crypto goalsCoinbase suffers a major outage and warns customers they may lose crypto if the company goes bankrupt

Coinbase, one of the largest cryptocurrency exchanges, released its first-quarter earnings report on Tuesday, (11th May) 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."

Shares plunged more than 27% Wednesday after Coinbase detailed the risk for the first time in an SEC filing – prompting a panicked response that led the company’s boss to address the situation on Twitter.

"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 custodial 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 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.

Last month, the SEC issued new guidance instructing crypto platforms such as Coinbase to begin including customers’ crypto holdings as assets and liabilities on the company’s balance sheet.

In the past, cryptocurrency exchanges would leave customer assets off their reports, mirroring the practice followed by publicly traded brokerages. The SEC said the updated guidance was necessary due to legal “uncertainties” in the mostly unregulated crypto sector.

The Cryptocurrency Market Dropped More than US$200B 

Meanwhile, Coinbase’s first-quarter revenue fell far short of Wall Street’s expectations. The firm posted a loss of US$430 million during the period and noted a decline in trading volume. The plunge in Coinbase’s share price occurred alongside a steep drop in the value of bitcoin and other leading cryptocurrencies. The price of bitcoin sank more than 3% to US$29,978.70. The latest downturn marked the first time bitcoin has fallen below the US$30,000 threshold since July 2021. Ether was down more than 7% to US$2,203.64. Solana was also down more than 25% to US$52.25.