Bankruptcy of a cryptocurrency exchange
If a cryptocurrency exchange goes bankrupt, will I lose access to my coins?
Cryptocurrency exchanges and insolvency - An overview from the experts at Kryptoanwalt.de
What happens when a cryptocurrency exchange goes bankrupt?
The insolvency of a cryptocurrency exchange can cause significant uncertainty and concern for investors. Given the volatile nature of the market, it is crucial to understand the impact of a company's insolvency on access to one's cryptocurrencies. This article discusses the key aspects that investors should consider in such a situation.
Impact of bankruptcy on access to cryptocurrencies
Ownership of Coins
If you hold your cryptocurrencies on a centralized cryptocurrency exchange, you generally don't own the actual coins, but only a claim to them within your account. This means that in the event of the exchange's insolvency, you could lose access to your coins.
In contrast, with decentralized platforms or wallets, users own the private keys to their coins. This form of storage offers greater security because 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 exchange's assets. Access to digital currencies may be restricted during the insolvency proceedings.
Insolvency proceedings often lead to appropriate formal legal reviews in which existing customer claims to coins held in the P2P (peer-to-peer) model are examined.
Customer rights
Many countries have specific legal regulations governing insolvency proceedings. Customers may attempt to assert their claims to the cryptocurrencies they hold within these proceedings. However, the success of such claims depends on the specific conditions and laws of the country in question.
What can you do?
Review of own storage
To minimize risk, you should ideally store your cryptocurrencies in a personal wallet (hardware or software) that allows direct access to your private keys. This ensures that access is maintained even in the event of the trading platform's insolvency.
Diversification
Don't keep large portions of your crypto assets exclusively on a single crypto exchange. Diversifying across multiple platforms or storage methods can reduce the risk of total loss.
Legal action
If you are affected by the insolvency and have lost access to your coins, contact our lawyers. Our attorneys, specializing in insolvency and crypto law, can help you take the best steps to assert your claims.
Gather information
Stay informed about developments surrounding the stock exchange's insolvency. Insolvency administrators often release updates or information that is important for affected customers.
Conclusion
The insolvency of a cryptocurrency exchange can create a challenging situation for investors, particularly regarding access to their own coins. When cryptocurrencies are held on a central platform, there is a risk of losing access, especially if the exchange files for bankruptcy. Therefore, it is advisable to secure direct access to one's own cryptocurrencies by using personal wallets and diversifying one's holdings. In such a situation, it is important to stay informed and, if necessary, seek legal support to best protect one's interests and obtain expert advice and representation.
This information serves as general guidance and cannot replace individual tax advice from our experts. Tax treatment may vary depending on your specific situation and current tax regulations. It is strongly recommended that you contact our lawyers to clarify your personal tax situation and ensure compliance with legal requirements.