What Happens When A Crypto Exchange Goes Bankrupt

FxBrokerReviews.org – The possibility of loss is the main drawback of cryptocurrencies, and it is considerably harder to control when a cryptocurrency corporation is keeping your coins. Crypto exchange FTX experienced severe liquidity difficulty in November 2022 and filed for Chapter 11 protection. Two powerful cryptocurrency trading platforms, Voyager and Celsius, filed for bankruptcy in July 2022.

Crypto Investors Cannot Withdraw Due To Bankruptcies 

The collapse of Voyager and Celsius highlights the unique dangers that cryptocurrency owners and investors run when they entrust their money to such businesses. Investor losses from these two occurrences could total well over $1 billion.

On July 1, 2022, Voyager filed for Chapter 11 bankruptcy protection. The company stated that consumers should receive a full refund of their U.S. dollar deposits. Still, it could not specify how much their crypto holdings will be returned to customers. At the time of the bankruptcy filing, it asserted that the company had $1.3 billion in cryptocurrency assets owned by customers.

On July 13, 2022, Celsius Network, a sizable bitcoin lending platform, requested bankruptcy protection. The application was made around a month after Celsius stopped all transfers, swaps, and withdrawals between customer accounts. Celsius revealed in a document filed with the U.S. Bankruptcy Court in New York that it owes almost $1.2 billion more than it has on hand.

Due to the inability of Voyager and Celsius customers to withdraw their bitcoin assets, all cryptocurrency users must think about any potential hazards associated with the exchange or loan platform they are currently utilizing if any.

The FDIC Does Not Insure Cryptocurrency 

The Federal Deposit Insurance Corp. never insures bitcoin holdings, despite confused marketing messaging leading investors to believe otherwise (FDIC). The FDIC covers deposits in the event of bank failure. Investors should know that government bodies will only reimburse them if their cryptocurrency exchange closes, unlike a bank, where the government ensures money is up to account and institution restrictions.

The FDIC has even gone so far as to mandate that all member banks and financial institutions participating in cryptocurrency-related operations declare those activities to the FDIC for oversight. Additionally excluded from FDIC protection are stablecoins, a kind of cryptocurrencies that are always linked to a national fiat currency backed by the government. Those currency pegs are only sometimes practical, as holders of the TerraUSD stablecoin discovered.

Who Has Priority During A Bankruptcy? 

There is a defined line of command regarding who receives payment for the residual assets during Chapter 11 bankruptcy proceedings. Investors may not lose everything, even if a corporation owes $1 billion more than it has in assets.

Under Chapter 11, the bankrupt corporation must publish a comprehensive schedule of assets and liabilities and other financial statements and reports—the business, attorneys, and bankruptcy court work to determine who receives what throughout the bankruptcy proceedings.

According to the law, secured creditors often receive the first payments. After fulfilling such commitments, money is used to pay off debts owed to unsecured creditors. Investors come in almost last when it comes to getting their money back.

Everyone is informed of their pro rata portion once the pool of assets to be repaid to individual investors has been computed. For instance, consumers would receive about 90% of their deposits back if the business owes customers $100 million but has $90 million left after paying off debt.

How To Get Money Back From A Bankrupt Crypto Organization 

The cryptocurrency company should have your contact information and an accounting of what you owe on file if you complied with know your customer (KYC) standards and created your account with accurate information. You should ideally hear from the company about recovering payments if it goes bankrupt.

Most businesses will use their procedure to transfer money to clients. To obtain your cryptocurrency or cash back, you should follow up by filling out forms, verifying your address or payment information, and maintaining other paperwork requirements.

Investors in cryptocurrencies risk losing all of their money or cryptocurrency in the event of bankruptcy. Still, there’s also a chance they’ll get something back—even if it’s only a portion of what they initially put in.


Any financial institution you work with may experience stressful, perplexing, and expensive effects from bankruptcy. Even more customer uncertainty and losses may exist in the bitcoin sector. But instead of freaking out, it’s preferable to wait for the bankruptcy procedure to finish before figuring out exactly what you’ll get back.

Keep an eye on your inbox and mailbox for advice on filing a claim and recovering as much of your money as possible if you discover yourself associated with a defunct crypto company.

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