Coinbase, one of the largest cryptocurrency exchanges, has sparked fresh debate over the ownership of digital assets after a dramatic accounting shift. Last week, the company reported that most of its reported assets and liabilities had vanished from its balance sheet. But this wasn’t due to any economic changes—it was the result of a new accounting treatment.
Previously, Coinbase listed $291 billion in assets and $282 billion in liabilities as of September 30. By year-end, those figures dropped to $23 billion and $12 billion, respectively. The change reflects a decision to exclude customer crypto holdings from the balance sheet, a move enabled by a recent rule rollback from the Securities and Exchange Commission (SEC).
Ownership of Crypto Still Unclear
The shift raises a critical question: who really owns the digital tokens held on Coinbase? While the new off-balance-sheet treatment suggests customers do, Coinbase’s own filings admit the issue isn’t fully resolved. If the company went bankrupt, those assets could potentially be claimed as part of the bankruptcy estate, leaving customers as unsecured creditors. Similar outcomes have occurred in the past with crypto platforms like BlockFi, Celsius Network, and Voyager Digital, where customers lost funds in bankruptcy proceedings.
Coinbase assures investors that it has structured customer agreements to avoid such scenarios. However, it also acknowledges that there is little legal precedent for how courts would handle custodied crypto assets. The SEC’s 2022 bulletin, known as SAB 121, called for stricter accounting rules due to the unique risks of crypto. Unlike traditional financial assets, crypto relies on cryptographic keys, making ownership less clear-cut.
Politics and Implications for the Crypto Industry
Earlier this year, the SEC rescinded SAB 121 after a change in leadership. This decision was celebrated by the crypto industry as a step toward wider acceptance of cryptocurrencies like Bitcoin. It also allowed Coinbase to alter its accounting practices and significantly shrink its balance sheet. However, the question of ownership remains unresolved.
For mainstream banks and financial institutions, the rescission could mark an opportunity to enter the crypto custody space. Previously, the old rules dissuaded banks from holding crypto assets due to increased capital requirements. Some institutions, like Bank of New York Mellon, had already received exemptions to safeguard crypto under the old rules, giving them a potential head start.
Yet, risks remain. If accounting rules can shift with political changes, they could revert just as quickly. That uncertainty may deter some banks from diving into the crypto business.
A Lingering Question
Coinbase’s cautionary wording remains unchanged, highlighting the uncertainty surrounding crypto ownership. While the accounting shift may bring more players into the game, it leaves a critical issue unresolved: in a rapidly evolving regulatory landscape, who really owns the crypto?
