Is Coinbase FDIC insured?

coinbase fdic header

Wondering about insurance on your Coinbase account?

Does the Federal Deposit Insurance Corporation protect deposits on Coinbase? And if not, what sorts of protections do you have?

Here’s everything you need to know (and more) about FDIC insurance on Coinbase.

Is Coinbase FDIC insured?

That depends on what you are keeping in your Coinbase account.

Keep reading…

Cash in your Coinbase account is FDIC Insured?

YES!

As Coinbase states in their legal policies:

To the extent U.S. customer funds are held as cash, they are maintained in pooled custodial accounts at one or more banks insured by the FDIC. Our custodial accounts have been established in a manner to make available pass-through FDIC insurance up to the per-depositor coverage limit then in place (currently $250,000 per individual).

- Coinbase Help Center

Keep your eye on the words “To the extent…funds are held in cash”.

What does that mean?

Well, Coinbase doesn’t only hold customer fiat deposits in cash. Rather, much of the deposits are held in “liquid U.S. Treasuries” and “USD denominated money market funds”.

Coinbase points out that “customers should not assume that funds are being held in one manner over the other.”

And for non-US customers, “funds are held as cash in dedicated custodial accounts.”

So what does all this mean?

This means that US customers with fiat balances in their Coinbase accounts may have some of their cash deposits insured by the FDIC up to their set limit.

Currently, the FDIC provides insurance up to a per-depositor coverage limit of $250,000.

So as long as your account has a cash balance of $250,000 or less, you might be fully covered.

Is Cryptocurrency in my Coinbase account FDIC Insured?

For cryptocurrency assets held in Coinbase accounts the simple answer is NO.

This is made very clear (again) on their legal policy page.

"Cryptocurrency is not legal tender and is not backed by the government. Cryptocurrency, (including but not limited to tokens such as bitcoin, litecoin and ethereum, and stablecoins such as USDC), is not subject to Federal Deposit Insurance Corporation (“FDIC”) or Securities Investor Protection Corporation protections."
- Coinbase Help Center

But that doesn’t mean you are without some protections, although limited.

What kind of coverage do I have from my Coinbase account?

Coinbase has insurance coverage for cyber crimes that affect breaches in security at their site.

In 2019, Coinbase revealed that it had up to $255 million in insurance coverage for coins held in “hot wallets.”

Coinbase went on to report that only 2 percent of customers’ assets are held in hot wallets while 98% are held offline in cold storage.

The Coinbase’ earnings report for March 2022, states that $256 billion in both fiat currencies and cryptocurrencies is being held on behalf of its customers. This means that the amount of insurance coverage would not be adequate to cover even 1% of the assets.

This may be why Coinbase states the following on their legal policy page:

In case of a covered security event, we will endeavor to make you whole. However, total losses may exceed insurance recoveries so your funds may still be lost.
- Coinbase Help Center

So is my account covered against all security hacks?

The insurance coverage that Coinbase has is for system-wide breaches and does not cover individuals that may have their accounts hacked.

our policy does not cover any losses resulting from unauthorized access to your personal Coinbase or Coinbase Pro account(s) due to a breach or loss of your credentials. It is your responsibility to use a strong password and maintain control of all login credentials you use to access Coinbase and Coinbase Pro.
- Coinbase Help Center

Bottom Line: If your account gets hacked because of your mistake, don’t expect Coinbase to make you whole. In fact, you shouldn’t even rely on Coinbase to give you your crypto back, even if it’s their fault it was stolen.

What if Coinbase goes bankrupt?

In May 2022, due to a quarterly loss of $430 million, there was concern about what would happen to crypto assets deposited with Coinbase if Coinbase were to go bankrupt.

And thanks to a new SEC disclosure requirement (called ‘SAB 121’), we know what Coinbase would do in that situation:

the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings.
- Coinbase Q1 2022 Earnings, SAB 121 disclosure

This is because when you place your crypto in a Coinbase account, Coinbase controls the asset and all company assets would be tied up in the bankruptcy proceedings. This means you would become a general unsecured creditor.

AKA - last in line to get your money back if Coinbase goes belly up.

Coinbase CEO and founder Brian Armstrong did clarify in a tweet that they would be updating their terms so that retail customer funds would not be treated this way in the future, and Coinbase is working to get these terms updated.


Brian Armstrong tweet SAB 121 coinbase bankruptcy


That said, there is no obligation for Coinbase to do this and we don’t know when (or if) they ever will.

How do I protect my crypto from loss?

As the saying goes, no one takes as good a care of your stuff as you do.

The best way to protect your crypto is by being in control of it and that is done by keeping it in an offline hardware wallet. You can learn all about that here.

Summary

US dollars held on Coinbase is only FDIC insured up to $250,000 per customer. How much of that is actually covered depends on how their fiat deposits are mixed.

Crypto held on Coinbase is not FDIC insured. It is insured to some degree by third party insurance companies. But, that insurance only covers very specific circumstances (site-wide theft and hacks) and only to a certain amount (less than 1% of total deposits).

Learn about reporting Coinbase taxes here.

About the Author: Colin Aulds

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