Coinbase CEO Brian Armstrong Details Crypto Bankruptcy Risks if Black Swan Event Rocks Crypto Markets

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Coinbase CEO Brian Armstrong is assuring investors the crypto exchange is not facing bankruptcy risks amid concerns over the firm’s latest 10-Q filing.

The 10-Q form filed by Coinbase with the Securities Exchange Commission (SEC) on Tuesday includes a bankruptcy risk factor disclosure that says in case of business failure, the crypto assets that the exchange holds for its users may be subject to bankruptcy proceedings.

“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.”

In response to concerns brought in by the contents of the 10-Q form, Armstrong tells his Twitter followers that Coinbase is not on the brink of financial collapse and the disclosure was added in compliance with a new SEC requirement.

“There is some noise about a disclosure we made in our 10Q today about how we hold crypto assets. Tl;dr [too long; didn’t read]: Your funds are safe at Coinbase, just as they’ve always been.

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.”

Armstrong also explains the importance of the bankruptcy risk factor disclosure.

“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 proceeding even if it harmed consumers.”

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