Coinbase: Think About Taking Your Funds Off Now

Don't panic

Don't panic. But Coinbase could be in a lot of trouble. 

Shares of Coinbase (COIN) lost about a fifth of their value Tuesday and are down about 79% this year. 

The reason?

Coinbase is facing an SEC investigation on whether it improperly let Americans trade digital assets that should have been registered as securities. In plain non-nerdy English this means that if Coinbase is found guilty of putting too many unregistered cryptocurrencies on its platform, it could be fined heavily and even shut down.

Oh boy.

Normally I wouldn't care much about a story like this. Coinbase is too big to fail, after all. But upon the news an acclaimed, and somewhat infamous, investor Cathie Wood sold all her shares of Coinbase for an all-time low of $53 after buying them at an average of $254.65 a stock.

My immediate reaction to this is: get your funds off Coinbase now.

Here's why.

God Help Us

This is big.

Either Cathie Wood is desperate in needing some funds for margin calls or she knows Coinbase is going to get rekt by regulators. And given that rumors are going around that some crypto exchanges are "secretly insolvent" I'm going to err on the side of caution and say that this is a big deal.

Ironically enough, Sam Bankman-Fried, founder of FTX and known as "Crypto Warren Buffett" had this to say about failing crypto exchanges:

“There are companies that are basically too far gone and it's not practical to backstop them for reasons like a substantial hole in the balance sheet, regulatory issues, or that there is not much of a business left to be saved,” said Bankman-Fried, who declined to name any specific crypto exchanges.

Now, is Coinbase failing? We don't know yet.

But if one of the most pro-crypto investors in the space is selling her shares for an all-time low, I'm not sticking around to find out.

Coinbase's Response: The Good News

Coinbase clapped back with a tweet saying that they are not insolvent and that they've filed a petition to the SEC.

Coinbase @coinbase

Laws from the 1930s couldn’t predict crypto. That’s why we filed a petition to @SECGov to issue securities rules that work for crypto securities and unlock a new market for US consumers, developers, and platforms. @faryarshirzad explains 👇 blog.coinbase.com/the-crypto-sec…

blog.coinbase.comThe Crypto Securities Market is Waiting to be Unlocked. But First We Need Workable Rules.TL;DR:

Additionally, Coinbase Chief Legal Officer Paul Grewal had this to say:

“We are confident that our rigorous diligence process -- a process the SEC has already reviewed -- keeps securities off our platform, and we look forward to engaging with the SEC on the matter,” Chief Legal Officer Paul Grewal said on Twitter.

Coinbase is like the Apple of the crypto world. They are a well-oiled machine with a good product. Some might say there’s no chance they could fail.

I will say though: Pride always comes before the fall.

But there are a few things that Coinbase does differently that could save them.

What makes them different from other failed crypto exchanges is that Coinbase makes most of its money from its fees. Celsius on the other hand, which filed for bankruptcy earlier this month, stayed afloat by gambling users' money for the promise of 20% APY returns and tried to cover by taking in new users to pay off the old users. Essentially a Ponzi scheme. 

This is all to say I think Coinbase will weather this SEC storm. They are usually safe and stable. They didn't do what CryptoDOTcom did and bought a fucking stadium.

But that doesn't mean you should keep your money on their platform.

Not Your Keys, Not Your Crypto

I'm in the business of managing risk, not taking it.

When it comes to your crypto, you should always remember this mantra: Not your keys, not your crypto. It means that if you keep your investment on a centralized exchange like Coinbase, which is not FDIC insured mind you, you are taking on unnecessary risk that can be easily avoided.

If Coinbase were to ever go under during this bear market they have no legal obligation to return your funds. This has happened before on smaller exchanges like Mt. Gox and QuadrigaCX, and recently happened to Celsius.

I don't want to get fucked if Coinbase is in trouble.

So, these are your options to get out:

• Metamask: A decentralized wallet on the Ethereum blockchain which can hold thousands of different tokens

• Trezor Model T: A physical option, sort of like a flash drive, that can hold Bitcoin, Ethereum, Polygon, and other major coins.

• Exodus Mobile App: Very beginner-friendly UX and decentralized wallet

As I said, Coinbase will probably be fine. If it isn't and it does go down, Bitcoin will plummet into the Earth’s core. Not good. Not good for any of us. Regardless, I'm not trying to be at the epicenter, if it does happen.

Risk allocation. That's the key to surviving in this space.

Ever since I was a child it was my dream to become a financial advisor. Unfortunately, it never came true. Therefore I am not a financial advisor and you should do your own research and not just listen to random people on the internet. Nothing contained in this publication should be construed as investment advice.