But that risk is by no means limited to price volatility.
Should the company that owns your crypto assets go bankrupt or otherwise be unable to meet its financial obligations, you could be out of luck. While your traditional savings and investment accounts can never be 100% safe in the event your institution becomes insolvent, your traditional bank and brokerage as well as your 401(k) plan are offer higher levels of guaranteed protection for your money than a crypto account.
Nevertheless, in the event of bankruptcy, “a judge will go by what the law says, not what you put in your retail user agreement,” said bankruptcy attorney Alan Rosenberg. But, he added, “it’s impossible to predict what would happen.” [because] there is very limited case law.”
That’s because the legal, tax and regulatory frameworks for digital assets – not to mention the legal definitions of what a specific cryptocurrency is – are still being worked out. They are not legal tender and are not always considered securities.
That’s partly why they don’t enjoy the same guarantees as more traditional financial accounts.
So read the legal fine print before buying, selling or storing digital assets with any company that facilitates crypto trading to see what protection they provide.
Since Coinbase is publicly traded and therefore needs to be more transparent than private companies, its promises and guarantees are likely to be among the best offered to those looking to invest in crypto.
For investments and savings in which you want a greater sense of security, here are some of the key protections that traditional financial accounts offer.
Bank and credit union accounts
If you have a checking or savings account, money market deposit account or certificates of deposit with a bank or credit union, make sure the institution has deposit insurance.
Up to half of that amount can be used to protect cash in your account linked to your securities, for example if you just sold some shares and left the proceeds in your account with the brokerage.
In addition to SIPC insurance, a brokerage can offer its clients additional protection through private insurers such as Lloyd’s of London.
If your employer goes bankrupt, the money in your 401(k) cannot legally be treated as the company’s assets by a bankruptcy court.