If you’re used to riding the crypto rollercoaster, then you know the admission to ride comes with the promise of both ups and downs.
But this news maybe caught you off guard. Some investors in Coinbase are rightfully spooked by language discovered in a 10-Q form the company filed with the U.S. Securities and Exchange Commission. Page 83 of the 135 page filing says: “Moreover, because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors.”
An unsecured creditor is one who lends money without obtaining collateral of similar value—a common example of an unsecured creditor is a credit card company. In the case of Coinbase, the users would be the unsecured creditors. Fortune is reporting that if Coinbase goes bankrupt, then users with funds tied up with the company will no longer have access to them, which fundamentally undermines the entire point of cryptocurrency.
Coinbase CEO Brian Armstrong addressed these concerns, indicating that the company is not at risk of going bankrupt and that the language was included in the 10-Q form as a new requirement from the SEC, Coindesk reported citing Armstrong’s thread of tweets. While there isn’t any indication that Coinbase is going bankrupt, the company’s Q1 performance was lackluster according to the company’s letter to shareholders dated May 10, 2022.
The most damning metric is Coinbase’s reported $430 million loss in Q1 2022. The report also shows a 19% drop in monthly users. “We believe these market conditions are not permanent and we remain focused on the long-term,” the letter reads. “We approach the opportunities ahead with confidence and steady hands.” Coinbase trading volume has also been at its lowest in a year, at $309 billion, and company shares also fell 79% this year as of the time of writing this article.
Cryptocurrency is currently in an incredibly volatile market, as several of the major cryptocurrencies have seen value loss in the last six months.