UPDATED APRIL 15TH, 2024
When we launched Alto CryptoIRA®, we chose to integrate with Coinbase because of its commitment to trust, accountability, and proper risk management practices.
As a publicly traded company registered in the United States—and the largest publicly traded crypto exchange—Coinbase is required by law to report its financial data and submit to rigorous audits.
Additionally, Coinbase is a state-chartered trust company under the laws of the state of New York, and it acts as a fiduciary on behalf of Alto CryptoIRA® accounts. In other words, and consistent with IRS rules on investments made within an IRA, assets are always considered Alto’s for the benefit of Alto’s clients. Therefore, they cannot be loaned or rehypothecated.
It also should be noted that Alto does not have any corporate holdings of cryptocurrency on our balance sheet and we don’t make crypto loans, neither our own nor on behalf of our customers.
Assets Are Backed 1:1 to Ensure Liquidity
While the circumstances varied, the collapses of Celsius, FTX, Terra Luna, Voyager, and others all appear to share a common thread: insufficient liquidity to cover withdrawals. When confidence waned, investors apparently rushed to withdraw or sell their holdings in a classic “bank run” scenario.
Often this can result from being over-leveraged. That is, when a business borrows more than it can cover. Other firms were using client assets as collateral for loans in order to offer very high yields.
In the case of FTX, a report by CoinDesk showing that a majority of sister company Alameda Research’s holdings were in FTT, the native token of FTX—and Binance’s subsequent announcement it would be selling all of its FTT holdings—sent investors racing to pull their funds.
Unfortunately for so many investors, it appears that FTX may have been transferring client assets from one company to another to trade and use as collateral. As a result, it didn’t have the funds to cover client withdrawals, leading FTX and its subsidiaries to declare bankruptcy.
Coinbase, on the other hand, holds all customer assets 1:1 in institutional-grade hot and cold storage. That means that Coinbase maintains all Alto CryptoIRA® and other Coinbase account assets fully intact and without shortfall at all times to ensure overall liquidity to cover withdrawals. All cash is held in FDIC-insured accounts.
Furthermore, neither Coinbase nor Alto is permitted to lend, loan, use, or rehypothecate Alto CryptoIRA® customer assets.
And because Coinbase is both based in the United States and publicly traded, it is thus subject to much stricter reporting requirements than private, off-shore companies. This means that anyone can look up Coinbase’s SEC filings and financial audits.
For more information, read Coinbase’s recent blog post on the exchange’s approach to transparency and security. We also encourage you to read Coinbase CEO Brian Armstrong’s op-ed on the role clear regulatory frameworks can and should play in preventing events like the FTX bankruptcy from happening.
We’re Committed to Providing a Safe and Streamlined Solution for Investing in Alternatives
At Alto, our mission is to provide you with a wide range of opportunities for portfolio diversification—from crypto, private equity, and venture capital, to real estate and farmland. Because building the financial future you want starts with being able to invest in the assets you’re interested in. And most importantly, we want you to be confident in the custody of all your investments with us.