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Coinbase warns that bankruptcy could wipe out user funds

  • 696 points
  • 13 days ago

  • @okasaki
  • Created a post

Coinbase warns that bankruptcy could wipe out user funds


@dehrmann 12 days

Replying to @okasaki 🎙

I'm going to get a few details wrong, but mutual funds and ETFs go to creative legal efforts to prevent this. Funds are usually independent entities that pay the fund house for management and marketing services. If the fund house goes under, it doesn't hold the assets in its funds, so fundholders aren't screwed.

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@calltrak 12 days

Replying to @okasaki 🎙

I had a couple of hundred dollars with coinbase and they were going to charge me 30% to get the money out. I thought to myself want a bunch of thieving cunts.

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@cm2187 12 days

Replying to @okasaki 🎙

It’s amusing for someone who works in finance to see the crypto market re-doing the last century of financial scandals and regulations in fast forward. Discovering capital gain taxes, market manipulations, the necessity to separate firm money from client money for brokers…

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@ur-whale 12 days

Replying to @okasaki 🎙

Not your keys ...

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@yrttq123 12 days

Replying to @okasaki 🎙

It's very unfortunate that the legal system doesn't have a way of saying: this asset is mine and I'm handing it over to you for safekeeping, but it is still 100% mine which means it cannot be used to payoff creditors in any circumstance whatsoever and can only be returned to its rightful owner, meaning me. It may be fungible, so that it can be shuffled around with assets of other customers, but that doesn't change the fact that the quantity of units I deposited still belong 100% to me.

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@noodles_nomore 12 days

Replying to @okasaki 🎙

Coinbase limits withdrawals in times when crypto crashes by removing the 'financial services' header in the settings where your connected bank accounts are listed. I don't know if they still do that, but I saw this as recently as a few months ago. You can still empty your account by going through the account deletion process. It will give you the option to sell all your crypto (and maybe to send it to a wallet, I don't know) and do a full withdrawal. Afterwards you can still stop the deletion process if you think you want to keep the account anyway (e.g. I was worried the transaction would somehow not complete and then not have access to the account).

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@mkr-hn 12 days

Replying to @okasaki 🎙

As someone without 250k in the bank (or generally), FDIC insurance is quite reassuring. Banks pay into it like any other insurance, so it would take a huge money-doesn't-matter-anymore shock to overwhelm it. 2008 was pretty close! Crypto wouldn't do any good for me since the utility bills for all the internet infrastructure are paid for with real money (in the "most people exchange it for goods and services" sense).

There'd be nowhere to go where even a paper wallet would do me any good. You could execute a 51% attack on a solar-powered NetBSD toaster.

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@bacan 12 days

Replying to @okasaki 🎙

So Coinbase is gonna be bankrupt pretty soon i guess

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@dqpb 12 days

Replying to @okasaki 🎙

If Vanguard went bankrupt, would customers lose all their stocks?

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@josephd79 12 days

Replying to @okasaki 🎙

Coinbase is the AOL of crypto.

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@smoyer 12 days

Replying to @okasaki 🎙

No surprise ... Use your own wallet!

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@monkeydust 12 days

Replying to @okasaki 🎙

Would this situation be same as FTX, Binance as far as we know?

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@AdamN 12 days

Replying to @okasaki 🎙

wut?

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@fullshark 12 days

Replying to @okasaki 🎙

If Coinbase goes bankrupt your crypto-coins will be worthless at least.

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@Havoc 12 days

Replying to @okasaki 🎙

That sounds suspicious to me.

In UK at least client money should be segregated especially in the context of custody assets. Really shouldn't enter the same pool of assets as Coinbase's office chairs in case of liquidation

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@vmception 12 days

Replying to @okasaki 🎙

Not your keys not your coins

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@jmyeet 12 days

Replying to @okasaki 🎙

This isn't an FDIC issue. This is an Securities Investor Protection Corporation ("SIPC") issue. The SIPC was greated almost 50 years ago to cover investors in a similar fashion to FDIC against the loss of custody assets in the case that a broker goes bankrupt. Like FDIC, there are limits.

The point here is that crypto isn't covered by the SIPC [1]. So the Coinbase disclosure (required by the SEC) is correct: there is no protection for your Coinbase custody assets in the cse of insolvency beyond being a general creditor.

This seems like a good thing for investors and customers to know.

