Coinbase validated the industry and brought cryptocurrency into the mainstream when it went public and started trading on the Nasdaq. After all, publicly traded companies are regulated by the SEC, which is exactly the kind of federal oversight that distrustful mainstream investors had maintained all along.
However, on May 11, Coinbase’s first quarter earnings report revealed staggering losses of nearly half a billion dollars and a 19% drop in monthly users. A sell-off followed, battering Coinbase even further.
The report was followed by an announcement that stunned the industry.
If the exchange goes bankrupt, Coinbase explained, the cryptocurrencies stored in its user accounts could be subject to bankruptcy proceedings. Their owners would be treated like general unsecured creditors – and unlike cash, crypto is not FDIC-insured.
In other words, they could lose all their cryptocurrencies, no matter how well those cryptocurrencies performed, simply because the exchange holding them went bankrupt.
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