Biden Administration wants Crypto Exchanges to Separate Customer and Corporate fund

U.S. President Joe Biden's administration will press Congress to demand cryptocurrency exchange, and they will keep their customer's money separate from their corporate funds. Coinbase (COIN) has recently announced that customers' money will be jammed up if the company declares bankruptcy. So, federal officials push U.S. lawmakers to fix the problem by insisting that a future legal framework requires crypto firms to keep customer assets walled off. For financial firms, the custodial rule is standard. Still, crypto exchanges routinely mingle their funds with their customers' holdings in the same pot giving rise to a situation that administrations want to end by the law. 

The investments in the securities industry are now more heavily regulated. The administration thinks the trading platforms should still permit the pooling of customers' assets, allowing the companies to keep managing trades internally rather than putting each move on a blockchain. 

Last week Coinbase, one of the industry's largest exchanges, mentioned, "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." As per the people, this was a misstep by Coinbase, and it would lock up clients' tokens or funnel them away to pay other creditors. 

"Don't think you own your tokens when you go into a digital wallet," Securities and Exchange Commission (SEC) Chair Gary Gensler said this week, underlining some of the federal government's concerns about custody of investors' assets. "If the platform goes down, guess what? You have a counterparty relationship with the platform. Get in line in bankruptcy courts."

"Instead of focusing on the lack of client asset segregation at digital asset exchanges, which is also true with securities held in 'street name' at DTCC, legislators should work on a Digital Asset Investor Protection Act that mirrors the Securities Investor Protection Act", said Dave Weinberger, co-founder and CEO of CoinRoutes, Inc. This could lead to proceedings of primary status in bankruptcy.


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