[JumpCrisscross]

> Investment funds suffer from the same problem. And so do banks, for amounts exceeding the FDIC insurance.

This hand-waves away a century of banking and investment protections everyone with assets at Coinbase willingly waives. Your funds at Fidelity are insured up to $500k by the SIPC [1]. Every person at Chase is insured up to $250k by the U.S. government, which backs the FDIC with its full “faith and credit” [2], a number which happily doubles with your account at Bank of America. (People concerned about this sweep [3] their money across multiple banks.)

When Lehman went bankrupt, customers’ assets were ringfenced [4]. A private equity firm can’t buy a bank, lever it up and gamble away customers’ deposits and assets.

None of the above apply to Coinbase. Nor should they. Everyone in crypto opted out of that system.

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

[2] https://www.fdic.gov/resources/

[3] https://en.m.wikipedia.org/wiki/Sweep_account

[4] https://corpgov.law.harvard.edu/wp-content/uploads/2008/10/0...

[YawningAngel]

Sorry, _why_ shouldn't the above apply to Coinbase?

[JumpCrisscross]

> _why_ shouldn't the above apply to Coinbase?

Running the banking system on permissioned blockchains, where it makes sense, is simpler than extending federal protection to what currently behaves like a gambling industry. Also, spending the tax dollars of the young, poor and/or financially-conservative to subsidise a demographically-constrained pursuing a high risk / high reward strategy is inefficient.

[teh64]

As I understand it, because the Cryptocurrencies are not legal tender:

"Cryptocurrency is not legal tender and is not backed by the government. Cryptocurrency, (including but not limited to tokens such as bitcoin, litecoin and ethereum, and stablecoins such as USDC), is not subject to Federal Deposit Insurance Corporation (“FDIC”) or Securities Investor Protection Corporation protections." [https://help.coinbase.com/en/coinbase/other-topics/legal-pol...]

So any Bitcoin etc... you hold in your wallet at Coinbase could just be sold off to pay for debt if a bankruptcy occurs (which doesn't happen if a FDIC bank goes bankrupt).

[graeme]

I don’t know about “should” but those protections don’t extend for Coinbase customers

Taking those protections would mean a lot more regulation for the industry, regulation they’ve worked hard to avoid

[lottin]

Because their customers' assets are not segregated.

[DennisP]

Cash held at Coinbase is insured by the FDIC to $250,000.

https://help.coinbase.com/en/coinbase/other-topics/legal-pol...

[JumpCrisscross]

> Cash held at Coinbase is insured by the FDIC to $250,000

You’re protected “against the risk of loss should any FDIC-insured bank(s) where [Coinbase] maintain custodial accounts fail[s]” [1]. If Coinbase maintains “accurate records,” which nobody is checking, and “on determinations of the FDIC as receiver at the time of a receivership of a bank holding a custodial account.”

If Coinbase itself fails, you’re just another unsecured creditor. Maybe a bankruptcy judge will find your deposits to be a § 507(a)(7) customer deposit, in which case $2,600 of it is a priority claim [2]. For the rest of it, you’re a general unsecured creditor. Behind every lender.

Note that the Coinbase FAQ we cite is worded in an intentionally misleading manner. That copy wouldn’t fly at a bank, or, at the very least, produce liability for it in a manner that would actually pay out.

[1] https://help.coinbase.com/en/coinbase/other-topics/legal-pol...

[2] https://www.bdo.com/insights/industries/retail-consumer-prod...

[jcranmer]

Reading the text a couple of times, it's actually far, far less secure than that:

> Fiat balances, such as U.S. dollars, British pounds, or euros, are held in your Coinbase e-money wallets as a balance in your Coinbase or Coinbase Pro account(s). For U.S. customers, Coinbase combines your balance with the balances of other customers and holds those funds in either: custodial accounts at U.S. banks and/or invests those funds in liquid U.S. Treasuries, or USD denominated money market funds in accordance with state money transmitter laws.

> Funds could be held in any one of these three manners so customers should not assume that funds are being held in one manner over the other.

So, if your funds were held in the custodial account (which you're explicitly told not to assume), and if Coinbase maintained "accurate records" (lolwut?), and if the bank where the custodial account is failed, then you're going to be made whole. Notably, Coinbase itself failing isn't part of that "if" chain.