Coinbase Is on a Downwards Spiral and Could Be Taking your Crypto with It
May 23 2022 - 1:44PM
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May has been an explosive month for cryptocurrency, with huge
market crashes and the complete collapse of LUNA causing a massive
downturn in average trading figures. To add to this news,
Coinbase’s recent financial reporting release doesn’t shine
favorably on the decentralized exchange. With over 98 million
verified users and billions in controlled assets, many thought of
this institution as simply too big to fail. Yet, things aren’t
looking good for Coinbase, with their recent announcement
suggesting that they may soon have to file for bankruptcy. To make
matters worse, due to the lack of regulation within decentralized
systems, if Coinbase fails, all of the money on the platform that
was invested by users into cryptocurrency may also be hanging in
peril. This could technically mean that millions of Coinbase users
around the globe may lose access to all of the money they’ve
invested in cryptocurrency. A huge part of what’s causing this
situation to spiral so quickly is the fact that the US government
has not had to deal with a cryptocurrency exchange going bankrupt,
meaning a whole plethora of financial and legal questions have
begun to arise. Commenting on this possibility, a Georgetown
University law professor that specializes in bankruptcy, Adam
Levitin, speculated, “What happens to a customer if an exchange
files for bankruptcy?” Going on to answer his own question, “It
ends very badly for customers.” Levitin’s comments further add to
the general sense of unknowing, with several experts all having
different opinions. Although Brian Armstrong, the CEO of Coinbase,
said on Twitter that user’s funds would be safe, there is actually
very little clarification around if this is true, and the extent to
which users would be able to sell or transfer their funds if the
whole exchange where to go bust. This situation became even more
drastic earlier in May, when Coinbase announced its first-quarter
earnings for 2022, with over $430 million in losses and a monthly
user drop of nearly 19%. Following their earnings report, Coinbase
stated that “the crypto assets we hold in custody on behalf of our
customers could be subject to bankruptcy proceedings.” Much like
Levitin speculated in April, this would mean that users become
unsecured creditors, essentially losing any right to claim their
own invested money if the company were to officially file for
bankruptcy. How Can I Secure My Cryptocurrency? The world of
cryptocurrency is (rather ironically, in this case) founded on the
principles of ownership and moving beyond centralized systems.
While this offers a huge range of benefits, it also means that
cryptocurrency exchanges are not secured by the FDIC’s protection
deposits. Normally, if a banking system were to fail, its users are
protected for up to $250,000. This simply isn’t the case with
crypto exchanges. There are a range of personal wallets that users
can turn to, transferring their exchange-centered wallets to a
system where they will always have access. The vast majority of
these wallets are accessed by using a browser extension, providing
an easy way of accessing them when online. However, many users that
haven’t used a personal wallet before may find this process
confusing, especially when trying to transfer their funds from an
exchange. Equally, browser extensions are notoriously unsafe, as
they lack a large amount of regulation that other platforms have to
surpass. Due to the mix of ease and providing a more secure way of
holding your cryptocurrency, other services have arisen that aim to
provide crypto-beginners with a more straightforward way of
creating and using a personal wallet. Ambire is one of these. By
creating a web application, Ambire has none of the same security
risks as a browser extension, providing users access to multiple
networks like Ethereum, BSC, Avalanche, Polygon, and more without
any hassle. If you’re looking to rapidly transfer your
cryptocurrency funds off major decentralized exchanges and onto a
personal wallet, then services like these are by far the easiest
way of doing so. Equally, once you’ve collected all of your
cryptocurrency, NFTs, and other digital assets from across the
different DEXs that you’re using, you’ll then have one go-to
location where you can get an overview of everything. Not only does
getting a personal digital asset wallet ensure that your funds are
safe if the DEX that you’re using goes bankrupt, but it also boosts
the convenience of crypto and NFTs, having absolutely everything in
one location. Final Thoughts While the decline of Coinbase is a
point of worry for cryptocurrency investors, this event has also
made investors around the globe realize that they need to be more
careful about how and where they’re storing their digital assets.
No matter how much someone has invested into cryptocurrency, if
they’re doing that investing from a wallet hosted on a
decentralized exchange, then their accounts will be treated as
collateral of the service they use. Those interested and invested
in blockchain should take the case of Coinbase as a warning and
start to take preventative measures to secure their investments. By
opening up a personal wallet, you’ll be able to have complete
ownership of any investments that you make, ensuring that your
money stays in your wallet and in your control.
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