Coinbase validated the industry and brought cryptocurrency into the mainstream when it went public and began trading on the Nasdaq. Publicly traded companies, after all, are regulated by the SEC, which is exactly the kind of federal oversight that leery mainstream investors had been holding out for all along.
On May 11, however, Coinbase’s first-quarter earnings report revealed stunning losses approaching a half-billion dollars and a 19% drop in monthly users. A selloff ensued, 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 as general unsecured creditors — and unlike cash, crypto is not FDIC-insured.
They could, in other words, lose all of their cryptocurrencies no matter how well those cryptocurrencies performed simply because the exchange that held them went bankrupt.
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