Common Issues in Crypto Exchange Bankruptcy Cases

▪ No funded or secured debt. Retail Customers account for nearly all the liabilities of the Exchanges.

▪ Types of Crypto Creditors. –

A. Earn/Yield/Rewards – Customers who deposited their crypto in exchange for interest

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B. Borrow/Lend – Customers who deposited their crypto in exchange for a fiat loan.

C. Custody/Wallet. Customers who deposited their crypto which was not deployed.

▪ Privacy/Confidentiality of Customers – In Celsius, the Court directed that the Debtors disclose the name of the retail customer and the type and amount of crypto held on the exchange. In other crypto cases, bankruptcy courts have preserved the anonymity of the retail customers.

▪ Ownership of Crypto. Terms of Use between Exchange and Retail Customer will, in the first instance, determine the property rights of the Retail Customer. In Celsius, the Bankruptcy Court determined that with respect to the crypto that was placed into the “earn” program, the terms of use clearly indicated that the customer transferred title to Celsius. See Celsius January 4, 2023 Earn Decision

▪ Dollarization of Claims. Nearly every Retail Customer wants their crypto back “in kind”. The concern is that the Debtor will seek to dollarize their claim (as of the filing date) and distribute fiat pursuant to a plan, rather than crypto.