Over the past few years, many investors have used cutting edge financial products, like crypto exchanges, to make significant profits. Now, that the markets are turning, many are wondering how protected they will be in the event of collapse of a crypto exchange. We’re about to find out the hard way as those cutting edge financial platforms are being put on trial in bankruptcy courts for the first time. Although many of these products have been around for much of the past decade, in a booming market bankruptcy filings are few and far between.
Crypto has been around for more than a decade, but there is little to look at for guidance because things have generally gone well for crypto companies. Aside from crypto lending platform Cred, which filed for bankruptcy in 2020, the only other noteworthy precedent for a crypto bankruptcy case is Tokyo-based Mt. Gox – the largest exchange for BitcoinBTC +2.7% in 2010 that collapsed in 2014; that was a Chapter 15 case (where representatives of a corporate bankruptcy proceeding outside the U.S. obtain access to U.S. courts).
After the past few months of a crushing “crypto winter,” the avalanche of filings is on its way. First was Canadian crypto broker and lender Voyager Digital, which was recently forced to hastily file for Chapter 11 bankruptcy in New York, after having suspended account holders from withdrawing assets from their accounts. Voyager had lent $650 million worth of crypto to a hedge fund, Three Arrows, which also went under. Voyager hired the prominent law firm Kirkland & Ellis to represent it in its bankruptcy proceedings, which it filed under duress. In the papers Voyager submitted to the bankruptcy court Voyager argued that it already had a tentative plan of restructuring. According to its plan, account holders would be repaid in the form of crypto “coins” and “tokens”, in addition to proceeds from the litigation with Three Arrows, and some equity in a future reorganized Voyager.
Then, several days later, crypto lending platform Celsius, which refers to itself as “a crypto bank” – it charges interest when lending out crypto, and enables crypto deposits to earn their own interest – confirmed that it has initiated Chapter 11 bankruptcy proceedings as well. And if the Terra/LunaLUNA +3.2% stablecoin crash a couple of months ago was not enough to signal that things are about to get ugly (like the Bear Stearns' impending collapse in 2008 that regulators prevented by arranging for a distressed sale to J.P. Morgan Chase) the Celsius collapse has already been labelled by some as a “Lehman Brothers moment” for the crypto industry.
Continue reading: https://www.forbes.com/sites/nizangpackin/2022/07/15/bankruptcy-and-crypto/?sh=1bd723d37df5
Crypto has been around for more than a decade, but there is little to look at for guidance because things have generally gone well for crypto companies. Aside from crypto lending platform Cred, which filed for bankruptcy in 2020, the only other noteworthy precedent for a crypto bankruptcy case is Tokyo-based Mt. Gox – the largest exchange for BitcoinBTC +2.7% in 2010 that collapsed in 2014; that was a Chapter 15 case (where representatives of a corporate bankruptcy proceeding outside the U.S. obtain access to U.S. courts).
After the past few months of a crushing “crypto winter,” the avalanche of filings is on its way. First was Canadian crypto broker and lender Voyager Digital, which was recently forced to hastily file for Chapter 11 bankruptcy in New York, after having suspended account holders from withdrawing assets from their accounts. Voyager had lent $650 million worth of crypto to a hedge fund, Three Arrows, which also went under. Voyager hired the prominent law firm Kirkland & Ellis to represent it in its bankruptcy proceedings, which it filed under duress. In the papers Voyager submitted to the bankruptcy court Voyager argued that it already had a tentative plan of restructuring. According to its plan, account holders would be repaid in the form of crypto “coins” and “tokens”, in addition to proceeds from the litigation with Three Arrows, and some equity in a future reorganized Voyager.
Then, several days later, crypto lending platform Celsius, which refers to itself as “a crypto bank” – it charges interest when lending out crypto, and enables crypto deposits to earn their own interest – confirmed that it has initiated Chapter 11 bankruptcy proceedings as well. And if the Terra/LunaLUNA +3.2% stablecoin crash a couple of months ago was not enough to signal that things are about to get ugly (like the Bear Stearns' impending collapse in 2008 that regulators prevented by arranging for a distressed sale to J.P. Morgan Chase) the Celsius collapse has already been labelled by some as a “Lehman Brothers moment” for the crypto industry.
Continue reading: https://www.forbes.com/sites/nizangpackin/2022/07/15/bankruptcy-and-crypto/?sh=1bd723d37df5
