Several cryptocurrency brokers and lenders have had to file bankruptcy themselves. And what does this mean for the customers-those holding the cryptocurrency. That question still remains to be answered and will likely come down to whether the crypto held by an exchange is property of the bankruptcy estate and therefore not recoverable by the customer, who would then be just an unsecured creditor in the bankruptcy, or if the crypto would be characterized as custodial and remain property of the customer.
If the entity is in possession or control of the property and has broad rights to use the property for its own benefit, a court is more likely to conclude that the relationship is not “custodial”. Even if a court were to determine the crypto is non-custodial and therefore not subject to distribution to the general unsecured claimholders in the bankruptcy, it could be tied up under the automatic stay preventing customers from selling the crypto.
Currently there are amendments pending for the UCC to specifically address how crypto should be classified in the event the crypto lender or broker files for bankruptcy. Under the amendments, cryptocurrencies would fit into a new classification in the UCC: controlled electric records.
Another important note regarding crypto currency is with new forms of currency and platforms that are less regulated, the greater the opening for opportunist and entrepreneurial scams. After all, it does take the laws and regulations time to catch up to the real world and for the general public to understand the red flags to watch for when investing. While it is hard to predict when an entity will fail, a customer should do their due diligence when it comes to investing their money.
Investing cryptocurrency can be fun and exciting, but be aware there are risks with investing from the entity itself having to file bankruptcy to the entire operation being a scam. Contact the attorneys at LifeBackLaw and see us at www.LifeBackLaw.com and let us help you get your life back.