Money may never come out

Two cryptocurrency lending and investment platforms, Celsius and Voyager Digital, both filed for bankruptcy earlier this month, leaving millions of user assets frozen in their respective platforms.

Text: Xiaoxiang

If the crypto platform goes bankrupt, can the money still be raised?

For many Celsius and Voyager Digital users, this may be a question they have been tossing and turning over the past few weeks. And according to U.S. legal experts, these users clearly shouldn’t have much hope of getting all their money back now…

Two cryptocurrency lending and investment platforms, Celsius and Voyager Digital, both filed for bankruptcy earlier this month, leaving millions of user assets frozen in their respective platforms. The two firms froze customer accounts ahead of filing for bankruptcy after massive withdrawals caused liquidity problems.

Celsius operates much like a bank, taking customer deposits and lending them out, or making high-risk bets on so-called decentralized financial products to generate high returns. Voyager Digital has a similar operating model. The company was unfortunately caught up in the high-profile collapse of crypto hedge fund Three Arrows Capital, which declared bankruptcy after defaulting on a $660 million loan to Voyager.

The wind starts at the end of Qingping. The close interconnection between industry platforms makes the cryptocurrency market vulnerable to a wave of bankruptcy. This layer-by-layer subprime loan model is almost the same as when “Lehman Brothers” fell. With the collapse of cryptocurrency prices, the risks of this very fragile leveraged ecology have been completely exposed, and lead to Many major cryptocurrency platforms fell like dominoes.

In this currency crisis, the worst is obviously the ordinary investors with deposits and cryptocurrency assets in these encrypted platforms…

 Crypto Industry Lacks Investor Protection Mechanisms

Crypto lenders may look similar to traditional financial institutions, but in essence, they do not have the investor supervision and legal protection mechanisms inherent in banks and brokerages.

For example, the Securities Investor Protection Corporation (SIPC) offers traders up to $500,000 in cash and securities insurance in the event of a member broker experiencing financial difficulties. In addition, the Federal Deposit Insurance Corporation provides bank depositors with protection of up to $250,000 against the risk of bank failure.

Not only the United States, the United Kingdom and the European Union also have similar regulatory and legal protection mechanisms in the traditional financial sector.

However, the regulatory and protection mechanisms in the cryptocurrency space are completely blank: since there are no laws regulating crypto assets, if an exchange freezes someone’s account, or worse – a complete collapse of the platform, investors have no guarantees can get their funds back.

Daniel Besikof, a partner at Loeb & Loeb, said, “There is no such protection mechanism in place for the crypto market. I wouldn’t be surprised if it did happen (eventually difficult to withdraw), which would increase calls for greater regulation of the crypto industry. “

 Bankrupt platform users may be empty of “money” and “coin”?

For now, it’s unclear exactly what the situation will be for Celsius and Voyager Digital’s customers: while there have been previous examples of crypto companies filing for bankruptcy outside the U.S., such as the Japanese bitcoin exchange Mt. Bankruptcy is unprecedented in the United States.

It is worth mentioning that Mt.Gox, the world’s largest bitcoin exchange, filed for bankruptcy in 2014, and many of its creditors are still waiting to repay billions of dollars worth of cryptocurrencies.

The problem with centralized crypto platforms, said Daniel Saval, an attorney at law firm Kobre & Kim, is that they can mix funds from different clients and make high-risk bets. This way of working could lead to a court ruling that these assets are the property of the exchange, not the user.

“Users may be surprised to learn that in the event of a platform insolvency, the cryptocurrencies and funds in their accounts may no longer be considered their own,” Saval said. Platforms often pool the cryptocurrencies and funds of different customers in the same Store it in a wallet or account.”

Celsius’ terms of use state that any funds deposited with the company “may not be recovered” in the event of the company’s bankruptcy. The company, which filed for bankruptcy protection last week, disclosed a shortfall of about $1.2 billion on its balance sheet and owed users about $4.7 billion. Celsius, which claims to have $167 million in cash on hand, has so far still not allowed customers to withdraw funds, and has not given a clear indication of when it will reopen withdrawals.

Voyager said its customers’ dollars are held in FDIC-insured accounts at the Metropolitan Bank of Commerce in New York. However, this claim has been challenged by legal experts and the banks themselves. The Metropolitan Bank of Commerce said the FDIC only provides fund protection in the event of a bank failure, not crypto exchanges.

Voyager currently has a plan in place to use their accounts, Voyager shares and tokens issued by the company itself, as well as cryptocurrencies recovered from Three Arrows Capital.

Both Celsius and Voyager have hired well-known law firm Kirkland & Ellis to represent them in court.

According to Besikof, “Investors holding crypto assets through Voyager Digital and Celsius are currently in a difficult situation, with their accounts frozen, lawsuits put on hold, and the value and timing of what they can recover is unknown. Until these issues are resolved, they will There is still a lot of work to be done in bankruptcy court.”

 Many users are afraid to sleep at night

Both Celsius and Voyager are currently filing for bankruptcy in the Bankruptcy Court for the Southern District of New York under Chapter 11 of the U.S. Bankruptcy Code. Proceed as usual.

Legal experts say users of Celsius and Voyager are most likely to be considered “unsecured creditors,” a classification that groups them with a business’s suppliers and contractors.

That means they’re likely to be at the end of a long line of creditors waiting to pay court claims — after banks, corporate employees and tax authorities.

In a regulatory filing in May, Coinbase, the largest U.S. cryptocurrency exchange, said its users would be treated as “general unsecured creditors” in the event of bankruptcy. This means that if Coinbase goes into bankruptcy, Coinbase customers will not be able to recover their cryptocurrency or get back the equivalent in cash.

Dustin Palmer, managing director of consultancy Berkeley Research Group, said, “In general, most clients of cryptocurrency exchanges are unsecured creditors, so when an exchange collapses, secured creditors will be paid first, and they will also have priority. Pay legal fees. Clients will get a pro-rated payout at the end. And in a typical bankruptcy case, what you end up with is a drop in the bucket.”

Also, in terms of timing, Palmer noted, “Clients may not be compensated until the entire bankruptcy process is completed, and the extent of bankruptcy typically lasts for several years—the Lehman experience is representative. Also, some of Mt. Gox’s clients are still No reimbursement was received.”

At present, some cryptocurrency investors whose accounts have been frozen have continued to be nervous and sleepless at night.

Alla Driksne, 34, said she had six-figure bitcoin and ethereum locked up in Celsius’ accounts, her life savings. She had been unable to sleep for days after Celsius initially suspended account withdrawals in June. “Since it’s such a big company and so many people trust it, deep down I hold the possibility of not losing everything, albeit a slim hope,” Driksne noted.

Jake Greenbaum, a 32-year-old cryptocurrency celebrity who lives in Miami, also has a lot of Solana tokens in his Celsius account. When the platform announced the freezing withdrawal, it was worth more than $107,000. Greenbaum now thinks he can’t get his money back, and has charged the money to expenses. He recently started selling his watches, but still plans to use the money to buy more cryptocurrencies.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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