Coinbase CEO Brian Armstrong has apologized for seemingly neglecting the platform’s retail customers when it comes to protecting them from a catastrophic so-called ‘black swan event.’
While addressing bankruptcy concerns stoked by the company’s alarming Q1 filing, Armstrong admitted that, while Coinbase’s Prime and Custody customers have “strong legal protections in their terms of service,” retail customers didn’t.
“For our retail customers, we’re taking further steps to update our user terms such that we offer the same protections to those customers in a black swan event. We should have had these in place previously, so let me apologize for that,” he said via Twitter.
The bankruptcy concerns stemmed from the inclusion of a new risk factor in Tuesday’s filing. The inclusion, said Armstrong, isn’t a sign of impending financial doom but simply a new requirement of the US Securities and Exchange Commission (SEC).
“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,” said Armstrong.
As explained in Coinbase’s filing, because custodially held crypto assets can be considered the property of a bankruptcy estate, if the company were to be declared bankrupt, the assets it holds “may be subject to bankruptcy proceedings.”
This means that its customers could basically become unsecured creditors and as such would be way back in the queue when it comes to getting their money back.
Armstrong coming to terms with his first net loss
This week’s filing made grim reading for Armstrong and anybody involved with Coinbase, heralding the first net loss since it went public last year. A $430 million net loss, to be precise.
- Revenue plummeted to $1.7 billion from nearly $2.5 billion in the last quarter of 2021 — a drop of over 30%.
- The number of monthly users making transactions dropped almost 20%, from 11.4 million in Q4 2021 to 9 million.
- Coinbase shares fared no better, sitting at just $72.99 by daily close on Tuesday. This is just over 70% down on the $252 value from the end of Q4 last year.
But despite the Q1 bloodbath, the Coinbase founder said he couldn’t be more bullish.
In an earnings call on Tuesday, Armstrong said: “The good news is that as a crypto company, we’ve lived through many different cycles in crypto, including major drawdowns, which I think make us well suited to operate through these environments.”
“There’s so many customers beating a path to our door that we have to have all hands on deck just to keep everything running.”
“I think it’s really important to separate our performance, how are we executing toward our goals versus how is the broader market doing. And I think in terms of how we’re executing toward our goals, there’s a lot of bright spots. I couldn’t be happier,” (via Seeking Alpha).