America’s largest cryptocurrency exchange is in danger of bankruptcy
Coinbase is the largest US cryptocurrency exchange in terms of trading volume. (Image: Getty)
Yesterday, Coinbase’s share price dropped more than 27%, after the company first detailed the risk it was facing in a report to the US Securities and Exchange Commission (SEC).
“As crypto assets held on behalf of clients may be considered liquidated assets in the event of a company bankruptcy, crypto assets that we hold on behalf of clients may be subject to bankruptcy proceedings and clients customers may be treated as unsecured creditors,” the report said.
If deemed “unsecured creditor,” Coinbase customers may not be able to get their digital currency or cash equivalents back if the company goes bankrupt.
Coinbase said that as of the end of March, it was holding $256 billion in fiat and cryptocurrencies on behalf of customers.
This report caused panic among investors, prompting the company’s director to explain on Twitter to reassure the public.
Brian Armstrong, Coinbase CEO, told clients that their funds “remain safe.”
“We are not at risk of bankruptcy, but we are still including a new element of risk in the reporting required by the SEC for listed companies holding third-party digital assets,” Armstrong wrote. on Twitter.
Last month, the SEC issued new guidelines requiring crypto exchanges like Coinbase to include customer assets and liabilities on their balance sheets.
Previously, cryptocurrency exchanges did not include client assets in their reports. The SEC says updated guidance is needed as regulatory “uncertainties” in the crypto industry are largely unregulated.
Besides, Coinbase’s Q1 revenue was much lower than Wall Street investors expected. The company lost $430 million during this period and noted a drop in trading volume.
The drop in Coinbase stock price coincided with a downward trend in the prices of bitcoin and other leading cryptocurrencies.
Bitcoin price just dropped more than 3% to $29,978, marking the first time the coin has slipped below the $30,000 mark since July 2021.
Ether fell more than 7% to $2,203, while Solana also dropped more than 25% to $52.25.
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