Beware: The companies that hold your crypto aren’t insured the way banks are
The latest “crypto winter,” which sent the values of Bitcoin and other digital currencies plummeting, served as a healthy reminder that cryptocurrencies are highly risky investments. But that risk is by no means limited to price volatility. Should the company holding your crypto assets declare bankruptcy or otherwise be unable to meet its financial obligations, you could be out of luck. While your traditional savings and investment accounts can never be 100% safe in the event your institution becomes insolvent, your traditional bank and brokerage as well as your 401(k) plan offer greater levels of guaranteed protections for your money than a crypto account. Investors were reminded of that difference when Coinbase, a publicly held crypto trading and storage platform, disclosed last month that if it were ever to go bankrupt, customers may be treated as unsecured creditors by a bankruptcy court, meaning they could lose their crypto investments. “It is possible, however unlikely, that a court would decide to consider customer assets as part of the company in bankruptcy proceedings,” Coinbase CEO Brian Armstrong said in a tweet thread in early May.