Coinbase Discloses Customers Could Lose Their Crypto if It Ever Goes Bankrupt

Coinbase, one of the largest cryptocurrency exchanges, released its first-quarter earnings report Tuesday and included a new disclosure to customers. It suggests the customers' cryptocurrency could be at risk if the exchange ever went bankrupt. However, the company's CEO tried to reassure customers there's "no risk of bankruptcy."

"Your funds are safe at Coinbase, just as they've always been," Brian Armstrong, co-founder and CEO of Coinbase, tweeted Wednesday. "We have no risk of bankruptcy, however we included a new risk factor based on an SEC requirement called SAB 121, which is a newly required disclosure for public companies that hold crypto assets for third parties."

The US Securities and Exchange Commission released the Staff Accounting Bulletin No. 121 (SAB 121) on March 31, saying disclosures about possible risks that come with providing a platform for crypto transactions should be made to better inform customers about their investment decisions. 

The new risk factor disclosure, earlier reported by Business Insider, says that "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."

This could mean, in the case of bankruptcy proceedings, that customers' balances might be considered Coinbase property, according to Business Insider. 

Armstrong tweeted that Coinbase does have its own crypto wallet for those who'd rather hold onto their cryptocurrency than leave it with the exchange. Cryptocurrency traders concerned about losing their holdings also have the option of buying personal crypto insurance.