If there's a very large value swing, either up or down or both, services such as this are guaranteed to have to drink from the godzilla-scale firehose and learn to like it.

If there's a run on the bank, the little people are gonna get screwed, no doubt about it, no matter what store of value we're talking about (seashells, gold, paper currency, cryptocurrency, gold-pressed latinum, etc).

This is exactly my question. What happens when these exchanges face the inevitable panic/bank run?

We've been through this in the past. They just cancel your transactions without apology.

That's what they did to me. Incredible how much naivety surrounds and excuses their behavior. There is no recourse when they "accidentally" lose your purchase at $200 once it jumps to $450.

Bank runs are bad when there isn't a full reserve. Coinbase should carry a full reserve.

Fractional reserve banking is a prisoner's dilemma, we all marginally benefit from the status quo of credit/debit/interest, but in a crisis, the first people to pull out win, and everyone else loses.

Coinbase isn’t a bank it’s an exchange. Why would they carry a reserve of anything?

It stores your shares for you, but it’s not loaning them out. The only way you get money out of Coinbase is if someone buys your shares.

They presumably have on hand the full amount of cash and Bitcoins that their participants have given them and don't loan any of them out. That means they have a full reserve.

They only need(* depending on TOS guarantee) to keep the full amount of Bitcoins matching your Coinbase wallet. They can take all the cash they've been given, pile it up and set it on fire if they like.

1 BTC at Coinbase is only worth whatever Fiat currency Coinbase is willing to buy it from you for. If that's $1 for all your Bitcoins, tough luck.

They're under no obligation to guarantee a sale price for BTC.

> They can take all the cash they've been given, pile it up and set it on fire if they like.

Then how do they pay you when you come to withdraw your cash?

Hopefully and unlike the exchanges using Tether.

You aren't buying the bitcoin from Coinbase...

No? My understanding was that if you want to sell Bitcons on Coinbase you have to give them custody.

I wonder how apt the comparison to a bank run is, given that AIUI Coinbase holds the Bitcoin of the exchange participants. Is there any legal form of sequestration of those assets?

Hope you know Coinbase is only 8% of the total Bitcoin volume each day.

https://coinmarketcap.com/currencies/bitcoin/#markets

A run on one bank frequently has knock-on effects on other banks.

What if Coinbase is the one buying large amounts of bitcoin? Then using reserves so they can buy/sell on both sides. See where it gets risky?

I wonder how quickly CoinBase could release funds from cold wallet(s)? Could be hours... which could pretty bad.

Right, "only 8%" is rather a lot.

Yes but what is the % of withdrawls? I know most U.S. members transfer from the exchanges over to Coinbase to withdrawl so they need them eventually