New Coinbase Disclosure Reminds Bitcoin & Crypto Owners: 'Not your Keys, Not your Coins'
Major crypto exchange Coinbase has issued a new disclosure regarding the legal claims of retail users in the event of a bankruptcy event.
In simple words, the disclosure to the US Securities and Exchange Commission (SEC) declared that Coinbase would have the right to hold crypto assets of its retail users as property of the bankruptcy estate, should the company file for bankruptcy.
"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 disclosure read.
The disclosure in the 10-Q file, a report that all public companies must submit to the SEC after the end of their first three fiscal quarters, came along with the company's earnings report for the first quarter.
Some crypto users noted that the disclosure is a strong reminder of the well-known saying: "not your keys, not your coins." The expression highlights the need to own the private keys associated with your funds.
"Bitcoin exchanges represent third parties that are single points of failure that can succumb to human error, hacks, and government coercion," said crypto enthusiast and writer Marty Bent, adding that:
"You should eliminate this third party risk by taking control of your wealth by holding your own keys."
Meanwhile, Coinbase CEO Brian Armstrong addressed the newly added clause in a series of tweets, saying that they added the disclosure because of the new SEC rule. He ensured users that all funds are safe and that the company is not on the brink of bankruptcy.
"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," Armstrong said.
Armstrong claims that the disclosure makes sense given that such legal protections have not been tested in court for crypto assets particularly. He added that it is unlikely that a court would deem user property as the property of Coinbase, but still possible.
Proponents of self-custody argue that it is necessary for users to take possession of their private keys because that's why Bitcoin was created in the first place: to remove the need for third parties and intermediaries.
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