Cryptocurrency reclaimed the public consciousness when a catastrophic liquidity crisis resulted in a Chapter 11 bankruptcy filing by FTX in November. That move follows two other bankruptcies by trading platforms Voyager and Celsius this past July that will likely result in $1 billion in losses for investors. Their customers are currently unable to withdraw their crypto assets.
The filings reveal the ongoing risks facing holders and investors and the need for heightened awareness of the risks in the exchange or lending platforms.
Misconceptions fueled by mixed messages
Many investors believe that their cryptocurrency investments are FDIC Insured when, in fact, they aren’t. Creative marketing messaging recklessly and deceptively “hypes” that benefit with deliberately vague wording promotional materials. Simply put, a government agency does not exist that will, in any way, shape, or form, make them whole. Even Stablecoins, a type of crypto-backed by a national, government-backed fiat courtesy, is included.
The FDIC mandates that their member banks and other financial institutions participating in any activity involving cryptocurrencies provide full disclosure to the agency for supervisory feedback. In spite of that directive, vague platitudes turn into empty promises.
Is reimbursement an option?
Priority in Chapter 11 proceedings is clear. The initial disbursements go to secured creditors, followed by unsecured creditors. Investors are last in line, with many receiving pennies on the dollar if they are lucky enough to recover any compensation.
Different companies have their own processes for returning crypto funds. Many are highly complicated and require filling out countless forms and confirming personal and payment information.
All investments carry risks. When wrongdoing plays a role, particularly with cryptocurrency, an experienced attorney’s help can minimize the financial damage.