What happens to investors money when a cryptocurrency exchange goes bankrupt

Based in New Jersey Celsius The network is the latest to announce voluntary bankruptcy due to balance sheet illiquidity. Celsius has filed a Chapter 11 proceeding, which is said to provide the best opportunity to complete a comprehensive restructuring transaction that stabilizes the business and maximizes the value of all stakeholders.

In a bankruptcy court filing last week, the exchange said, “Celsius’ early success wasn’t hiccups. The amount of digital assets on the company’s platform increased faster than the company was ready to deploy. As a result, the company later created what proved to be a particular inadequate asset development decision. “

Celsius emphasized some of the negative factors of crypto exchange and pointed out that it was due to the explosion of Terra LUNA (“Luna”) and its TerraUSD (UST) stablecoin (“UST”)-it is “crypto”. Accelerate the beginning of “Winter” and sell the entire industry in 2022.

In particular, as of July 13, 2022, Celsius’s liabilities were approximately $ 5.5 billion and assets were valued at approximately $ 4.31 billion. As a result, the company’s balance sheet has a deficit of $ 1.19 billion.

The other is Voyager Digital, which is in bankruptcy proceedings after suffering heavy losses from the collapse of 3AC and the collapse of the market. Recently, FTX has proposed to provide some liquidity to Voyager’s customers in the process.

The plunge in the crypto market is not the only vulnerable crypto exchange. In fact, even investors can lead to a serious liquidity crisis on the exchange. at least, CoinFlexIt was only one investor who pushed the exchange to stop trading.

On July 9, CoinFlex explained that it stopped withdrawing because a large investor did not pay a $ 47 million margin claim. CoinFlex will recover $ 84 million through proceedings against this individual. In addition, the exchange plans to soon create temporary liquidity for depositors. Meanwhile, in the long run, we are also discussing the establishment of a joint venture with a large US-based exchange / ATS platform.

Zipmex, Asia’s leading cryptocurrency exchange, has joined the tide to invalidate transactions until further notice. However, the exchange has made it possible for investors to withdraw their trade wallets. Other crypto exchanges such as Binance, Voyager CoinFlex, Celsius, Vauld and Skybridge Capital are part of the platform that has been suspended since June.

These crypto exchange struggles are alarming for investors as they can affect the hard-earned money. When investors invest in crypto markets or other capital markets products, everyone wants to make a significant profit from their investment. But what if your money gets caught up in the bankruptcy of your crypto trading platform? This is sadly true!

Vinit Khandare, CEO and founder of MyFundBazaar, said market liquidity constraints could lead to a stock price collapse that would cause a new financial crisis. Develop a wide range of strategies to take advantage of the negative effects of liquidity.

In May of this year, Coinbase, the largest US-based cryptocurrency exchange, submitted to the US Securities and Exchange Commission (SEC) that “supported cryptocurrency assets are guaranteed or guaranteed by governments and agencies. I don’t. “

Filing Coinbase loses its reputation, litigation, and regulation if the crypto platform or its partners maintain the necessary controls, properly manage their clients’ crypto assets and funds, and fail to comply with applicable regulatory requirements. Enforcement measures, stated that it could lead to significant financial losses, when a loss occurs, the customer discontinues or reduces the use of the product, resulting in significant fines and fines, additional restrictions, business, operating results, And can adversely affect your financial position.

In addition, Coinbase may consider crypto assets stored on behalf of the customer to be the property of bankruptcy real estate, so in the event of bankruptcy, crypto assets stored on behalf of the customer may be subject to bankruptcy proceedings. I said there is. And such customers may be treated as our general unsecured creditors.

Simply put, if a crypto exchange goes bankrupt, your crypto assets may also be pushed into the process.

Abhijit Shukla, CEO and Director of Tarality, said: In bankruptcy scenarios, cryptocurrencies and funds held in an account may not be considered their assets and often pool different customer cryptocurrencies and funds together in the same storage wallet or account. increase. “

In addition, CEO MyFundBazaar emphasized that in the event of bankruptcy, cryptocurrency customers with custody assets are usually the last to line up to receive payments-customers who lock their cryptocurrencies in self-managed wallets. Private key that is not affected because it is owned.

“Using either undirected or probability-based trading methods, market bullishness and recession protect investors from potential losses and benefit from rising volatility scenarios. There is a possibility that we can do it, “says Kandare.

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