As the world continues to face the effects of the COVID-19 pandemic, industries across the board have felt the impact, with the crypto industry no exception. Many crypto platforms have been forced to declare bankruptcy or shut down in recent months. But what does this mean for crypto investors?
Firstly, it’s important to understand why these platforms are going bankrupt in the first place. One major factor is the economic downturn, which has caused a decline in both trading volumes and user activity. This has led to a reduction in revenue for many crypto platforms, especially those reliant on user fees or trading commissions.
Additionally, regulatory uncertainty has played a role in the downfall of some crypto platforms. As governments around the world struggle to understand and regulate the crypto industry, some platforms have fallen foul of regulatory bodies, resulting in fines or even closure.
So, what happens to your crypto when a platform goes bankrupt? Well, the answer depends on the specifics of the platform’s bankruptcy. In some cases, investors may be able to reclaim their crypto assets. This is typically the case when a platform is declared bankrupt and enters into liquidation proceedings. In such instances, the assets held by the platform are sold off, with the proceeds distributed to creditors and investors.
However, it’s important to note that this process can take a long time and may not result in all investors fully recouping their losses. Additionally, the value of crypto assets can fluctuate wildly, meaning that investors may not receive the same amount of value they invested originally.
In other cases, investors may lose their crypto entirely. This is typically the case when a platform simply shuts down without entering into liquidation proceedings. As there is no legal framework for the distribution of assets, investors may find themselves unable to access their crypto holdings.
So, what can crypto investors do to protect themselves from the potential bankruptcy of their chosen platform? One option is to diversify holdings across multiple platforms. This approach reduces the risk of losing everything in the event of a single platform’s collapse.
Another option is to store crypto assets in cold wallets. These are physical devices that store crypto offline, making them much less susceptible to cyber-attacks or other forms of security breach. As they are not reliant on a specific platform, they offer greater security and protection for investors.
Ultimately, the bankruptcy of crypto platforms serves as a reminder of the importance of due diligence and careful consideration when it comes to investing in crypto. Investors must do their research and carefully consider the risks before committing to any particular platform or asset.
In conclusion, the bankruptcy of crypto platforms is a challenging reality for many investors. While some may be able to recover their assets in the event of a platform’s collapse, others may face the loss of their crypto holdings entirely. Diversifying holdings and using cold wallets are just two of the ways investors can protect themselves in the face of these uncertainties. However, the best course of action is for investors to carefully research and evaluate the risks before investing in any particular crypto platform or asset.
The bankruptcies of Voyager and Bittrex, two prominent cryptocurrency platforms, have left investors with zero access to their funds. This has highlighted the need for crypto investors to safeguard their investments to avoid losing them. It also points to the need for greater financial regulations for alternative currencies in general.
The recent bankruptcy filings by Bittrex and Voyager are part of a prolonged “crypto winter,” which has seen other crypto company bankruptcies in the past year, including FTX, Celsius, and more. If you have crypto on these exchanges, you do not currently have access to your cryptocurrency. It is, for the foreseeable future, inaccessible.
Adam Smith, head of The Crypto Adviser, emphasizes the importance of users proactively protecting their coins. “It’s imperative that crypto investors secure their digital assets,” he says. “Leaving coins on an exchange exposes them to several risks, including cyber-attacks, a black swan event where the exchange unexpectedly collapses, or regulatory changes.” Smith recommends moving cryptocurrency onto a self-custodial wallet as it is imperative if you care about crypto security. Especially if you have a significant portfolio, you should control public and private keys.
The self-custodial wallet is also known as cold storage. Cold storage in the cryptocurrency world means your cryptocurrency is offline, stored in a USB or other wallet ledger device. The pro of cold storage is that your cryptocurrency is 100% yours. These wallets keep your private keys offline, safeguarding them from potential cyber threats. The main con would be that if you lose this physical item, you lose your money. The safety of your private keys is also crucial. Avoid storing them on digital devices vulnerable to hacking, such as cloud storage or mobile phones.
Hot storage means your cryptocurrency is stored on an application or platform connected to the internet. Crypto investors on Bittrex and Voyager are using this hot storage option. The pro is ease of use and access. The biggest con is what is currently playing out with these bankruptcies — the funds are essentially gone.
It is not impossible to store the same cryptocurrency in both hot and cold storage, though you could split your current holdings between the two. Pretty early on, the US and other countries regulated cryptocurrency exchanges as money transmitters like MoneyGram, says Alma Angotti, partner and global legislative and regulatory risk leader at Guidehouse. “The problem that we’re seeing now is definitional uncertainty,” Angotti says. “If Congress agrees with the SEC that these are securities, then all of these exchanges will be regulated like Morgan Stanley. That would go a long way in making people comfortable.”
Digital currencies go far beyond bankrupt exchanges and memecoins. Globally, countries are evaluating Central Bank Digital Currencies, the development of which you can track via the Atlantic Council’s website. Regardless of the crypto winter and continuing cascade of crypto platform bankruptcies, digital currencies aren’t going anywhere anytime soon. The best investors can do is conduct thorough research, protect their investments with extra diligence, and avoid investing resources that they can’t afford to lose.
