This past weekend, Coinbase CEO Brian Armstrong offered his response to recent claims by Sam Bankman-Fried, the disgraced founder of the bankrupt FTX exchange and its affiliated market-maker Alameda Research, that the loss of roughly $8 billion in customer funds was largely down to accidental double-counting of deposits sent to Alameda that were meant for FTX.
SBF previously confirmed that FTX had difficulty establishing banking relationships so it relied on customers transferring funds to Alameda—whose ‘Research’ appendage was specifically intended to fend off bankers’ crypto concerns—then Alameda would forward these funds to FTX. SBF told Bloomberg that $8b of these funds were “misaccounted” because he’d been “real lazy about this mental math.”
In response, Armstrong tweeted that “I don’t care how messy your accounting is (or how rich you are) – you’re definitely going to notice if you find an extra $8B to spend. Even the most gullible person should not believe Sam’s claim that this was an accounting error. It’s stolen customer money used in his hedge fund, plain and simple.”
I don’t care how messy your accounting is (or how rich you are) – you’re definitely going to notice if you find an extra $8B to spend.
Even the most gullible person should not believe Sam’s claim that this was an accounting error.
— Brian Armstrong (@brian_armstrong) December 3, 2022
Coinbase has been leveraging FTX’s downfall to paint itself as the only exchange that Americans can trust, taking out a full-page ad in the New York Times trumpeting its U.S. headquarters and its “transparent accounting and audits that are required of a public company.”
Armstrong also retweeted a Twitter user asking OpenAI’s new ChatGPT chatbot to explain why Coinbase is “the most trusted crypto exchange.” ChatGPT’s response cited Coinbase’s “combination of regulation, security measures and user-friendly interface,” although it should be noted that ChatGPT also recently generated a convincing history of an utterly fictional war that allegedly took place in the 1950s between Ohio and Indiana that included Ohio nuking Indianapolis, so…
Coinbase investors appear less impressed with the company’s assertions, as its stock price has fallen nearly one-fifth since FTX filed for bankruptcy protection last month. The shares recently sank as low as $40 and, while they’ve since regained some of those losses, remain mired well below the $250+ range they enjoyed at this time last year (and fell another 3.5% on Monday).
It’s not just investors displaying a lack of enthusiasm. Since September, only one Coinbase insider—director Tobias Lütke—has seen the wisdom of buying additional shares in the company. Meanwhile, Armstrong has unloaded $2.25 million worth of his stock and CFO Alesia Haas has dumped nearly $5 million, all of this during the second half of November.
A week ago, Bloomberg credit analyst David Havens called this year’s dramatic plunge in the value of Coinbase’s junk bonds the “canary in the coal mine” that should have alerted investors to the unfolding digital currency carnage. Havens also cited Coinbase’s surprise announcement this spring that its customers could be relegated to the status of unsecured creditors should the exchange file for bankruptcy.
Armstrong did some major damage control following that revelation, explaining the ‘unsecured creditor’ disclosure was added to conform to new accounting requirements required by the U.S. Securities and Exchange Commission (SEC). This explanation only partially allayed customers’ unease, a sentiment that has grown in the wake of FTX’s demise and the resulting contagion that threatens the solvency of more than one digital asset giant.
Don’t mention the war
In late-November, Armstrong warned his followers not to believe any ‘FUD’ (fear, uncertainty and doubt) regarding his company, citing the fact that Coinbase publicly releases its financial accounts every three months. But Reggie Middleton, the self-styled ‘founder of DeFi’ (aka the so-called decentralized finance), isn’t buying it, claiming that Coinbase doesn’t necessarily “disclose all that stakeholders need to know.”
Yes, you are a public company and I applaud your accomplishments thus far Still, just because you’re a public company doesn’t mean you disclose all that stakeholders need to know.
For instance, you haven’t disclosed the $350m crypto patent infringement lawsuit filed in September https://t.co/hst1sYUM5s
— Reggie Middleton DeFi…