Experts have warned investors that if a cryptocurrency exchange goes bankrupt there is no law to protect consumer deposits.
Investors have been cautioned to be careful about how they safeguard their cryptocurrencies. Experts also suggest a more conventional approach, such as mainstream banks, may be better to store one’s savings.
More importantly, FIAT money is secure in case an institution becomes insolvent whereas your cryptocurrency is just gone and disappears.
With rumors that Coinbase may go bankrupt – which have been vehemently denied by the company’s chief executive – a meaningful question arises.
Can a cryptocurrency company refund its customers or is a central governing body going to step in and offer a cushion? The answer to both is – unlikely.
There isn’t sufficient regulation right now to make this an option and the sector lacks sufficient oversight to make such commitment. What if a bad actor decided to pull the plug on people’s fundings just so they can make away with the funds?
It's not an easy thing to do. Bankruptcy attorney Alan Rosenberg has cautioned that any judge would look into a possible bankruptcy of a cryptocurrency company based on existing laws and not what is in the user terms and agreements.
Therefore, bank and credit union accounts are actually a much better choice if you are simply looking to safeguard your funds against force major events, such as a bank or a financial institution going completely belly up.
The Federal Deposit Insurance Corporation (FDIC) will protect deposits up to $250,000 per depositor in a FDIC-insured bank, which motivates many people to focus there.