To be sure, “crypto winter” began this summer after two major companies announced bankruptcies and insolvencies. Celsius began the crypto bankruptcies, which soon resulted in a second bankruptcy of the Voyager exchange platform. Now that bankruptcy has been declared, every investor on the platform has had their assets frozen as those assets are now a part of the bankruptcy estate.

Most crypto investors lack the legal understanding to predict major events like bankruptcies or understand how bankruptcy could impact their investments. In this case, the investors have now become the equivalent of unsecured creditors, with the crypto exchange acting as a bankrupt borrower. In most of these cases, lenders do not recover 100% of the money they are owed, even when filing for Chapter 11 bankruptcy. So, chances are good that the crypto platform users are going to take a heavy loss on their investments which are rapidly losing value as more crypto industry services file for bankruptcy protection. 

Three Arrows Capital

Three Arrows Capital was the first crypto-industry investor to file for bankruptcy. It did so under British law. The company was liquidated to repay investors a portion of what they were owed. It was initially an investment firm that dealt only in cryptocurrency. The company was so heavily invested in crypto, that plunging values resulted in its insolvency. One of Three Arrows’ major lenders, Voyager Digital, was next in the chain of bankruptcies. After Three Arrows defaulted on their loan, Voyager was unable to make payments to its creditors, resulting in a Chapter 11 filing.

The problem with Voyager is that it runs a crypto brokerage service in which users can buy, sell, and trade crypto or even store their assets like a bank. Now that Voyager is in Chapter 11, all the assets stored on the platform are frozen until the Chapter 11 bankruptcy is completed. Users may never regain access to their crypto tokens, or if they do, they may only be returned a fraction of what they are owed. Even if they recover 100% of their total assets, the value of those assets is plummeting thanks to all the bankruptcies in the crypto industry. 

Next in line was Celsius, a digital asset platform that allows users to upload their crypto tokens and then take out loans against the assets. Investors were spooked after bankruptcies hit Three Arrows and Voyager and considered Celsius the next domino in the chain. This resulted in a massive withdrawal which actually caused Celsius to become the next in the chain. As a result, Celsius placed a pause on all withdrawals and has filed for bankruptcy protection.

As of now, Voyager digital is arguing that crypto assets on its platforms are the property of the company, not its customers leaving customers with less certainty than ever. 

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