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Coinbase may confiscate users’ cryptocurrencies if it goes bankrupt

US exchange Coinbase said in a document sent to the US Securities and Exchange Commission that if the exchange goes bankrupt, users could lose all funds and will be treated as “unsecured creditors”.

Coinbase may confiscate users' cryptocurrencies if it goes bankrupt

Coinbase may confiscate users’ cryptocurrencies if it goes bankrupt

In an earnings report published Tuesday, Coinbase says it holds $256 billion worth of fiat and cryptocurrencies on behalf of its clients. However, the exchange noted that in the event that it declares bankruptcy, “the crypto assets we hold in custody on behalf of our clients may be subject to bankruptcy proceedings.”

In the event of bankruptcy, Coinbase users would become “general unsecured creditors”, meaning they are not entitled to claim any exchange-specific property in the process. Your funds would become inaccessible.

To calm users down, Coinbase CEO Brian Armstrong made a string of tweets stating that there was no cause for concern. “Your funds are safe on Coinbase, just as they always have been,” he said.

According to the broker’s executive, Coinbase does not present a risk of bankruptcy, although it has added this new risk factor in the report in compliance with a new requirement from the SEC (Securities and Exchange Commission).

“This disclosure makes sense in that these legal protections have not been tested in court for crypto assets specifically, and it is possible, however unlikely, that a court would decide to consider customer assets as part of the company in bankruptcy proceedings even if even if it harmed consumers,” Armstrong tweeted.

The CEO also apologized to the exchange’s users for not having updated the terms of use for clients and communicated when this risk disclosure was added.

The lack of communication from the company, which is working on entering the Brazilian market, and the disappointing earnings results are still a matter of concern in the community. Even though Armstrong says there is no risk of bankruptcy, Coinbase shares on Nasdaq are down 85% since their launch on the Nasdaq exchange.

To ensure that cryptocurrencies are truly safe, members of the cryptocurrency community are stressing that Coinbase users withdraw their coins to self-custody wallets.

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