What Happens to Your Money When Crypto Platforms Go Bankrupt?

You probably know about what happened to Celsius and its users not so long ago and every crypto user now fears losing their assets in case of bankruptcy. Our team has contacted multiple crypto platforms, both CEX and DEX, and found out what will happen to your money in case the platform goes bankrupt. Keep reading.

Celsius was one of the biggest players in the crypto industry. With a market cap of over 5.5 billion US dollars, Celsius has gone bankrupt and is currently facing multiple allegations – The most interesting being multiple lawsuits stating that the company ran a Ponzi scheme.

Any company going bankrupt is awful. However, there are different tactics and policies that help insure your invested money against such outcomes. Here is a list of all the answers, categorised by their usefulness and positiveness. Make sure you know where you trade before investing tons of money into it!

Some trading platforms weren’t as open as others. Here are some answers that didn’t provide any information regarding this topic or, on the contrary, provided some negative information that definitely needs to be seen by all crypto traders.

Coinbase

Unfortunately, Coinbase is one of the many trading platforms that hasn’t fully answered the question. They provided irrelevant information on how they have set up a team that helps their trustees in case of bankruptcy. No information on their plans in case their publicly traded company is going bankrupt. Shame.

Bittrex

Bittrex provided assurance their biggest priority is their customer’s assets’ safety. However, no additional information on how they plan to ensure safety and what will be the situation in case of their bankruptcy.

Bitfinex

Bitfinex, in their email, has confirmed the fact that your funds are used by the company for their own benefit and investments. However, they are not to be held responsible in case of any financial crisis, including bankruptcy, information leakage and other types of cyber-attacks.

Poloneix

Poloneix also provided an uninformative answer. Other than assuring their company works well enough, no further information was received. However, they did say that, when such a financial crisis is to be faced, they will find a solution. We do hope that they will! Nevertheless, they should have a more detailed plan for that time.

Pancakeswap

The Pancakeswap Terms and Conditions affirm the site isn’t to be held responsible for any types of losses that a client has ever had. Thus, you aren’t insured and won’t be able to get your money back after a supposed bankruptcy. From this it can be assumed Pancakeswap isn’t the safest trading platform out there.

Binance

The absolute champion is Binance – one of the biggest, if not the biggest, trading platform for crypto. They have multiple policies regarding their plans in case of bankruptcy. You don’t have to worry about their bankruptcy in the first place, however, in case they do go bankrupt, there is insurance that covers the losses for users.

PHEMEX

PHEMEX and their customer support assured us that, in comparison to Celsius, in case of their bankruptcy, you’ll still be able to move your assets and funds. By having access to them, you’ll still be able to sell, move or keep them.

BYBIT

The same as with PHEMEX, BYBIT assured us that, in case of their bankruptcy, you’ll have access to your assets and funds. You’ll be able to both sell or keep them in case of complete bankruptcy..

CRYPTO.COM

Crypto.com has chosen insurance tactics. They have a new insurance policy that holds over $750m of total cryptocurrency in both direct and indirect custodians coverage. On top of that, crypto.com is currently holding one of the biggest direct insurance policies, over $100m in cold crypto assets. You are pretty safe using crypto.com.

KRAKEN

Kraken provide an informative answer, but rather general information. However, they did point out the fact that, as a $20 billion USD company, they keep their operational funds away from their clients’ funds. Thus, it can be assumed that by keeping operational and non-operational funds in different holdings Kraken is safe in case of bankruptcy.

UNISWAP

According to their response, Uniswap doesn’t control any of your assets and, in case of bankruptcy, Uniswap Labs will still be able to function and provide access to your funds and assets.

Thus, you’ll still be able to swap your assets and funds, sell them or get them in another storage even after the bankruptcy of Uniswap Labs.

How to Avoid Losing your Money in Case of Bankruptcy:

To be clear, if the site or the company you keep your money on has already gone bankrupt, you usually won’t be able to get your money or at least the full sum. However, there are some tips that will keep you away from such situations long before the company will announce its bankruptcy.

1. Know your Wallets

Your assets will define your future wealth or misery. Our advice is to never use hot wallets to keep your crypto assets, especially if we are talking about trading sites and platforms. By keeping your money on a trading platform, you give access to it and, sooner or later, in case of bankruptcy, you’ll never see that money again.

The best way to do it is to keep the bulk of your crypto on a cold wallet, a hard drive or something like that. Small parts of your portfolio can be kept on hot wallets for immediate trading or other manipulations with the money. This way, you’ll get the best of both worlds – the maximum security of cold wallets and the flexibility of hot wallets and trading platforms.

2. Know the early signs

It’s can be difficult to see the early signs of bankruptcy within a company. However, there are some signs that, in theory, can indicate an upcoming bankruptcy. Here are some of the most important ones of them:

• Continued decreases in cash flow
• Low cash or capital balance
• The departure of key management or employees
• Inability to meet debt obligations such as loans and lease payments
• Key debt covenants are or are soon to be breached
• Difficulty meeting payroll

Of course, you have no way to see their books and know about the cash flow, revenue and credits. However, you can observe the management and their behaviour. If an upper manager is leaving, it can mean a lot of things. However, if a pack of them is leaving, it can only indicate that the ship is going down.

3. Go for a well-known protocol

If you are a beginner and don’t really have any assets to protect, it is better to start with the easiest version possible. Going for the biggest, safest fish in the sea is the best thing you can do. That’s because the biggest companies and trading platforms have lots of insuring policies that will keep your money in place in different situations. Also, remember that they have a reputation to hold.

The safest option is usually to trade on a consecrated platform with millions of users.

At Lighthouse, our trading partner, ByBit, provides full access to your funds in case of a bankruptcy. If you’re interested in keeping your crypto assets safe, contact us here.