[1]: https://www.sipc.org/for-investors/what-sipc-protects

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@prepend 13 days

Replying to @okasaki 🎙

Since coinbase isn’t FDIC insured, it makes sense that if coinbase goes bankrupt, the customer currencies will go away as well. And they aren’t SPIC insured in the situations where crypto is a security.

It’s funny to see people shocked (SHOCKED!) when crypto doesn’t have the protections of regular banking and investments. That’s why you don’t invest with stuff that isn’t insured. Those aren’t real rates, they are risk adjusted rates for not having insurance.

It’s fine to invest in these products, but scary because people aren’t doing due diligence and have unrealistic expectations.

The CEO’s statement that they won’t go bankrupt it just comical. Of course he thinks they won’t. Few bank CEOs think that. But real banks and brokerages have insurance for their customers in the rare situation that they go bankrupt.

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@_Algernon_ 13 days

Replying to @okasaki 🎙

This boils down to the "not your keys not your coin" mantra that's often repeated in the cryptocurrency community. It is possible to move your coins to your own wallet and manage them on your own. This comes with risks (eg. lost keys). Keeping them on exchange comes with different risks.

Anyone holding significant amount of cryptocurrencies should consider the risks of each choice, make an informed decision, and live with the risk that entails. If that's too scary, then you probably shouldn't be in this market.

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@monkey_monkey 12 days

Replying to @okasaki 🎙

Is the Coinbase Wallet safe to use? What would happen if Apple removed the app, would people lose access to funds stored in that wallet?

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@______-_-______ 13 days

Replying to @okasaki 🎙

https://nitter.net/brian_armstrong/status/152423348004071014...

In other words: We only disclosed these risk factors because we were legally required to. Please ignore our SEC disclosure and half-billion dollar quarterly loss, and instead trust my unregulated statements posted on Twitter. There are no risk factors, your money is safe, the music will never stop.

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@CyanDeparture 12 days

Replying to @okasaki 🎙

Can anyone tell me how to set up a wallet on my Mac in order to get my coins off coinbase. Is there any clear guide on how to do that. Every link on Google seems to be spam or downloading potentially malicious software.

It's very fustrating because so many people seem to know how to set up a wallet on their computer/Mac however I cannot for the life of me find a clear wallet to download and move my funds to or a guide on how to do it.

If I downloaded this - https://bitcoin.org/en/download - is that a way to do it? I can't download this in the UK, so is it safe to download it via a VPN and install it that way?

Thank you so much to anyone who sees this and replies.

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@tomcat27 12 days

Replying to @okasaki 🎙

is gemini on similar situation?

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@smoldesu 13 days

Replying to @okasaki 🎙

It's crazy that there are still people out there who will defend custodial wallets like this. Not you wallet, not your coins. It's as simple as that. These companies trying to take crypto mainstream are getting so much stuff wrong, it's no wonder they're losing customers and share value.

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@matt321 12 days

Replying to @okasaki 🎙

If people loose tons of cash in this fiasco, it will pretty much kill crypto

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@nathias 12 days

Replying to @okasaki 🎙

> That shouldn't happen.

Why? I have no problem with this. The problem is just if you're advertising that you'r safe etc. then when you lose it isn't just a loss, it's a scam. Most of the centralized crypto will hopefully be fully replaced with defi solutions in the near future.

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@theshrike79 13 days

Replying to @okasaki 🎙

I just moved all my crypto off Coinbase, just to be sure. Coinmotion seems to be a stable-ish option. At least they're not looking for hockeystick growth and aquisition.

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@anonu 12 days

Replying to @okasaki 🎙

The government only intends to erode confidence in crypto.

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@elpakal 12 days

Replying to @okasaki 🎙

Anyone want to invest whatever pennies they get on their Coinbase bankruptcy dollars on a new coin I just thought of? bankruptcoin - any coin exchange leftovers can be converted to coin and yolo’d.

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@vmception 12 days

Replying to @okasaki 🎙

Oh wow literal fear uncertainty and doubt! This is where I make my best trades because the information asymmetry is so high!

My favorite kind of dip

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@qgin 12 days

Replying to @okasaki 🎙

It’s frustrating when someone says “oh don’t worry about this legalese” when it suits them.

When the tables are turned, they have no problem using every inch of that legalese against you and to protect themselves.

If it doesn’t matter, don’t include it in the contract.

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@Ecstatify 13 days

Replying to @okasaki 🎙

Sensationalized title and that's from someone who doesn't even like crypto and thinks it's a scam.

