Post-Collapse: The Uncertain Lifespan of Cryptocurrency

What happens to your crypto when you die? Or when your cryptocurrency goes bankrupt?

Bitcoin, Etherium, Dogecoin, Litecoin, Monero, and other popular cryptocurrencies can’t be saved on your computer. And by its nature alone – not FDIC insured, high volatility, pseudonymous-esque transactions, legal uncertainty – you can’t keep crypto in a bank either.  There are horror stories about people dying with loads of crypto assets on their devices and their survivors unable to find the key.

For this reason, crypto exchanges have flourished. But in the 2022 collapse, household names in the crypto industry – Celsius Network, Voyager Digital, FTX, BlockFi – all filed for bankruptcy under Chapter 11. On top of these security risks, crypto owners now need to be hyper aware of crypto bankruptcies and how to navigate around them.

What Happens If the Crypto Exchange Goes Bust?

If you lost funds to a cryptocurrency when it declared bankruptcy, you may be eligible to file a customer claim.

Crypto wallets protect your digital currencies. Coinbase, SafePal, Exodus, and Guarda are some “hot wallets” on the crypto market. If you have a wallet, then you can argue that the crypto exchange is simply holding what you own as a “custodian” and that the ownership remains yours. But if you don’t have a wallet, you may find yourself simply holding a claim. 

Here’s the interesting part. If you have a claim, that claim is calculated in the dollar value of what you have as of the date of the filing of the bankruptcy.

So, any upside in the increase in value of the cryptocurrency after the filing of the bankruptcy case no longer belongs to you – any more than if your claim was for a gold bar. Your claim would not be for the gold bar but rather for the value of the gold bar as of the date of the filing of the bankruptcy case.

Protect Your Digital Assets with a Cryptocurrency Lawyer

Crypto investors are savvy and well-versed in all matters of cryptocurrency. However, bankruptcy is another story altogether. Some of the smartest lawyers in the country have been spending full time addressing the highly technical, unique, and brand-new issues that have arisen in these novel cryptocurrency bankruptcy cases. And as is frequently the case, the creditors, especially the individual creditors, are left blowing in the wind. 

Yes, there are creditors’ committees representing the interests of unsecured creditors. But you want to be sure that your own individual interests are being represented and protected as well. For the most part, your cryptocurrency has not been stolen, but it has been mishandled. Undoubtedly, this will end up costing you dearly.

If you’ve invested in cryptocurrency and the crypto is held in an exchange in bankruptcy, hire an attorney who is versed in Chapter 11 bankruptcy and cryptocurrency to represent your interests and recover your losses.

At Lakelaw, we represent you fearlessly and zealously. Contact us today to schedule a free confidential consultation.