Coinbase Has No Risk of Bankruptcy, New 10-Q Disclosure Language Is SEC Requirement, CEO Armstrong Says

Coinbase (COIN) founder and CEO Brian Armstrong said in a tweet Wednesday that new language found in the exchange's latest 10-Q filing is simply a new requirement of the U.S. Securities and Exchange Commission, and that Coinbase is in no danger of bankruptcy.

Armstrong said the exchange had "included a new risk factor based on an SEC requirement called SAB 121, which is a newly required disclosure for public companies that hold crypto assets for third parties."
The 10-Q, filed with the SEC Tuesday, says: "Because custodially [sic] 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," Coinbase wrote in its recent filing.
Coinbase also disclosed the new language means customers may believe keeping their coins on the platform would be considered "more risky," which would in turn materially impact its financial position.
In the event of bankruptcy, general unsecured creditors would be considered having the most to lose because they are last in line for claims.
"We believe our Prime and Custody customers have strong legal protections in their terms of service that protects their assets, even in a black swan event like this," Armstrong wrote in the tweet. "This disclosure makes sense in that these legal protections have not been tested in court for crypto assets specifically."
Caitlin Long, founder and CEO of digital asset bank Custodia Bank (formerly known as Avanti), said in a tweet that this provision isn’t new and is an inherent problem with the regulatory structure used by most custodians.
"Wyoming addressed this by creating a new customer-friendly structure designed to respect segregation of customer assets in bankruptcy, the Wyoming special-purpose depository institution," she said.
Coinbase stock is trading at $72, down 70% year to date.

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