Leading U.S. cryptocurrency exchange Coinbase recently released its earnings report for the first quarter of 2022, netting a total loss of about $430 million within the period.
Coinbase New Disclosure Filing
In the earnings report, the exchange filed a new disclosure dubbed SAB 121 with the U.S. Securities and Exchange Commission (SEC), which is centered around how the company holds crypto assets for investors.
The new disclosure raised concerns among Coinbase users. According to the filing, the company could treat its customers as a “general unsecured creditors,” meaning users might lose the assets in their accounts in the event of a bankruptcy.
Coinbase Has No Risk of Bankruptcy
However, Coinbase CEO Brian Armstrong reassured users that the exchange has no risk of bankruptcy while promising that customers’ funds are safe.
Armstrong noted the disclosure is part of the SEC’s new requirement for public companies that hold crypto assets for third parties.
2/ We have no risk of bankruptcy, however we included a new risk factor based on an SEC requirement called SAB 121, which is a newly required disclosure for public companies that hold crypto assets for third parties. https://t.co/lwmgb1kFtA
— Brian Armstrong – barmstrong.eth (@brian_armstrong) May 11, 2022
The Coinbase boss also noted that while there are terms of service protecting Coinbase Prime and Custody users and their investments, retail users do not have a similar protection. Notwithstanding, the CEO mentioned that the company is making moves to update the terms of service to accommodate retail users’ protection.
Armstrong apologized to customers for not making the development sooner and also for not taking the initiative to communicate when the risk factor section was included in the quarterly report.
“This disclosure makes sense in that these legal protections have not been tested in court for crypto assets specifically, and it is possible, however unlikely, that a court would decide to consider customer assets as part of the company in bankruptcy proceedings even if it harmed consumers,” he said.