Coinbase warns customers they could lose their crypto if the company goes bankrupt

Coinbase has warned users that their cryptocurrency could be at risk if the exchange ever went bankrupt.

The cryptocurrency exchange included a new disclosure to its customers in its first-quarter earnings report earlier this week.

"Because custodially 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”, the warning states.

This is a statement Coinbase needed to make because of a requirement made by the US Securities and Exchange Commission, which said these disclosures are necessary so customers are informed about their investments.

Founder and chief executive of Coinbase Brian Armstrong took to Twitter to reassure customers that the company was not at risk of bankruptcy.

“Your funds are safe at Coinbase, just as they’ve always been”, he wrote.

“We have no risk of bankruptcy, however we 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.

“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 even if it harmed consumers.”

Mr Armstrong also tweeted that Coinbase has its own crypto wallet for users to keep their cryptocurrency than leave it on the exchange.

The announcement comes as the crypto market is crashing. Ethereum, the second biggest digital coin, lost more than 20 per cent in the last 24 hours, with its price dropping below the $2,000 mark that is held as a milestone.

Bitcoin also dropped 12.5 per cent over the last 24 hours, taking it to $26,653, and smaller coins have suffered even greater drops. The Terra (LUNA) cryptocurrency suffered the worst crashed, and has lost almost all of its value.