Coinbase Faces No Risks of Bankruptcy Despite Market Crash and Disappointing Q1 Results, Says CEO

Following recent events in the crypto market, Coinbase CEO Brian Armstrong has put customers’ minds at ease by reassuring them that the US crypto exchange currently has no risk of bankruptcy, as some feared.

Coinbase Posts Worse Than Expected Q1 Earnings

As reported earlier, Coinbase shares (COIN) fell by 16% in after-hours trading on Tuesday after the company released a worse-than-expected Q1 earnings report.

The exchange suffered a 44% drop between January and March, which led to a net loss of $430 million during the period. The Q1 results saw the company’s year-to-year revenue drop 35% to $1.16 billion from an expected $1.5 billion.

With Coinbase deriving more than 85% of its revenue from crypto transactions, the company said the poor Q1 earnings report was caused by the falling crypto markets and the increased volatility since the start of the year.

Coinbase Files New Disclosure

In its Q1 report, the leading US crypto exchange mentioned a new 10-Q disclosure filing with the Securities and Exchange Commission (SEC).

The disclosure revealed that customers could be treated as “general unsecured creditors.” In other words, if Coinbase ever declares bankruptcy, customers might lose all the cryptocurrencies stored on the exchange as they would be the last in line to make claims.

The new filing, as expected, caused an uproar among Coinbase customers since their funds would become inaccessible in the event of bankruptcy. The black swap event in the market and the company’s Q1 loss also contributed to the panic among users.

Armstrong: We Have No Risk of Bankruptcy

Armstrong took to Twitter on Wednesday to explain the new filing to customers while reassuring them that their funds are safe with the exchange despite uncertain market conditions.

1/ There is some noise about a disclosure we made in our 10Q today about how we hold crypto assets. Tl;dr: Your funds are safe at Coinbase, just as they’ve always been.

— Brian Armstrong – barmstrong.eth (@brian_armstrong) May 11, 2022

The Coinbase boss said the firm had no risk of bankruptcy and that the 10-Q filing was based on SEC requirements.

“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.

He further noted that the disclosure “makes sense” because such legal protections are yet to be tested in court for cryptocurrencies.