Title: {Sensationalized title}

Intro: {Waffle}

Middle: {Sentence that gives context to sensationalized title}

Ending: {Facts & figures to legitimise article}

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@paulsutter 12 days

Replying to @okasaki 🎙

This is true for any brokerage account where you have margin enabled. Check your margin agreement carefully. Or better, disable margin on your brokerage account

“ people with margin accounts end up as just general creditors in any bankruptcy and recover only a fraction of their assets after some years in bankruptcy proceedings. During bankruptcy, their accounts are frozen and no transactions are allowed”

https://www.bogleheads.org/forum/viewtopic.php?t=20582

(sorry couldn’t find a better reference searching on my phone)

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@z9znz 12 days

Replying to @okasaki 🎙

> In the event the crypto exchange goes bankrupt, Coinbase says, its users might lose all the cryptocurrency stored in their accounts, too.

File this under "how to guarantee your customers flee as fast as possible".

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@krono 13 days

Replying to @okasaki 🎙

When a CEO requires 8 twitter posts[1] to essentially convey the message "Don't worry about this legal clause", it sort of has the opposite effect on me.

[1]: https://twitter.com/brian_armstrong/status/15242334800407101...

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@robinjhuang 12 days

Replying to @okasaki 🎙

This might have been mentioned already, but the more accurate comparison would be to stock brokers. Robinhood has SIPC insurance up to $500k in case they go bankrupt.

Crypto has no such insurance.

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@skizm 12 days

Replying to @okasaki 🎙

I feel like saying "We have no risk of bankruptcy" is the same as Musk saying "Funding secured" on Twitter. The statement is provably false and will directly impact stock price.

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@tu7001 12 days

Replying to @okasaki 🎙

I don't understand why Coinbase have troubles, Crypto has arisen a lot, so the should have great interests.

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@floatinglotus 13 days

Replying to @okasaki 🎙

It will amusing if people who bark all day about decentralized currencies lose a bunch of money because they still wanted the benefits of a centralized bank to hold their magic coin purses.

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@mrjin 13 days

Replying to @okasaki 🎙

Wasn't the exchange that stole the user funds?

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@_nhynes 12 days

Replying to @okasaki 🎙

Now the real question is whether bankruptcy would topple USDC since Coinbase is one of the major backers [0]. It's holding steady right now, but so was UST a few days ago. USDC has $48B supply and is propping up DeFi apps on many other networks (just look at AAVE [1] and Curve [2], two multi-chain protocols), so if it falters, there could be massive fallout.

[0]: https://www.centre.io/usdc

[1]: https://app.aave.com/markets/?marketName=proto_mainnet

[2]: https://curve.fi/pools (search USDC)

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@FYYFFF 12 days

Replying to @okasaki 🎙

I have been trying, unsuccessfully for 2 years to validate my account on Coinbase. I have over 100k in ETH stored in their wallet, have the highest levels of access to their services but CANNOT trade because they have NO HUMANS available. Their systems DO NOT work and there is NO contact info nor any way to actually reach a person.

So I have been trading with others and will never use CB for anything but cold storage. (Which they're great at)...

The company is the worst I have ever dealt with. There is no way to interact with a person. So if something does happen, you have NO RECOURSE.

Based on my experience, they will be bankrupt. This is a certainty. You cannot have a financial entity that has ZERO human interaction or service. No trust, none at all...

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@Barrera 13 days

Replying to @okasaki 🎙

Also read the fine print about the "insurance" Coinbase carries against loss of bitcoin through an attack. It's limited to the hot wallet only. Cold storage is not insured.

In other words, the insurance is probably worthless. People with the good sense to realize that Coinbase is not a bank in any sense of the word are unlikely to be affected.

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@lamontcg 12 days

Replying to @okasaki 🎙

Coinbase popping and everyone with their funds/crypto still there gets ruined is probably in my top 5 signs that the crypto apocalypse is nigh and the Ponzi ends.

I still expect that the current downturn reverses later this year, and Coinbase isn't popping yet they're just having to disclose that risk. But given a real melt down in the broader economy and something like commercial mortgage backed securities popping, I expect that Coinbase would melt down.

Even though I'm not as negative as everyone else over current conditions, it is probably time to seek shelter (or that if there is a bounce later this year it is probably a profit taking opportunity before the crash)

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@Animats 12 days

Replying to @okasaki 🎙

Yes.

