Crypto exchanges and insolvency - an overview from the experts at Kryptoanwalt.de

The insolvency of a crypto exchange can cause considerable uncertainty and worry for investors. Given the volatile nature of the market, it is crucial to understand the impact of a company's insolvency on access to your cryptocurrencies. This article covers the important aspects that investors should consider in such a situation.

Effects of insolvency on access to cryptocurrencies‍

Ownership of coins‍

If you hold your cryptocurrencies on a centralized crypto exchange, you generally do not own the actual coins, but only a claim to them within your account. This means that if the exchange becomes insolvent, you may lose access to your coins.

With decentralized platforms or wallets, on the other hand, users hold the private keys to their coins. This form of storage offers a higher level of security, as the coins are not stored on a central platform.

Liquidation and insolvency proceedings

In the event of insolvency, an insolvency administrator will be appointed to manage the assets of the exchange. Access to digital currencies may be restricted during the insolvency proceedings.

Insolvency proceedings often lead to appropriate legal checks in which existing customer claims to the coins held in the P2P (peer-to-peer) model are reviewed.

Rights of customers

In many countries, certain legal regulations apply in insolvency proceedings. Customers could attempt to assert their claims to the cryptocurrencies held as part of the proceedings. However, the success of such claims depends on the respective conditions and laws of the country.