The month of May was a volatile one for cryptocurrency. There were huge market crashes as well as the total collapse in LUNA, which caused a significant downturn to average trading figures. To add to this news, Coinbase’s recent financial reporting release doesn’t shine favorably on the decentralized exchange.
Many thought that this institution was too large to fail, with over 98million verified users and billions of controlled assets. Yet, things aren’t looking good for Coinbase, with their recent announcement suggesting that they may soon have to file for bankruptcy.
Even worse is the fact that Coinbase’s decentralized system lacks regulation. If Coinbase goes bust, then all the cryptocurrency money users have invested on it could also be at risk. 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.
Coinbase’s first quarter earnings were announced in May. They reported losses of $430 million and a drop in monthly users of almost 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.
What can I do to protect my cryptocurrency assets?
Ironically, cryptocurrency’s world is founded upon the principle of ownership and moving away from 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. The FDIC’s protection deposits protect users for as high as $250,000. This simply isn’t the case with crypto exchanges.
Users can access a variety of personal wallets, which allow them to transfer their exchange-centered wallets into a system that they’ll always be able to. Most of these wallets can be accessed online using browser extensions.
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. Browser extensions can also be dangerous because they don’t have the same regulation as other platforms.
Other services exist to make it easier for crypto-beginners to create and use their own wallets. Ambire is one example.
Ambire’s web applications are safer than browser extensions. They allow users to access multiple networks such as Avalanche and Polygon without any trouble.
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.
Anyone interested in investing in blockchain technology should consider the Coinbase case as a cautionary tale and take precautionary measures to protect their investment. 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.