What happens if Coinbase wallet goes out of business?

If Coinbase were to go out of business or shut down operations, users who store cryptocurrency on the Coinbase platform could lose access to their funds. However, Coinbase users who control their own private keys should still be able to access their cryptocurrency holdings.

Quick Answers

Here are quick answers to some common questions about what would happen if Coinbase went out of business:

  • Funds stored on Coinbase would potentially be lost or inaccessible
  • Users with private keys could still access cryptocurrency stored off platform
  • Coinbase has bankruptcy protections in place to protect user funds
  • Users may need to go through bankruptcy process to retrieve funds
  • Cryptocurrency networks would be unaffected by Coinbase going under

Coinbase Bankruptcy Scenario

If Coinbase were to declare bankruptcy or shut down unexpectedly, there is a possibility that user funds stored on the platform would be lost or inaccessible. This is because Coinbase controls the private keys to wallets holding cryptocurrency stored on their platform.

Coinbase users who leave cryptocurrency on the exchange do not have direct control of their private keys. Instead, their account balance reflects how much they own according to Coinbase’s internal ledger. The actual coins are controlled by Coinbase.

So if Coinbase went bankrupt, there is a chance customers’ cryptocurrency balances would be tied up during the bankruptcy proceedings. Customers would likely need to file claims and go through the bankruptcy process to recover any funds possible.

Limited FDIC Insurance

For US customers, Coinbase does provide FDIC insurance protection for the USD wallet balances up to $250,000 per customer. So even if Coinbase shut down, customers could recover fiat currency holdings up to that amount through the FDIC claims process.

However, cryptocurrency holdings do not have FDIC protection. So there is uncertainty around whether or how easily customers could regain access to coins held on the platform in a bankruptcy scenario.

Private Key Protection

On the other hand, cryptocurrency held in a Coinbase wallet where the user controls the private keys would likely be safe if Coinbase went under. That includes cryptocurrency held in the Coinbase Wallet mobile app or Coinbase Vault options.

With full control of private keys, users could restore their Coinbase wallet on another platform or service and still fully control their coins. Your cryptocurrency holdings would remain intact on the blockchain.

So the main takeaway is cryptocurrency held on Coinbase is only as secure as the platform itself. But cryptocurrency controlled directly by the owner through private keys remains fully under their own control no matter what happens to a company like Coinbase.

Planned Bankruptcy Protections

Coinbase has stated that they have plans in place to protect customer funds in a bankruptcy scenario. They have said they would work to provide access to cryptocurrency held on the platform even during bankruptcy proceedings.

There are technical solutions that could be employed to provide ongoing partial access for customers to retrieve cryptocurrency funds over time. This would help limit the impact and prevent a situation where customers lose access to holdings for an extended period.

However, the details have not been fully disclosed on exactly how Coinbase would ensure this continued partial access during bankruptcy. There would likely still be significant limitations, delays, and legal hurdles for customers trying to retrieve holdings from a bankrupt Coinbase.

Cold Storage Security

Coinbase also stores the majority (98%) of cryptocurrency funds offline in cold storage for security reasons. If the private keys to this cold storage were maintained securely, it’s possible funds could remain largely intact through bankruptcy proceedings.

But it’s not guaranteed that the trustee appointed during bankruptcy would be able to secure the private keys to Coinbase’s cold storage. Therefore, the ultimate fate of customer funds in this scenario still has uncertainties.

Cryptocurrency Networks Unaffected

It’s important to keep in mind that a Coinbase bankruptcy would not affect the underlying cryptocurrency networks. The Bitcoin blockchain and other networks would continue to operate as normal.

The cryptocurrency networks are decentralized and not reliant on any company to stay operational. You could think of service providers like Coinbase as interfaces that allow users to access cryptocurrency networks.

So even in the worst case scenario of Coinbase going bankrupt and users completely losing access to holdings, the cryptocurrencies themselves would be unaffected. The networks would continue processing transactions as normal.

Over time, users could potentially regain access to holdings through legal processes, or by restoring wallets if they have their private keys as a backup.

Protecting Your Holdings

Since there are still risks associated with storing cryptocurrency long-term on an exchange like Coinbase, many advise users to withdraw significant holdings to a private wallet.

That way you control the private keys and your holdings would be fully under your control no matter what happens to a company like Coinbase.

Some tips for minimizing risks include:

  • Withdrawing majority of holdings to private wallet where you control keys
  • Storing private keys securely – encrypted, offline, geographically distributed, etc
  • Only keeping a small trading balance on exchange
  • Using cold storage like a hardware wallet for large holdings
  • Diversifying across multiple exchange accounts

Following security best practices allows you to fully control your cryptocurrency and eliminate company-specific risk factors in the event a platform goes out of business.

Past Examples of Exchanges Shutting Down

There have been instances of cryptocurrency exchanges shutting down or losing customer funds due to hacks over the years:

Mt. Gox

Mt. Gox was the largest Bitcoin exchange in 2014 when it suspended trading and froze user accounts. Approximately 850,000 Bitcoins belonging to customers and the exchange were missing and likely stolen.

