Coinbase losses and bankruptcy statement see shares plunge

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Coinbase CEO and co-founder Brian Armstrong has allayed fears in a Twitter thread

Coinbase posted significant losses in the first quarter, which has investors worried (Image: AFP/Getty Images)

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There have also been major price shocks due to Elon Musk’s recent sudden decision to block people from using Bitcoin to pay for Tesla cars, as well as China’s crackdown on crypto.

The fear only grew after the key crypto exchange coin base issued a warning about the impact of an insolvency in its first quarter (Q1) earnings report.

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Coinbase co-founder and CEO Brian Armstrong has tried to allay fears about Coinbase’s future (Image: AFP/Getty Images)

So what did Coinbase say — and why did it scare investors?

Here’s what you need to know.

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What is Coinbase?

Founded in 2012 by current CEO Brian Armstrong and Fred Ehrsam, Coinbase is a crypto exchange platform

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It gives people the ability to buy, store and sell most of the major cryptocurrencies and provides real-time information about their values.

The platform also allows trading of non-fungible tokens (NFTs) and operates a debit card for crypto users.

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Coinbase offers users multiple Crypyo solutions (Image: Getty Images)

According to its website, the company has more than 98 million verified users in more than 100 countries, trading around $310 billion in cryptocurrencies every quarter.

What did Coinbase say about bankruptcy?

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Coinbase continued to fuel crypto investors’ fears this week after posting significant losses and discussing bankruptcy.

The value of the platform’s shares has halved this week, According to the AP news agencyafter Coinbase posted a net loss of $430 million (£350 million) in its Q1 results.

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This loss came as a result of a nearly one-fifth (19%) decline in crypto trading fee revenue, as well as a drop in users.

On Wednesday (May 11), the stock price was $53.72.

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When it went public 13 months ago, it was priced at $429 per share.

In a letter to its shareholders, Coinbase said it doesn’t expect its losses to be part of a long-term trend.

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Further concern was raised by a statement in its first-quarter earnings report that warned customers about what could happen if Coinbase goes bankrupt.

It said, “The crypto assets that we hold in custody on behalf of our clients could be the subject of bankruptcy proceedings.”

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Coinbase stock price plummeted amid huge Q1 losses (Image: AFP/Getty Images)

In that case, the exchange said its users could lose all cryptocurrency stored in their accounts as they become “general unsecured creditors.”

This means they would find themselves in the pecking order of people the company owes money to should it be in administration.

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Your funds would also become inaccessible.

What did Coinbase CEO Brian Armstrong have to say about this?

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That statement was downplayed by Coinbase co-founder and CEO Brian Armstrong in a Twitter thread posted on Wednesday (May 11).

He tried to reassure users by insisting that “your money is safe with Coinbase.”

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Mr Armstrong said there was “no risk of bankruptcy” at the firm and that the statement was only included following new requirements from the US Securities and Exchange Commission (SEC) – the public body that regulates Wall Street.

“We’ve included a new risk factor based on an SEC requirement called SAB 121, which is a newly mandated disclosure for public companies that hold crypto assets on behalf of third parties,” he said.

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Apologizing to users, Mr. Armstrong highlighted Coinbase’s crypto wallet which would give users more power over their wealth.

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