LOOMING DANGER? ASSETS ON COINBASE NOT SAFE??
Retail crypto investors, already reeling from recent losses, were additionally shocked this week to learn that should Coinbase or one of the other exchanges go bankrupt, the assets in their accounts may not be safe.
In a worst-case scenario, investors who keep their tokens at Coinbase would have to line up with all the other creditors to get whatever portion of their investments is left.
The company insists they only made this disclosure because of a new SEC regulation ; “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” CEO Brian Armstrong tweeted.
He assured people that only a “black swan” event ( unpredictable or unforeseen event, typically one with extreme consequences) could even trigger such conversations, but he admits that bankruptcy courts could decide to treat its customers’ crypto investments as part of the company’ assets.
With Coinbase stock down 71% on the year, however, and black swan events occurring on what feels like a weekly basis at this point, that’s not so reassuring.
Not when crypto is supposed to be a safe haven, like gold, in addition to being an insanely hot sector for speculation. (How can it be both, you ask? Yeah, that’s part of my point.) Many industry analysts are suggesting that Coinbase is already trading as if it is about to “burn through all its cash.”
Now the million dollar question begging to be answered is if Coinbase or one of the other big exchanges goes bankrupt, will customers lose their savings? Probably not.
Bankruptcy courts would likely put civilians who invested their own cash in the front of the line, and prioritize making them “whole.” But retail investors using the big exchanges should understand that they’re not really users of the blockchain, nor are they protected in any of the ways the blockchain was invented to allow. They don’t have wallets; they have accounts inside a big corporation’s wallet.
Currently, many investors are letting the exchanges “stake” their coins for other people’s transactions. This is a great way to earn the equivalent of interest on one’s account , but it puts them even further in bed with the company, as a co-investor in something else.
Not to lie , I feel bad for these investors if they get screwed, but maybe it’s the only way for people to learn what the blockchain is and isn’t for.
The blockchain came out of the same drive that brought us Occupy Wall Street. The idea was to be able to authenticate transactions without big institutions. We were looking for ways to enable the exchange of value between people without having to “pay up” to greedy banks for the privilege.
Our interest-bearing central currencies are issued under the condition that more money be paid back to the bank than was borrowed in the first place. This means the economy has to grow, just to pay the billionaire bankers issuing the currency, as well as the financial institutions gaming that system.
The blockchain was intended to give individuals direct access to a robust alternative means of transaction and authentication, as well as an ironclad safe personal “wallet” in which assets could be safely stored .
However, since all these wallet and token stuff required a full day of research to understand, most people interested in tokens have chosen to go to one of the “exchanges” to invest in coin.
That’s why the apparently imminent collapse of Coinbase and, presumably, some of the other big exchanges may actually be good news for the longterm health of the blockchain economy.
First, it will flush out the speculators who are more interested in making money with money than increasing the utility value of money for those of us who actually want to use it exchange value as efficiently and independently as possible.
Second, and maybe more importantly, it may mean that people are coming to learn enough about crypto and how to use it.
Just like American Online users venturing out of the walled garden onto the real Internet world in 1999, maybe crypto users are ready to step outside the speculative walled garden exchanges, install their own wallets, and see what the fuss is really about. Thanks For Stopping By!!
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