Great piece written by an actual expert on the US bankruptcy code. You don’t own coins deposited with an exchange from the point of view of a court, no matter what the exchange itself says. Well worth reading because some exchange will likely go bankrupt eventually! The situation with an exchange headquartered outside the US may well be much worse. You don’t have any idea prior to consulting a lawyer in that country.
“The big point here is the if you are a customer of a cryptocurrency exchange, you risk being a general unsecured creditor of the exchange if it should file for bankruptcy. It doesn’t matter that the exchange’s contract with you says that you “own” the currency. That’s not determinative of what will happen in bankruptcy. If you’re a cryptocurrency exchange customer you’re actually in a worse position than if you dealt with a traditional financial institution for a bank deposit or security, as the exchange is not regulated for safety-and-soundness and there’s no insurance protecting your assets.”
> Well worth reading because some exchange will likely go bankrupt eventually!
This has already happened on a massive scale with MtGox in Japan. That unwind closely resembled a traditional corporate bankruptcy liquidation. Many other smaller exchanges have failed in a disorderly manner due to hacks and exit scams.
Not all exchanges are completely unregulated. US based exchanges all fall under scrutiny of "money transmitter" regulators. Coinbase is also regulated as a digital asset company by New York. Coinbase mentions in their TOS that USD deposits are kept in FDIC insured accounts kept separate from corporate funds. Their Crypto assets are not segregated however, which is surprising.
If you use the APY programs on these sites, please do read the fine print. They're (generally, tl;dr, IANAL) allowed to loan your assets out to a 3rd party once you sign up and completely disclaim all risk and guarantee in doing so.
“The big point here is the if you are a customer of a cryptocurrency exchange, you risk being a general unsecured creditor of the exchange if it should file for bankruptcy. It doesn’t matter that the exchange’s contract with you says that you “own” the currency. That’s not determinative of what will happen in bankruptcy. If you’re a cryptocurrency exchange customer you’re actually in a worse position than if you dealt with a traditional financial institution for a bank deposit or security, as the exchange is not regulated for safety-and-soundness and there’s no insurance protecting your assets.”
Personal disclosure: extreme crypto skeptic