One of the world’s largest cryptocurrency exchanges—FTX Trading Ltd.—and many of its affiliates filed for bankruptcy earlier this month.1 While the full impact of the FTX bankruptcy is not yet clear, various responses from the executive branch and federal and state regulators indicate that, in the short term, agencies will continue to use their existing authorities to seek information about the practices of crypto market participants and to enforce existing rules to protect customers and avoid further market contagion.2 The following statements may indicate what market
We are heading into the holiday season. It’s a Wonderful Life will be on television. And cryptocurrency bankruptcies will be in the news. Yesterday, BlockFi filed for bankruptcy. What does a seventy year old Frank Capra movie – about a bank run in a small town during the Great Depression – tell us about the latest crypto platform’s liquidity crisis? Will depositors get their money back? Is there any insurance for the creditors?
Part 1 – Celsius Bankruptcy
Cryptoassets are traded on a global basis. Indeed, the markets are even more global and constant than markets in more conventional financial instruments, rivalled only perhaps by the FX markets in their reach.
Another domino has fallen. Earlier this year, we wrote about the challenges facing the crypto industry that resulted in the bankruptcy filings of Three Arrows Capital, Celsius Network, and Voyager Digital. We noted that other crypto entities could also end up in chapter 11, and that prediction has proven correct.
Over the span of two weeks in July 2022, two of the largest retail-facing cryptocurrency platforms, Celsius and Voyager, filed for chapter 11 bankruptcy protection.
Crypto investors were dealt another blow on November 11 when FTX, the world’s second-largest cryptocurrency exchange, filed for chapter 11 bankruptcy relief in the District of Delaware, along with more than 130 related companies and affiliates. The bankruptcy was spawned by liquidity issues brought on by the sudden collapse in value of FTX’s crypto assets. Starting on November 6, customers simultaneously attempted to withdraw their funds and assets from the exchange, causing a situation akin to a classic bank run that led to an estimated $32 billion in value quickly evaporating.
In a sudden and stunning collapse, FTX, the world’s second largest cryptocurrency exchange, run by 30-year-old Sam Bankman-Fried along with more than 130 entities affiliated with FTX, filed for Chapter 11 bankruptcy protection in Delaware on Friday.[1] Separately, the Securities Commission of the Bahamas appointed a Bahamas-based provisional liquidator for the controlling FTX entity and froze its assets along with
How did we get here?
The crypto markets were rocked again last week by the collapse and bankruptcy of FTX and Alameda Research. Within a few short days, Sam Bankman-Fried (SBF) and his companies went from a stabilizing force for markets and acting as an industry leader to causing one of the greatest disruptions in digital asset market history.
As discussed in previous installments of this White Paper series, the Lummis-Gillibrand Responsible Financial Innovation Act (the “Bill”)1 proposes a comprehensive statutory and regulatory framework in an effort to bring stability to the digital asset market. One area of proposed change relates to how digital assets and digital asset exchanges would be treated in bankruptcy. If enacted, the Bill would significantly alter the status quo from a bankruptcy perspective
OVERVIEW OF DIGITAL ASSETS IN BANKRUPTCY