Is Coinbase insured?

[BlackHatCoiner]

Anybody with any significant amount of wealth is a target. The world we live in is not safe. That's just reality.

Perhaps the ETF is the way to go for those with significant amount of wealth, since I think this is insured with fiat currency, but in general, regular people who just save up in bitcoin should absolutely not risk all their life savings in a centralized exchange.

It'll be up to "crypto lobbyists" to do their thing for the good of the industry. Regulations are constantly changing, so fingers crossed investors will have better protections in the long run.

Investors who merely want the fiat gains can just buy the ETF and be safe from hacks, as when investing in any other asset on paper, but if people want to buy actual bitcoin, regulations won't ever protect the consumer, because that's just the nature of Bitcoin; it is easy to compromise and transactions cannot be reversed.

[legiteum]

Anybody with any significant amount of wealth is a target. The world we live in is not safe. That's just reality.

Perhaps the ETF is the way to go for those with significant amount of wealth, since I think this is insured with fiat currency, but in general, regular people who just save up in bitcoin should absolutely not risk all their life savings in a centralized exchange.

When you buy any stock through a normal major broker in the US, you are covered by SIPC, which covers up to $500k. However, that is covering your stock certificate, not the thing backing it. In other words, if you invest in some stock and it goes bankrupt, then you aren't covered. It's only covered if the broker somehow loses your actual position.

In the case of the Bitcoin ETF, if the ETF issuer lost their Bitcoin, then you'd be out of luck: the price of the ETF would be marked to zero and your position would be worthless.

So yes, buying BTC with the ETF incurs the same technical risks as (say) buying your Bitcoin on Coinbase: in both cases you are trusting the company to make sure they carefully guard their keys.

[BlackHatCoiner]

When you buy any stock through a normal major broker in the US, you are covered by SIPC, which covers up to $500k. However, that is covering your stock certificate, not the thing backing it. In other words, if you invest in some stock and it goes bankrupt, then you aren't covered. It's only covered if the broker somehow loses your actual position.

Yes, we're referring to the same idea. I'm not sure a billionaire would use a broker, since they could buy stocks directly to avoid the risk of broker failure. However, if they wanted to invest in Bitcoin, it might be more practical for them to use an ETF instead of managing their own private keys.

That said, a very wealthy man likely owns lots of real estate. If they chose to self-custody their Bitcoin, they could set up a secure multi-sig, and ensure protection without relying on the state. (Or the insurance from a company.)

[legiteum]

When you buy any stock through a normal major broker in the US, you are covered by SIPC, which covers up to $500k. However, that is covering your stock certificate, not the thing backing it. In other words, if you invest in some stock and it goes bankrupt, then you aren't covered. It's only covered if the broker somehow loses your actual position.

Yes, we're referring to the same idea. I'm not sure a billionaire would use a broker, since they could buy stocks directly to avoid the risk of broker failure. However, if they wanted to invest in Bitcoin, it might be more practical for them to use an ETF instead of managing their own private keys.

That said, a very wealthy individual likely owns a significant amount of real estate. If they chose to self-custody their Bitcoin, they could set up a secure multi-sig, ensuring protection without relying on the state.

I suspect it's both--and maybe even within the same billionaire sometimes (i.e. they diversify between methods).

One thing no rich person wants is to be killed or extorted (or the same for loved ones) based on their personal guarding of keys. People like that are already targets for more petty criminals after a million or two in ransom, so the last thing they would want is to gather the sort of expert criminal gangs you would if the prize was hundreds of millions. And also, people like this have a thousand things to think about on any given day, so the last thing they feel like dealing with would be physically securing their keys.

I suspect somebody like Musk would have a few million in keys on his person, but that's probably it.

[Abiky]

Investors who merely want the fiat gains can just buy the ETF and be safe from hacks, as when investing in any other asset on paper, but if people want to buy actual bitcoin, regulations won't ever protect the consumer, because that's just the nature of Bitcoin; it is easy to compromise and transactions cannot be reversed.

Either way, you're still trusting a custodian with your crypto. The risk of loss is still there. That's why self-custody is a must these days. Especially if you have large amounts of money invested into crypto. But not everyone is willing to do this. It's much easier to trust a company with your investment, than doing everything (managing and securing crypto funds) yourself.

I'd say insurance is a must to help bring confidence among skeptical investors (usually the wealthy like Warren Buffet) into this nascent industry. With tightening regulations, anything's possible. I'd expect Coinbase to last for a long time. After all, it's the custodian of choice for spot ETFs.

[BlackHatCoiner]

Either way, you're still trusting a custodian with your crypto. The risk of loss is still there.

Yes, but it's treated as with every other property, if it's ETF. If you invest a million dollars in gold using a third party, even if the gold is stolen, you get your money back in fiat. Currently, if you have 100 BTC in Coinbase, and it gets hacked, you'll not get even 10% of it.

But, I absolutely agree with you. You should self-custody your Bitcoin. If you want to throw a few million dollars in there, at least take some hours to learn how to secure it.

[YOSHIE]

Coinbase offers this vague promise on their website that they are "partially insured", but does anybody know what that actually means? If they are hacked and the addresses get destroyed or stolen (we'd never know which), then... where would that leave Coinbase depositors?

Although the Coinbase exchange offers insurance, elsewhere I saw, that there is no guarantee for users about their assets, in case of hacking or theft.
This is stated as follows.

Your fiat wallet is not a deposit, transaction, cash management, or investment account, which means that any cash balance you hold on Coinbase is not insured, protected, or covered by any collateral, including (but not limited to) FCS.

And elsewhere also mentions the same thing.

Coinbase is not a depository institution, and your USDC balance is not a deposit account. Your USDC balance is not insured by the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC).

From some data that I read about security or insurance made by Coinbase, the conclusion:

It’s important to note that while Coinbase and other cryptocurrency platforms implement security measures, by the nature of a cryptocurrency exchange, they are all centralised entities. Therefore, the risk of a hack or cybercrime exists.

So whatever system is implemented by the exchange, risks still exist, so consider the risks that might occur to our assets on any exchange.