Commingling

Commingling is the mixing of customer assets with a firm's own funds, or of different customers' assets, in one undifferentiated pool. It is the recurring sin of custody failures: FTX routed customer deposits into accounts of its affiliated trading firm Alameda Research, contributing to the roughly 8 billion dollar shortfall revealed in November 2022.

Why it matters

Commingling destroys the traceability that ownership claims depend on. Once assets are pooled, no customer can point to specific coins or dollars as theirs, and in bankruptcy that usually demotes them from owners reclaiming property to unsecured creditors awaiting distribution. It also enables the underlying misconduct, since a firm that mixes customer funds with its own can spend, lend, or lose them long before anyone notices.

Customer protection regimes in securities and futures markets exist mostly to prevent exactly this, through mandatory segregation of client assets and independent custody.

In the gold vs bitcoin debate

Gold institutionalized a form of commingling long ago: unallocated bullion accounts give holders a claim on a bank's general gold pool, not on specific bars, which is why allocated storage with numbered bars commands a premium. Bitcoin's answer is sharper, since self-custody removes the pool entirely, and on-chain transparency lets customers demand cryptographic proof that a custodian keeps client coins segregated and fully reserved.