Is Coinbase Going Bankrupt?

Rumours of Coinbase going bankrupt persist, even after the company had dismissed such claims and is actively expanding its business offshore.

In July 2022, Coinbase suspended its Affiliate Program. A month before it shut down Coinbase Pro —its advanced trading arm of Coinbase— it announced a similar feature called Advanced Trade. These two announcements, plus the merger of its USD with USDC order books, sparked a swirl of rumours about Coinbase becoming insolvent.

In addition, Coinbase’s financial performance in 2022 was a major hit for the crypto exchange after a supercharged 2021 bull run for most of the cryptocurrency market. In its Q2 earnings report, the company outlined critical losses worth about 1.1 billion, a drop of almost 60% in terms of revenue, mostly due to macroeconomic factors and systemic factors in the cryptocurrency industry, which led to lower trading volumes on Coinbase.

The crypto community appeared divided; at one side of the spectrum were users claiming Coinbase is at the edge of bankruptcy —claims that Coinbase has repeatedly dismissed— and the other side claiming this is nothing more than FUD. Rumours and controversies ignited following the aftermath of the collapse of crypto companies like Celsius, Voyager, and Three Arrows Capitals, all of which had direct exposure to Terraform Labs and the failed UST/LUNA.

“We prioritise risk management,” the firm said in its Q2 shareholder letter, emphasising that they never did business with the firms mentioned above. Instead, on its Q2 earnings report, Coinbase said it heavily invested in product development with high-quality features and proper risk management for retail users and institutional clients.

“No Risk of Bankruptcy,” Says Brian Armstrong

Brian Armstrong said the firm is at no risk of bankruptcy, but they have been working on providing retail users with the same legal protection as that of Prime and Custody customers in case of a black swan event.

This comes after Coinbase’s 10-Q form submitted to the SEC, which essentially states that retailers’ funds are in danger in case of bankruptcy. The SEC’s SAB 121 would require disclosure for public companies that manage cryptocurrencies for third parties.

5/ This disclosure makes sense in that these legal protections have not been tested in court for crypto assets specifically, and it is possible, however unlikely, that a court would decide to consider customer assets as part of the company in bankruptcy proceedings…

— Brian Armstrong (@brian_armstrong) May 11, 2022

What’s Next for Coinbase?

Coinbase is currently dealing with pressure from the SEC. The regulatory body has sent the exchange multiple subpoenas and requests for documents and all pertinent information about its staking program, yield-generating products, and token listing process. The SEC previously confronted the exchange, stating that 9/10 of its cryptocurrency are securities, a claim they have dismissed repeatedly.

The pressure from US regulatory bodies led Coinbase to fight back and support digital asset manager Grayscale in its legal battle against the SEC. The latter is suing the SEC for rejecting a Bitcoin ETF, stating that the SEC is “failing to apply consistent treatment to similar investment vehicles.”

Aside from political heat in the US, Coinbase has been focusing in launching new products and services in the US and abroad, like a crypto scorecard that allows Coinbase users to know US politicians’ stances on cryptocurrencies based on where they live.

Coinbase also recently partnered with Google to allow users to pay for cloud services with cryptocurrency. Both companies said this collaboration would help spread Web3 technology starting in 2023.

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