M in quarter 1 of 2022 just by operating their business correctly Coinbase stock is going to zero.
- nly 4y agoHow do you make that big of a loss just running a matching engine and a bit of regulatory overhead...
- pclmulqdq 4y agoHiring a ton of silicon valley employees to make it really inefficient. Seriously, though, the NASDAQ matching engine runs on a 1U server, and I doubt coinbase needs anywhere near that amount of processing power. Clouds just make it really hard to run a fair matching engine.
- coffeebeqn 4y agoThey had almost 5000(!) employees before the layoffs. I honestly can’t fathom what 90% do day to day
- dicomdan 4y agoWhataboutists have arrived to protect China-owned Binance
- MuffinFlavored 4y ago> not your keys, not your crypto what % of BTC is held in binance / crypto.com / coinbase? if one of them fails/has an issue, how much more can BTC fall and then never recover? what are the % chances something good happens to one of those exchanges and crypto value/demand goes up? what are the % chances the inverse/opposite happens and crypto goes even lower?