Coinbase Bitcoin Exodus Continues As Another $2B Worth BTC Platform Over The Weekend – Bitcoin (BTC/USD), Coinbase Global (NASDAQ:COIN)
According to crypto research company Glass node, Coin base COIN experienced further material removal from its platform over the weekend (November 26-27). The amount withdrawn was around $2 billion, bringing the total withdrawals since November 23 to approximately $4.3 billion.
Of course, the main reason for the exodus is the extremely unified depositor mistrust of centralized crypto exchanges following the collapse of FTX’s dramatic and rapid collapse last month. FTX and its affiliates filed for bankruptcy in Delaware on Nov. 11 in one of the highest-profile crypto breakouts on record, leaving an estimated one million customers and other investors with multibillion-dollar losses.
In our view, another reason for the exodus has less to do with the immediate soundness of Coinbase and more to do with how customer deposits can be handled should the company go bankrupt,
According to a Bloomberg article published in May 2022, in its then most recent quarterly report, In its quarterly report, Coinbase added a risk disclosure that explicitly indicated that if the company were to file for bankruptcy, the court could treat customer funds for which the exchange is the custodian as Coinbase’s assets.
In other words, a bankruptcy court can consider ordinary depositor assets as Coinbase’s assets, even though the latter is simply a depository for customer funds. As such, senior secured creditors would get first priority on Coinbase’s remaining assets in a hypothetical liquidation, while depositors could be left in the bag.
Insolvency proceedings may also prevent customers from selling or exchanging their coins due to “automatic stay” proceedings imposed on creditors. .
Obviously, it’s a fact that many current depositors wonder about – even if the risk of insolvency remains small for now – with many investors choosing to store bitcoin off-chain in cold wallets.
For example, data provided by Coinglass earlier this month showed that the stock exchanges now have 9.4% fewer Bitcoins BTC/USD compared to the balance of 2.02 million coins on November 10, compared to 1.83 million bitcoins from a week before. This means that in the last seven days since the FTX crisis became known, 190,000 BTC have left exchanges – the equivalent of $3.14 billion at current Bitcoin prices.
Undoubtedly, the updated figure is much higher.
As a reminder, a secured creditor is a lender directly linked to an asset or investment that has a lien on a debtor’s assets. A lien is often agreed upon at the time the debt is taken and most often held as security in the asset that has been purchased or ownership of other assets of the debtor. In the United States, the general order of creditor and contributory ranking on a debtor’s insolvency is as follows:
- Secured claims
- Administrative expenses and prioritized requirements
- General unsecured claims
- Subordinated claims
- Equity interests
In theoretical bankruptcy proceedings, Coinbase depositors could be considered general unsecured creditorsbehind bondholders and administrative staff who handle the liquidation or reorganization.
According to the filing referenced above, Coinbase was the custodian of $256 billion in customer money as of March 31.
This article was originally published on The Dales Report and appears here with permission.
