Biden’s administration wants crypto exchanges to separate accounts into two groups – corporate and customer funds so let’s read more today In our latest cryptocurrency exchanges.
The federal officials saw Coinbase’s admission about the customer vulnerability in bankruptcy and will call for congressional action in order to separate the client’s funds. Biden’s administration wants crypto exchanges to keep their customers’ moeny separate from their own corporate funds. Spurred by the latest Coinbase disclosure that the customers’ money will be jammed if the company declares bankruptcy, the federal officials intend to push the lawmakers to fix the issue by insisting that a future legal framework requires crypto companies to keep customer assets walled off. This type of custodial rule is standard for financial companies like futures platforms but the exchanges often mingle their funds with the customers’ holdings in the same spot which is a situation that the administrations want to stop.
The federal officials will push in the upcoming weeks to put the change into any crypto bill and will build on contention last year in the President’s Working Group on the Financial Markets Reports on stablecoins. The companies that host wallets will face close federal oversight and the administration thinks the trading platforms will permit the pooling of customers’ assets and allow the companies to keep managing trades internally rather than having to put each move on the blockchain.
Coinbase for example as a publicly-traded company is one of the biggest exhcnages and admitted in a filing to the SEC that in an event of bankruptcy, the assets they hold in custody on behalf of the customers could be a subject to bankruptcy proceedings so each customer will be treated as a general unsecured creditor. The SEC Chair Gary Gensler said during a conference this week:
“Don’t think you actually own your tokens when you go into a digital wallet. If the platform goes down, guess what, you just have a counterparty relationship with the platform. Get in line in bankruptcy courts.”
Gensler pointed out that when a company takes the customers’ tokens, they can use them as they will so the exchanges are often trading against you. Since the customers lost billions after the LUNA collapse, his investor protection advocacy could gain bigger momentum. Right now, crypto’s leading platforms like Binance US, FTX, and Kraken don’t have to strain themselves to meet the administration’s push for a custody role and the divided Congress is not likely to produce legislation this year.
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