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Is Crypto Collapsing? – Fin Tech



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November 11, 2022, brought news of yet another massive crypto
bankruptcy filing. One of the largest crypto exchanges, FTX, filed
a petition for bankruptcy protection in Delaware. FTX, Alameda, and
other affiliates estimated in their filings that they have more
than 100,000 creditors. With their estimated range of between $10
and $50 billion worth of assets and liabilities, this could well be
the largest crypto-related bankruptcy ever filed.

This follows a slew of other big names in crypto which have
filed bankruptcy petitions recently, including lender Three Arrows
Capital (3AC) and the Celsius crypto exchange. Others have sought
similar protections overseas, such as Zipmex’s proceeding in
Singapore.

Why are these companies filing bankruptcy? The reasons vary.

  • Business models built on unsustainable growth rates in
    cryptocurrency prices

  • Collapse in cryptocurrency prices, leading to “runs on the
    bank”

  • Financial irregularities

Is your crypto safe? That depends on what it is and where you
park it. Some newer tokens and wallet software may not have been
extensively tested, and so may have weak points that an attacker
might exploit. Even “safe” currencies like Bitcoin can be
hacked if stored in a hot wallet. Of particular interest, customers
of a bankruptcy exchange may find it difficult to recover their
crypto deposits because their investments may be treated as mere
unsecured claims against the exchange, drastically reducing the
odds of recovery.

Filings by crypto-based entities come with a host of thorny
issues. The most obvious is whether a crypto exchange’s
bankruptcy estate owns the tokens it holds for others. But there
are many others, including privacy concerns with respect to what
previously were anonymous transactions and questions about the
propriety of large financial withdrawals by high-ranking
individuals in the days surrounding the filing of bankruptcy
petitions.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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