Zerodha co-founder Nithin Kamath has sounded the alarm for Indian cryptocurrency investors as new risk factor disclosure by Coinbase stirred panic amongst all crypto stakeholders.
"Coinbase latest filing: Customer assets could be at risk in case of bankruptcy," Kamath tweeted on May 11, adding that the Indian crypto investors on exchanges also need to be aware of this risk.
"Unlike the stock market where stocks are held in a demat with a depository & have no broker risk, crypto with exchanges carry a risk," he said.Coinbase in its latest filing, said that - in the event of bankruptcy - crypto assets held by the exchange could be considered property of the bankruptcy proceedings and customers could be treated as unsecured creditors. An unsecured creditor would be one of the last to be paid in any bankruptcy and last in line for claims.
Coinbase latest filing: Customer assets could be at risk in case of bankruptcy. Indian crypto investors on exchanges also need to be aware of this. Unlike the stock market where stocks are held in a demat with a depository & have no broker risk, crypto with exchanges carry a risk
— Nithin Kamath (@Nithin0dha) May 11, 2022
Coinbase CEO Brian Armstrong has clarified that the disclosure did not indicate the largest US cryptocurrency exchange faced a bankruptcy risk, and it had been made to meet a regulatory requirement.
"We have no risk of bankruptcy," Armstrong said on Twitter after the disclosure. He said it was unlikely that "a court would decide to consider customer assets as part of the company in bankruptcy proceedings" although it was still possible.
Coinbase would take further steps to ensure it offered protection for its retail customers, Brian Armstrong said.
"We should have updated our retail terms sooner, and we didn't communicate proactively when this risk disclosure was added," he said. "My deepest apologies."
Coinbase has lost half its value in the past week, including its biggest one-day drop ever on Wednesday as the famously volatile crypto market weathers yet another slump.Coinbase reported a $430 million net loss in the first quarter, or $1.98 per share, on declining sales and active users.