With markets on a downturn and an increase in crypto companies filing for bankruptcy, owners of cryptocurrency are left worrying about how bankruptcy might affect their digital monetary assets. The crypto market has run fairly smoothly since its inception, meaning that it is unclear how crypto currency will be dealt with in a bankruptcy proceeding and if crypto owners will be able to recover in such an instance or be faced with devastating losses. Courts will be left to decide the unanswered questions of how to treat creditor priority and valuation of assets in the budding cryptocurrency bankruptcy proceedings – questions that will determine how much, if at all, crypto owners will be able to recover if it established that they do have rights to get their money back. Not only are these proceedings unprecedented and new to the courts, the fluid and untethered nature of cryptocurrency poses an additional difficulty in resolving the key issues of valuation and creditor priority.
[I]f the Terra/LunaLUNA 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.
With more crypto firms becoming insolvent and filing for bankruptcy, it is now clear that many customers will face massive losses, as their rights to their funds and assets are not clear.
[E]ven if customers’ rights to get their money and assets back do exist, it is not clear that such customers will end up getting anything.
What will happen to the customers of bankrupt crypto firms? It is unclear, but my advice is to heed the European financial regulators’ warning from a few months ago: invest in crypto only what you are willing to completely lose.
Source: Bankruptcy And Crypto | Forbes