Do not keep funds in "hosted wallets" for more than a day or two.

Of course, Coinbase wants you to keep your money with them, so they can dip into your funds. Do they offer a service where funds in your Coinbase account sweep daily into a non-hosted wallet of your choice? No? How about that.

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@tfang17 12 days

Replying to @okasaki 🎙

This is standard verbiage in financial docs of this sort

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@bagels 12 days

Replying to @okasaki 🎙

This was all I needed to take all my coins out and put them in my own wallet. Bye, Coinbase!

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@usrn 13 days

Replying to @okasaki 🎙

I've been messing with crypto long enough to know how this goes and my coins are already in a local wallet.

Coinbase had a good run but don't be stupid. Crypto exchanges aren't insured like consumer checking accounts are in the US and when they're gone they're gone. Geth isn't hard to set up for most of us, it took me about 20 minutes to have it up and running after not using a local wallet for nearly a decade.

Remember to write down your password (I can't emphasize that enough. I'd be retired by now if I had done that with the wallet I made in 2011) and back up your wallet. I keep mine in git.

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@halukakin 12 days

Replying to @okasaki 🎙

When you buy BTC using coinbase do you really have a wallet somewhere, do you really buy BTC? Or does coinbase allocate BTC to you from its own BTC holdings?

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@pbmango 12 days

Replying to @okasaki 🎙

This conversation is especially interesting given the FDIC is probably the most decentralized component of traditional financial infrastructure.

It has cost taxpayers effectively nothing and rests on mutual insurance across the system. Yes there is a line of credit to the Treasury but the overall security it has provided for 70 years is probably hard to measure compared to the Fed buying/selling activity. I know there are probably teams working on this for crypto already (without the law mandate).

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@runjake 12 days

Replying to @okasaki 🎙

You should move your crypto out of Coinbase or any other exchange's wallet into your own cold wallet.

In Coinbase's case, you can move that crypto to any wallet, including Coinbase's Coinbase Wallet app, where you have possession of the private key and should still have access to those funds if CB were to go south.

But yeah, welcome to the world of currency not backed by guns, so to speak.

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@skilled 13 days

Replying to @okasaki 🎙

Wait, can someone explain to me why they would explicitly announce it like this? This almost sounds like they're expecting to go bankrupt, or have plans to close the platform.

In the last 7 days they have lost over 50% value, and dropping a news bomb like this is only going to make it worse, isn't it?

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@Taylor_OD 12 days

Replying to @okasaki 🎙

So best practice is to continue to hold your coin in a personal wallet and move to an exchance like coinbase when you need to sell?

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@corydori 12 days

Replying to @okasaki 🎙

Coinbase is such a shit company...My interactions with them have been absolutely awful. The ended up trying to use a AMEX gift card attached to my papal to buy some crypto, got no error but the funds never went through. Apparently they didn't like that transaction and was flagged as fraud. I was told I can't open a support ticket or have it reviewed for 2 months, "they can't disclose the reasoning behind this." So I had to dump everything I had built up in that account into USD and withdraw it.

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@tim333 12 days

Replying to @okasaki 🎙

>in the event it ever declared bankruptcy, “the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings.” Coinbase users would become “general unsecured creditors,”

That's terrible. Coinbase act very much like stockbrokers but with crypto instead of stocks and should segregate client funds the same way. If you deposit a 1000 Apple shares say with eTrade and they go bust the Apple shares are still yours and can't be taken to pay eTrades debts - that's how it should be. Otherwise it's just asking for the brokers to legally steal your investments by paying themselves huge bonuses and then saying oops, we're broke.

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@aunterste 11 days

Replying to @okasaki 🎙

That is why 'custodial' crypto is not better than a bank account, it's worse by the prevailing FDIC insurance coverage.

On the other hand, retail customers can't be trusted with their wallet keys..

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@chollida1 12 days

Replying to @okasaki 🎙

Those of us who were around in 2008 remember when Lehman went bankrupt.

In that case they were the custodian for hedge funds assets. Lehman held those assets, in some cases because the British government force them to.

This really caused 2008 to spiral as now hedge funds that were perfectly fine got locked up and had to pull assets from the market due to Lehman holding their assets which caused even more selling and the feed back loop continued as funds sold their best assets first(think the Microsofts of stock world).

