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How does crypto exchange bankruptcy affect investors?

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Investors in cryptocurrencies risk losing all of their money or bitcoin in the event of bankruptcy

The collapse of Voyager and Celsius highlights the unique dangers that cryptocurrency owners and investors run when they entrust their money to such businesses. Investor losses from these two occurrences could total well over USD 1 billion.

On July 1, 2022, Voyager filed for Chapter 11 bankruptcy protection. The company stated that consumers should receive a full refund of their US dollar deposits. Still, it could not specify how much of its crypto holdings will be returned to customers. At the time of the bankruptcy filing, it asserted that the company had USD 1.3 billion in cryptocurrency assets owned by customers.

On July 13, 2022, Celsius Network, a sizable bitcoin lending platform, requested bankruptcy protection. Unfortunately, the lender made the application around a month after Celsius stopped all transfers, swaps, and withdrawals between customer accounts. As a result, Celsius revealed in a document filed with the US Bankruptcy Court in New York that it owes almost USD 1.2 billion more than it has on hand.

Due to the inability of Voyager and Celsius customers to withdraw their bitcoin assets, all cryptocurrency users must think about any potential hazards associated with the exchange or loan platform they are currently utilizing, if any.

The FDIC Does Not Insure Cryptocurrency
The Federal Deposit Insurance Corp. never insures bitcoin holdings, despite confusing marketing messages leading investors to believe otherwise (FDIC). Instead, the FDIC covers deposits in the event of bank failure.

Investors should know that government bodies will only reimburse them if their cryptocurrency exchange closes, unlike a bank, where the government ensures money is up to account and institution restrictions.

The FDIC has even gone so far as to mandate that all member banks and financial institutions that engage in cryptocurrency-related operations declare those activities to the FDIC for oversight.

Additionally excluded from FDIC protection are stablecoins, a kind of cryptocurrency always linked to a national fiat currency backed by the government. Unfortunately, those currency pegs are only sometimes practical, as holders of the TerraUSD stablecoin discovered.

How to Get Money Back from a Bankrupt Crypto Company
The cryptocurrency company should have your contact information and an accounting of what you owe on file if you complied with know your customer (KYC) standards and created your account with accurate information. In addition, you should hear from the company as soon as possible about recovering payments if it goes bankrupt.

The majority of businesses will use their procedure to transfer money to clients. To obtain your cryptocurrency or cash back, you should follow up by filling out forms, verifying your address or payment information, and maintaining other paperwork requirements.

Investors in cryptocurrencies risk losing all of their money or bitcoin in the event of bankruptcy, but there’s also a chance they’ll get something back—even if it’s only a percentage of what they first put in.

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