- In 2022, several cryptocurrency firms faced financial difficulties, resulting in the freezing of investors’ assets. This situation led to cryptocurrency-related lawsuits against companies like FTX, Gemini Trust, and Genesis Global Capital.
- The overall value of the cryptocurrency market decreased by over $2 trillion during the same year.
The cryptocurrency market is known for its substantial financial gains, but it’s essential to remember that it’s also highly volatile and carries inherent risks. This risk is amplified for cryptocurrency companies with numerous stakeholders and holders.
When these businesses incur significant losses, it can lead them to file for bankruptcy, which is news that most crypto investors hope to avoid.
What Are the Top 5 Biggest Crypto Bankruptcies?
The crypto bankruptcies list includes crypto exchanges and lending organizations such as Genesis Global Capital and FTX. Several cryptocurrency companies declared bankruptcy after other failed companies could not repay their loans.
Genesis Global Capital
In January 2023, Genesis Global Capital, a crypto lender, filed for bankruptcy with the U.S. Bankruptcy Court for the Southern District of New York. Before this, the company had suspended customer redemptions.
Genesis, which Digital Currency Group owns, reported assets and liabilities ranging from $1 billion to $10 billion, indicating it had over 100,000 creditors.
In November 2022, the cryptocurrency exchange FTX filed for bankruptcy, making it the first major crypto exchange to do so. This bankruptcy also affected the affiliated hedge fund, Alameda Research. As a result, some investors found themselves unable to withdraw their funds. FTX’s investors included Canada’s largest pension plan.
The situation escalated when the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against the owner of these companies, Sam Bankman-Fried. Bankman-Fried is facing criminal charges related to fraud and conspiracy but has pleaded not guilty.
The fallout from FTX’s collapse led to more than a million depositors losing their money, as revealed in an FTX lawsuit by Stephen Pierce. Various other investors have also initiated FTX lawsuits to recover their lost funds.
FTX declared bankruptcy in November 2022, becoming the first major crypto exchange. The linked hedge fund, Alameda Research, was also damaged by the bankruptcy. As a result, several investors were unable to withdraw their money. FTX’s investors included Canada’s largest pension plan.
Voyager Digital and Three Arrows Capital
In July 2022, crypto lender and broker Voyager Digital filed for bankruptcy following the hedge fund Three Arrows Capital’s bankruptcy filing. These companies suspended customer fund withdrawals just before seeking bankruptcy protection.
Both firms’ liquidity challenges resulted from the collapse of TerraUSD and Luna, impacting their financial stability.
Voyager Digital, in particular, had more than 100,000 creditors and estimated its assets and liabilities within the range of $1 billion to $10 billion.
Gemini Trust, a prominent name in the cryptocurrency industry, hasn’t declared bankruptcy. However, nearly 340,000 users of its lending program, Gemini Earn, suffered significant losses due to Genesis Global’s bankruptcy. In response, Gemini Trust downsized its workforce and temporarily halted Gemini Earn withdrawals.
Now, the company and its founders, Cameron and Tyler Winklevoss (the Winklevii), face class-action lawsuits from investors who seek to recover their losses.
Like those against FTX and Genesis, these lawsuits claim that Gemini Trust sold unsecured securities, resulting in a legal challenge for the company.
These examples show that crypto companies face similar risks and threats as traditional businesses. While it’s challenging for crypto companies to go bankrupt, it’s possible.
Staying informed about the crypto industry can help protect your investments in case a crypto company faces major issues in the future.