The controversy surrounding Coinbase (NASDAQ:COIN) has worsened as a result of the extreme market conditions that have been present for the past couple of weeks. The largest crypto exchange in the United States was recently forced to laid off as much as 18% of its workforce, and not in the most pleasant way. Furthermore, the company inadvertently admitted that customer funds would probably be lost in the event of bankruptcy.
“General unsecured creditor” -New definition of customer in Coinbase admits users may lose crypto if exchange goes bankrupt | Fortune https://t.co/hj8Q7zawwX— Kyle Keegan Radio (@kylekeeganradio) June 21, 2022
Indeed, Brian Armstrong, who bought a $133 million mansion in Bel-Air to celebrate the New Year, felt that “employee costs are too high to effectively manage”. As a result, 1,100 employees lost their jobs in the blink of an eye.
A tsunami of layoff announcements is coming. @Coinbase just announced 18% of its workforce or 1,100 employees.Across the broader economy this will probably be donzens of pages long. August will probably have negative payrolls and exploding CPI.A massive storm is upon us. pic.twitter.com/dLwJM0F6XKIt Hits the Fan on Social Media— Bitcoin (@Bitcoin) June 14, 2022
The fuss surrounding Coinbase on Twitter (NYSE:TWTR) and TikTok suggests something shady. According to one ex-worker on TikTok, Coinbase is facing a great deal of debt, and is getting ready to file for ‘Chapter 11’. This effectively means that management would be able to continue to run the company, but any major business decisions would have to be first approved by a bankruptcy court. Moreover, filing for Chapter 11 would likely result in the halting of all customer withdrawals, similar to what happened with Celsius just a week ago.
What Happens to Investor Money in the Event of Bankruptcy?
As “Coinbase bankruptcy” and “Coinbase scammed” trend on Twitter, many traders are starting to ask themselves how safe the money they invested on the top American crypto trading platform really is.
The earnings report that Coinbase declared on Tuesday highlights that the company holds $256 billion in fiat and crypto on behalf of its clients. The scariest part of the report is the disclaimer stating: “crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings”. In this scenario, Coinbase users would be rendered unable to access their funds, or even to request withdrawals.
FUD or not, the Situation is As Clear as Mud
To conclude, the situation is full of confusion, as claims surface that customer funds meet the criteria of being labelled “financial assets”, and should therefore be protected under UCC ‘Article 8′ in case of bankruptcy. Ironically, Coinbase’s terms of use state that all funds belong to the user, and are not transferred to Coinbase, “unless instructed by you”.
Legal/Coinbase twitter, I need input:Coinbase said in bankruptcy, the funds would be subject the proceedings, but creditors can’t claim the users digital assets since the title belongs to the user and does not transfer to Coinbase. How is that possible? Am I missing something? pic.twitter.com/Qw8hdUTFkb— (@kitteyandkat) June 14, 2022