The crypto industry is highly distressed today. The successive declaration of bankruptcy which came from five different crypto companies in less than two months, has increased investors’ fears over the security of their digital assets. Many today have been compelled to believe that the whole crypto companies could be headed for bankruptcy soon. Is this a correct take on the crypto companies today? Are the remaining crypto companies headed to bankruptcy also or still strong enough to sustain themselves? This work will help you find the best response to these questions.
Meaning of Crypto
Cryptocurrencies are a special class of digital assets that have monetary value accorded to them and are used as a means of making payments online. Its foundation stems from the revolution to break out from the traditional form of money controlled by the government. Hence, the first cryptocurrency ever launched, known today as Bitcoin, was created as a decentralized means for making payments.
Are Crypto companies running bankrupt?
The rising number of crypto companies that crashed so far in 2022 has given crypto investors much concern over the security of their digital assets. Within the last three months, five popular crypto exchanges, including Voyager, Celsius, BlockFi, AAX, and FTX exchange, have been declared bankrupt and unable to process depositors’ withdrawal requests.
Aside from these, many more exchanges have been suspected of gradually going bankrupt due to the diminishing liquidity on their trading platforms. Many Crypto investors, especially those affected by these crashes, have taken to the street to raise the alarm that Crypto companies are gradually going bankrupt.
Is this a correct assertion about the crypto companies today? Are the remaining crypto companies headed to bankruptcy also or just facing minor liquidity crunches? Is it still safe to buy cryptocurrency at this point or divert to other investments?
One major backdrop which is believed to have resulted in the crash of the second-largest crypto exchange – FTX, is the supposed mismanagement of investors’ funds. The exchange was found guilty of loaning investors funds to its affiliated crypto trading research company Alameda. The spiral effect of this crash affected other crypto companies, especially the BlockFi crypto lending exchange causing it to go bankrupt too.
This singular incident served as an eye-opener to investors on the happenings within the various crypto exchanges. Investors have since then pushed on various crypto exchanges to provide their proof-of-reserve as a testimony that they are not likely to go bankrupt any time soon.
Many crypto exchanges have been quick to comply with the demand and proceeded to publish their proof-of-reserve data. This has revived investors’ confidence again that there are yet some crypto companies that are still stable today with enough funds to process clients’ withdrawals in their reserve and are not likely to go bankrupt soon.
The top crypto companies that have published their proof-of-reserve are Binance, Kucoin, Huobi, Bitfinex, OKX, and Crypto.com.
What happens when a crypto company runs bankrupt?
There is hardly any law that defends the traders using the crypto company to get back their whole investments when the exchange goes bankrupt. However, what happens when the exchange files for bankruptcy, according to the law, is that its available funds are used to first settle its secured creditors.
The next set to settle afterward is the unsecured creditors using the exchange. After this category, whatever is left will be used to settle traders using the exchange. In this case, traders may no longer receive the exact amount they have deposited with the exchange, but only a fraction of what is left after the two categories of creditors have been settled.