Mt. Gox ultimately went bankrupt. Customers were able to recover only a fraction of their funds years later through the bankruptcy process.


QuadrigaCX was a Canadian exchange that shut down in 2019 after its founder reportedly passed away. He was sole controller of the exchange’s cold storage, and around $190 million in user funds went missing.

Customers have still yet to recover the majority of their funds from QuadrigaCX over 3 years later.

Celsius Network

Celsius Network froze withdrawals in 2022 due to extreme market conditions. It ultimately filed for bankruptcy in July 2022 with estimated losses of $4.7 billion for its 1.7 million customers.

The fate of user funds remains uncertain as the bankruptcy process unfolds.

So history shows even customers of large, well-known exchanges may have little recourse or ability to recover funds if the platform is hacked, mismanaged, or goes bankrupt.

Recourse Options if Coinbase Goes Bankrupt

If the worst case scenario did occur and Coinbase filed bankruptcy, customers would have limited options to try recovering any losses.

File Claim in Bankruptcy Court

Customers could file a claim in bankruptcy court to become a creditor. However, bankruptcy courts often involve lengthy legal processes with uncertain outcomes. Customers may ultimately receive only a small fraction of claimed funds back.

Join Class Action Lawsuit

Groups of customers may band together to file class action lawsuits seeking compensation. But lawsuits also involve lengthy legal processes, big costs, uncertain outcomes, and delayed results.

Private Insurance

Some individuals and institutions may have private insurance policies that protect against exchange failure. But typical insurance policies bought by retail traders often have low coverage limits or exclude cryptocurrency losses.

Tax Relief

One potential recourse in some countries is claiming a capital loss for tax relief purposes if you can prove funds were lost or became inaccessible. But since cryptocurrency is treated as property in most places, losses may only offset capital gains taxes and provide limited direct relief.

Could Governments Bail Out Coinbase?

Some argue that Coinbase and other large exchanges are in similar “too big to fail” positions as banks. So could governments potentially step in with bailouts or protections for customers if an exchange like Coinbase was at risk of bankruptcy?

FDIC Unlikely to Insure Cryptocurrency

In the US, the FDIC provides insurance up to $250,000 for bank deposits to maintain financial stability. However, the FDIC does not insure cryptocurrency, and it’s unlikely they would change this policy or directly bail out an exchange.

Special Rescue Unlikely

The financial crises of 2008 resulted in bank bailouts and protections for consumers. But cryptocurrency remains largely unregulated. Governments have less incentive to provide special protections or handouts to Coinbase customers.

Industry Restructuring Possible

A major exchange bankruptcy could force restructuring and reforms across the cryptocurrency industry. This could potentially include new private insurance options, mandated custodial controls, or other consumer protections.

But any broader industry changes would likely occur over an extended period. So short-term government interventions directly in response to a Coinbase bankruptcy seem unlikely.

Could a White Knight Rescue Coinbase?

Rather than government bailouts, perhaps a “white knight” private company could rescue Coinbase and protect customers if bankruptcy looms. Hypothetical scenarios could include:

Acquisition by Major Institution

A major bank, hedge fund, or consortium could potentially acquire Coinbase before bankruptcy occurs. They could infuse capital and manage an orderly transition to prevent losses.

Merger with Another Exchange

Team up with another large exchange to offer combined balance sheets and liquidity pools to stabilize Coinbase and customer holdings.

Private Equity Buyout

Private equity companies could seize Coinbase at a bargain valuation and provide capital buffers to work through any solvency issues.

However, finding a private buyer or partner would likely occur only if Coinbase recognizes distress early. Successful preemptive rescues seem more likely than after-the-fact takeovers following bankruptcy filings.

Likelihood of Coinbase Going Bankrupt

The likelihood of a Coinbase bankruptcy still seems relatively low compared to risks inherent with smaller exchanges and platforms in the cryptocurrency ecosystem.

Factors minimizing bankruptcy chances include:

  • Leading exchange with significant trading volume and revenue
  • Backing of major financial institutions
  • Publicly traded company with transparent financials
  • High security and insurance coverage
  • Storing majority of funds in cold storage
  • Geographically distributed cold storage

Nonetheless, history shows even the largest exchanges are still vulnerable. Prudent individuals should manage risks by controlling their own private keys when possible.


In summary, a Coinbase bankruptcy would put customer funds at risk and likely result in frozen accounts during legal proceedings. Users could ultimately lose a significant portion or even all of their holdings.

Cryptocurrencies themselves would be unaffected, but individuals may find it difficult to recover funds from a bankrupt Coinbase through traditional legal structures. However, users who control their own wallets and private keys could still access holdings on other platforms.

While an unlikely worst-case scenario, it highlights the importance of proper cryptocurrency management. Storing coins on an exchange long-term presents risks. Users should withdraw majority of holdings to external wallets they control for optimal security.

Leave a Comment