Coinbase CEO says everything's OK after SEC filing gives netizens the jitters
OK includes an outage, plummeting cryptocurrencies, falling stock price
Coinbase CEO Brian Armstrong has scrambled to alleviate fears that customers storing cryptocurrencies at the digital cash exchange will lose everything if the biz goes under.
This concern stemmed from Coinbase's quarterly 10-Q report [PDF] filed this month to the SEC. It disclosed that customers who kept their cryptocurrencies at the exchange could see their assets seized in the event the business went bankrupt, thus:
Because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors.
Cue consternation. According to the chief exec this week, this language had to be included due to a recently added SEC requirement, SAB 121, regarding the safeguarding of cryptocurrency assets. And don't forget, SEC filings have to include worst-case scenarios so that investors can't say they weren't warned if things go belly-up.
Armstrong insisted "your funds are safe at Coinbase, just as they've always been." Armstrong went on to say that some of Coinbase's customers – its Prime and Custody users – have always had legal protections in place to prevent their assets being seized in a bankruptcy, though that hasn't applied to retail users.
"We're taking further steps to update our user terms such that we offer the same protections to those customers in a black swan event. We should have had these in place previously, so let me apologize for that," Armstrong tweeted.
Armstrong's tweet-stream was followed by a statement the next day on Coinbase's website making many of the same claims and stressing that the company wasn't in danger of bankruptcy.
Some folks weren't reassured, and the situation wasn't helped on Thursday when the site went down for about two hours, blocking transactions. This also came as the prices of cryptocurrencies crashed in general: for instance, the popular Luna went from about $120 apiece last month to $0.00005 today, down essentially 100 percent.
"The underlying issue that caused difficulties is resolved and full service has been restored," the biz said. "We recognize these times can be frustrating, and we remain vigilant to ensure our services remain top-notch."
The fear isn't coming from nowhere
Coinbase has been a public company for a little over a year, and since its stock opened at $381 it's mostly lost value, finally plunging below $100 on May 4.
It tanked further on May 11, the day after Armstrong's tweets, when Coinbase's quarterly earnings statement was released, reporting a $430 million loss in the first quarter of 2022. Shares fell sharply after the report, dropping as low as $43 before rebounding to around $58 at the close of Thursday trading.
Coinbase is not alone in seeing its stock price nosedive. Falls in tech industry valuations that began last week have wiped more than $1 trillion from stock prices in the sector, and Apple is no longer the world's most valuable business, having been eclipsed by oil giant Saudi Aramco on Wednesday.
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- Biden issues Executive Order to tame digital currencies
- Uber, Meta to reduce hiring as stocks slide
- First Coinbase, now Basecamp: Should workplaces ban political talk on internal corporate platforms?
Gartner distinguished VP analyst Mark McDonald said in a blog post about the ongoing tech-sector turmoil that, while losses are being reported and stocks are becoming volatile, it doesn't reflect the reality of the business tech industry. "Investors buy on the rumor and then sell on the news," McDonald said.
The business-to-consumer (aka B2C) side of things is where losses are happening, he said, and with good reason: they had a huge boom cycle thanks to the pandemic and now the world is returning to normal.
According to McDonald, "some of that run up is running off in the face of higher interest rates, inflation, and the return to other forms of entertainment, shopping etc. Compared to the pandemic past and considering the inflationary future, these firms were bound to come off their pandemic highs."
On the B2B side, the losses aren't there, according to Gartner's forecasts, which predict B2B tech spending to total $4.4 trillion this year, a four percent year-over-year increase.
"Business spending and investment in technology gets underplayed in the face of simple stories about a few big FANG companies," McDonald opined, referring to Facebook, Amazon, Netflix, and Google. ®