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shocked some of its customers last week when it suggested that their secret money could be lost if the company could lose money. The fact is, customers are more likely to be exposed to that risk on many crypto trading platforms, experts say.

The problem is that — in contrast to stock accounts where traders have to separate consumer goods — some crypto trading platforms include funds from multiple customers, said Tyler Gellasch, head of the Healthy Markets Association and former Securities and Exchange Commission official.

"I do not think there is a reasonable way for a crypto buyer to have the confidence that their seller or trading platform will keep their assets in a safe distance without receiving direct disclosure," Gellasch said.

The concern arose after Coinbase (tick: COIN) in its 10-Q filed a new risk disclosure that customers could not be considered as unsecured lenders in the run-up to the collapse. That would mean that they would not get their money back until it had paid off the huge debtors, if at all possible.

Coinbase CEO Brian Armstrong said on Twitter that the company did not face the risk of collapse and that the disclosure came in response to SEC rules. This was revealed because the matter had not been investigated in court and "it is possible, however, unlikely that the court will consider consumer assets as part of the company's litigation process," wrote Armstrong.

Some of the crypto platforms affected by Barron most of them were mothers of whether they believe their customers face the same risk.

Spokesmen for FTX US and Gemini declined to comment. A spokesman for Binance.US and Kraken did not respond to requests for comment.

A spokesman for Robinhood Markets HOOD -5.43% (tick: HOOD) said the company had told the SEC during its first public offering that it believed the crypto stored on the platform was the property of the customer and should not be the property of Robinhood.

"This concept has never been tested in court, so there are potential risks to crypto stored on any platform," a spokesman said.

That makes crypto accounts very different from what investors are accustomed to from stockbrokers. In normal securities, brokers are required to keep the client's assets separate so that when they fall apart, the accounts can be easily transferred elsewhere. When a customer’s shares are lost, due to fraud or theft, most stock accounts carry insurance that replaces the mortgage up to a maximum of $ 500,000.

Coinbase customers or other platforms can avoid having their money tied to possible collections by keeping their coins "off-platform" in the crypto wallets they hold for themselves. In that setting, no one can access crypto without having a private wallet key.

"At the moment, there is no easy way for customers to determine the type and extent of their exposure to the crypto trading platform collection," said Cornell Law School professor Dan Awrey, who read the article, via email. "Customers should assume that a breakdown of the platform will put them in a significant recovery delay, ultimately they could earn cents a dollar."


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