A coin bankruptcy would be the same thing, retail probably doesn't matter too much but if COIN held institutional funds, those guys do need to have liquidity for redemptions. This would mean alto of sell pressure on other exchanges and would lead to the best and highest quality crypto assets getting hammered down as funds fled to cash/stable coins.

Solana would probably crash and then shut down the network, even though they still try to claim they are a decentralized network:)

ETH and BTC would see very sharp drops in the first few days and then bounce back as people need to put money somewhere.

DEFI would feel this sell pressure and have alot of failings due to liquidity pools bein drained in this rush to quality. At best they'd get shutdown, at worst they'd just fail and go away.

You'd also expect the algo based stable coins to break the peg, even the well collateralized DAI would probably break.

Tether would probably continue on just fine as that's probably what most institutional funds would go to and I've given up on trying to predict its demise,

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@etimberg 12 days

Replying to @okasaki 🎙

I wonder if this will cause them to go bankrupt because users get scared and leave. Just like Bear Stearns in 2008

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@0daystock 12 days

Replying to @okasaki 🎙

FDIC doesn't even have enough funds to cover 1.3% of all deposits. Consider that before assuming your investments are protected.

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@paulpauper 12 days

Replying to @okasaki 🎙

lol I guess the Superbowl ad was not so smart and a harbinger of things to come. For 2023 I guess we can look forward to no more crypto ads.

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@sizzle 12 days

Replying to @okasaki 🎙

Bright red flag that screams “not your keys not your coins”

Pull out all your funds into your own wallet

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@Taylor_OD 12 days

Replying to @okasaki 🎙

To clarify, this means just the crypto stored on their website but not in their wallet?

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@dasz 12 days

Replying to @okasaki 🎙

If your crypto isn't actually in your own wallet you are really just someone's creditor.

The whole point of crypto wallets is that you don't need such central businesses to hold your cash.

Then again there's all sorts of benefits so there's a tradeoff.

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@daniel-cussen 12 days

Replying to @okasaki 🎙

Oh so they're doing the goldsmith does when he realizes he always had a baseline amount of gold in the vault no matter to whom it belonged?

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@mathieubordere 12 days

Replying to @okasaki 🎙

Maybe today is the day this charade comes to an end.

edit: Premarket Coinbase value drops -26.70% now

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@stjohnswarts 12 days

Replying to @okasaki 🎙

So why don't people also keep their wallet keys somewhere in their homes as well? That's all you need to access your funds, coinbase is just a convenience. To do otherwise seems insane especially if you have more than $1000 in there.

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@alex_suzuki 13 days

Replying to @okasaki 🎙

Not your keys, not your coins - indeed!

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@tomrod 12 days

Replying to @okasaki 🎙

I put $200 into a coinbase account (my second go at crypto) at the first "peak" of bitcoin, more or less to teach myself to not invest in hype and to monitor the hype cycle over time.

It's been very interesting to follow this over the recent peak. Coinbase probably doesn't settle each transaction immediately, since Bitcoin and several other cryptocoin transactions per second are still low, instead using internal accounting to satisfy the counterparty transaction.

Fun times. Good luck to Coinbase, they may have just triggered a run!

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@jo6gwb 12 days

Replying to @okasaki 🎙

Here's a great analysis for why Coinbase and other exchanges with similar legal structures pose a risk to customers should the exchange ever declare bankruptcy.

https://www.creditslips.org/creditslips/2022/02/what-happens...

TLDR: In bankruptcy, it is likely to be treated as a debtor-creditor relationship, not a custodial (bailment) relationship.

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@ck2 12 days

Replying to @okasaki 🎙

Brings back really bad memories of Crypty, lost so much to their stupidity and then missed out on the settlement.

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@talhof8 13 days

Replying to @okasaki 🎙

So much for 'read + write + own'

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@la_fayette 12 days

Replying to @okasaki 🎙

What is the point in using coinbase anyway? It is just an expensive place to buy crypo assets, I don't get the value proposition, since you have so many cheaper and simpler places to buy crypto...

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@mdoms 12 days

Replying to @okasaki 🎙

Wait if Coinbase users don't control their own wallets then how do they spend their bitcoins?

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@nunez 12 days

Replying to @okasaki 🎙

mtgox redux

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@marban 12 days

Replying to @okasaki 🎙

Shareholder letter that ends with #wagmi. GTFOH

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@civilized 12 days

Replying to @okasaki 🎙

Remind me what is the point of holding cryptocurrency again?

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