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Navigating the Crypto Crisis

Written by John Stoddard on July 6, 2022 Category: Banking, Business Law & Transactions, Financial Institutions, Firm News

I recently commented on the threat to cryptocurrency owners if their exchange files for bankruptcy protection.  Needless worry?  Recent headlines suggest the answer is NO.

Nearly four months have now passed in the 180-day period given to federal agencies in a March 2022 executive order to research and report on digital assets.  But will a report in September be too late to save this sector?

Cryptocurrency values continue to decline in what has been called “Crypto Winter.”  Bloomberg recently reported that the current crash has erased more than one trillion dollars in market value.

Crypto hedge fund Three Arrows Capital has been forced into liquidation by a court in the British Virgin Islands.  It could not pay its creditors and defaulted on a nine-figure loan in connection with, or as a result of, the tanking value of Bitcoin and other cryptocurrencies.

One of Three Arrows’ co-founders, Su Zhu, had predicted a “supercycle” in which the value of Bitcoin could reach 2.5 million dollars.  According to The Block, he admitted his thesis was “regrettably wrong” in May, but he continued to predict that “crypto will still thrive and change the world every day.”

And things don’t seem to be looking up for Coinbase Global, the nation’s largest crypto exchange, which reported dismal earnings in Q1 and acknowledged its crypto assets may be considered property of a bankruptcy estate.  In recent days, Goldman Sachs has downgraded Coinbase stock to “Sell.”

Ironically, even a crypto-themed restaurant in L.A. has stopped accepting cryptocurrency!

We will continue to monitor the financial health of crypto exchanges and hedge funds and prepare for bankruptcy action if that is the next step.  All legal or equitable interests of the debtor in property are considered property of the estate in a bankruptcy proceeding.  Transfers avoided and recovered by a bankruptcy trustee, such as preferences and fraudulent transfers, are as well.  Stay tuned . . . .

Call us at Dalton & Tomich if you have any questions surrounding a potential or actual bankruptcy filing that may affect you—whether it’s your crypto exchange or the supplier you just paid.

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