The cryptocurrency exchange Coinbase said that users might lose their investments if the company ever experienced bankruptcy.
Coinbase said in its Tuesday first-quarter earnings report that any assets that may be left with the company would be at risk if it went bankrupt. This statement was released at about the same time that several cryptocurrencies saw their value drop significantly.
"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," the company said.
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This would mean users would lose access to their balances due to the contents becoming Coinbase's property.
This revelation, combined with a quarterly loss of $430 million and a 19% drop in monthly users, appears to have had a detrimental effect on the company's stock. The value of Coinbase stock dropped more than 23% on Wednesday, reflecting a growing distrust among users. The company also reported that users were having "issues trading and accessing accounts on Coinbase and Coinbase Pro" Thursday afternoon and assured customers their funds were "safe."
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Coinbase CEO Brian Armstrong attempted to emphasize on Tuesday that the company is not at risk of bankruptcy in the immediate future. He also apologized for not disclosing the risk earlier.
Coinbase's quarterly report arrived right as several cryptocurrencies have crashed in value. Bitcoin, Ethereum, Luna, and several other cryptocurrencies have seen their value drop significantly in the last few weeks. This has led to investors losing hundreds of millions of dollars in value and creating significant unrest in the crypto markets.