Congress Will Require Crypto Exchanges To Build "Guardrails" For Customer Funds

Citing a source, Coindesk reported that the Biden administration will urge Congress to require cryptocurrency exchanges to keep their customers’ funds separate from the companies’ own funds, which could limit how the crypto industry operates. 

The news comes shortly after Coinbase's SEC filing last week, which says: “in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors.” This means that if Coinbase goes bankrupt, it could result in customer tokens being locked up indefinitely, or giving priority to repaying other creditors.

Brian Armstrong, the Coinbase CEO subsequently stated that the company would not go bankrupt.

However, this situation has attracted regulatory attention. The new custody rule is the norm for financial firms such as futures platforms, but cryptocurrency exchanges often mix their funds with their customer ones, so the U.S. government wants to pass legislation to create guardrails for users, especially retail users.

Federal officials will push legislation in the coming weeks to include the change in the crypto bill being considered by Congress, people familiar with the matter said.

By Mary Liu

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