The Q1 2022 earnings report by crypto exchange Coinbase was released on May 10. It did little to calm the market’s volatile mood.
The net revenue fell 53% to $1.165billion from the prior quarter and it suffered a loss of $430m. This was attributed to lower trading volume, which Mizuho analyst Dan Dolev said was due to crypto winter’s early arrival.
“Crypto winter is early and temperatures are falling fast,”
The largest US exchange saw shares drop 44% as investors accepted the worst performance.
In April 2021, Coinbase made its Nasdaq debut. The mainstream TradFi launch was meant to usher in a new era. It achieved a first-day closing value of $328.28. However, $COIN trades 78% lower than its debut closing price a year later.
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Some investors were also surprised to find a bankruptcy disclosure statement within the report. Customers could be considered unsecured creditors and may not receive their funds back if the company goes under.
What is the truth about bankruptcy?
Sophia Zaller, Crypto Underwriter at Relm Insurance called the bankruptcy disclosure a red flag. She also signed off the tweet warning Coinbase customers to transfer their funds off of the exchange.
According to the specific language, customers’ funds could be considered property of a bankrupt estate. If the company goes bankrupt, these funds may be subject to bankruptcy proceedings. Customers could then be classified as unsecured creditors.
“Custodially-held crypto assets could be considered the property a bankrupt estate. In the event of bankruptcy the crypto assets we have in custody for our customers could become subject to bankruptcy proceedings. Such customers could then be treated as our generalunsecured creditors.”
Entities owed money in the event of a bankrupt firm are paid in accordance with Section 507 of Bankruptcy Code. Secure creditors are first, followed by unsecured creditors and stockholders.
Coinbase is too big for failure?
Last crypto winter saw a number of crypto companies go bust due to the extreme trading conditions.
Coinnest was South Korea’s third largest exchange. This was the most notable example. Coinnest released a statement stating that its closure was due to a drop in trading volume.
The warning signs are obvious with Coinbase’s trading volume dropping 40% in the first quarter. However, Coinbase is too large to fail?
Coinbase bankruptcy triggers warnings to move cryptocurrency off exchanges CryptoSlate
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