Thread: Coinbase
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Old 17 May 2022, 03:23 AM   #28
HHIslander
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Join Date: May 2020
Real Name: Henry
Location: USA
Posts: 4,148
Quote:
Originally Posted by 77T View Post
I agree nothing is exactly the same as the Coinbase case. BTW, see the 10Q
https://d18rn0p25nwr6d.cloudfront.ne...067ab1016c.pdf

Page 83 is a hoot - “Moreover, 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 may result in customers finding our custodial services more risky and less attractive and any failure to increase our customer base, discontinuation or reduction in use of our platform and products by existing customers as a result could adversely impact our business, operating results, and financial condition.”

I think some parallels with Mt. Gox are no regulation, ability for bad actors to rob value, uninsured accounts, no effective risk management to protect depositors, plus a few others.

IMHO, there are also some signals we saw in Lehman. Some parallels are regulators lagging the creative marketeers, uninsured accounts, future derivatives risks*, unbacked deposits**, plus undisclosed holdings.

* Coinbase is acquiring FairX, a CFTC-regulated derivatives exchange.
The acquisition is a key stepping stone (per Coinbase) on the path to offer crypto derivatives to retail and institutional customers in the US.
This is an important step toward Coinbase ultimately making the derivatives market accessible to our millions of customers through an industry-leading, simplified user experience. https://blog.coinbase.com/coinbases-...t-a1dc71577337

** See the Annual Report, and the March 10th 10Q I cited.

I should probably clarify that I am not a BTC or any other crypto fan and would never advise anyone to buy it under any circumstances nor would I ever suggest COIN is a good investment. I've never touched any of it, other than COIN puts. I am arguably the most anti-crypto person I know.

The big parallel with Gox exists if one believes there is a security risk involved. If Gox had good security, they would be Coinbase.

Coinbase can't use the coins that it stores for customers as leverage or collateral. They aren't insured like banks because banks can invest customer deposits in other securities/etc, to an extent. All Coinbase can do is store them like gold in Fort Knox. It really isn't like Lehman all that much but I can see some of your comparison in terms of the environment and risks if they go too deep into the derivatives area and the wrong type of derivatives. That's definitely not a good sign at all. When they IPO'd, they had no interest or investments in derivatives.

All this being said, the OP asked if it was going to go down (bankrupt). COIN has very strong income/cash flow and a share of the market that is arguably impenetrable barring some security breach, extreme management blunder or other huge catastrophe. Highly unlikely it will go down, but it is possible.

And yes, if COIN went bankrupt, the customers could theoretically lose their crypto if they were liquidated. But no one is going to let them liquidate, they are too big. They'll get bought out first. Absolute worst case, chapter 11. Not to mention customers will pull their crypto out long before a liquidation would happen.

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