The crypto space has always been highly unpredictable dominated by volatility each day. But, the unpredictability has also come up because of black swan events that have happened over the years. So far, it seems like trust is not a word that is well-suited for crypto.
In many cases, new projects come up with no extensive history, take the markets by storm and even the experts find themselves investing in disasters waiting to happen.
Crypto has been in existence for nearly 14 difficult years. What launched Satoshi’s Bitcoin whitepaper in 2008 has evolved into a $1 trillion industry. The path to these massive investments has been challenging due to severe black swan events causing huge gaps that nullified several years’ worth of development and progress within a few days.
Over the years, many crypto firms have collapsed because of massive frauds, hacks, or mismanagement, and that has wiped away billions of dollars of investor funds. These incidents have caused layoffs at the firms and in some cases the companies shut down permanently.
One of the major highlights of the crypto era was the Mt. Gox breach in 2014, which left a loss of 850,000 bitcoins in its wake. As it has turned out, that was just the start. Many bankruptcies have been filed to date and here are the top 10 crypto companies that have failed and taken people’s money in the past years.
2023 started with a crash as crypto lender Genesis unveiled its 15-page Chapter 11 bankruptcy filing and 83-page bankruptcy plan in January. Up to $3.4 billion is yet to be recovered. Genesis is a lending subsidiary of Digital Currency Group and it had a rough 2022.
In June 2022, Genesis announced a huge loan loss with Three Arrows Capital, a cryptocurrency hedge that filed for bankruptcy in July 2022. The last half of 2022 was difficult for the crypto sector, ending in the collapse of FTX and Alameda Research in November.
Sadly, Genesis had $175 million in assets locked on the now-defunct FTX exchange. It also had a lending relationship with Alameda. A few days after the abrupt FTX collapse, Genesis stopped redemptions at its lending unit.
Our #1 priority is to serve our clients and preserve their assets. Therefore, in consultation with our professional financial advisors and counsel, we have taken the difficult decision to temporarily suspend redemptions and new loan originations in the lending business.
— Genesis (@GenesisTrading) November 16, 2022
By January 19, 2023, the pressure was too much and Genesis filed for Chapter 11 bankruptcy in a Manhattan Court.
In November 2022, FTX, one of the top-five crypto exchanges by trading volume, sunk into insolvency and failed to fulfill withdrawals. It filed for Chapter 11 bankruptcy in the United States on November 11. Up to $9 billion was lost in this saga but recovery is underway.
FTX’s issues started after a news report emerged that Alameda Research, a crypto trading company closely linked to the exchange, had huge liabilities of $8 billion and most of its equity was in FTT, FTX’s native token that was relatively illiquid.
That report pushed Binance, the biggest crypto exchange globally, to sell off all its FTT holdings. The sale sunk the token’s price. Users sensed imminent danger and moved to withdraw $6 billion from the exchange in less than 72 hours, and FTX failed to fulfill these withdrawals.
It emerged that FTX might have been sending customer funds to Alameda Research to execute risky trading bets, and Alameda lost most of it and utilized some illiquid investments. FTX filed for bankruptcy since it could not fulfill customer withdrawals.
As the bankruptcy restructuring continues, FTX has a new leadership team that aims to salvage the remaining funds that are left in the corporate coffers to redeem withdrawals to the best extent possible. FTX was nearly bailed out when Binance signed an agreement to purchase it in November but later backed out after doing intensive background checks.
Related: Binance Pulls Rug on FTX Deal- US Regulators Investigating FTX’s Dealings
Bankruptcy filings show that FTX owes money to at least 1 million creditors, and the deficit is more than $9 billion.
Three Arrows Capital (3AC)
At some point, Three Arrows Capital (3AC) was one of the biggest crypto hedge funds, managing nearly $10 billion in assets. The fund declared bankruptcy due to a liquidity challenge arising from the bear market.
A quick explainer on the 3AC crypto fund blowup… pic.twitter.com/Gx3bmrJFkO
— Hedgeye (@Hedgeye) July 6, 2022
The failure of this firm is traced back to the implosion of UST, a highly popular stablecoin project. Three Arrows Capital had invested nearly $500 million in the project that collapsed to zero.
Furthermore, 3AC had leveraged positions across DeFi protocols that were mostly liquidated because of Bitcoin and Ethereum price drops. The company had already borrowed funds from popular cryptocurrency companies like Genesis, Blockchain.com, BlockFi, and Voyager Digital. All these firms were impacted by the company’s bankruptcy whose total deficit is $3.5 billion.
Related: Is The Crypto Market Combating A Lehman Brothers Moment?
In November 2022, BlockFi crypto lending firm filed for Chapter 11 bankruptcy. The firm had extensive exposure to FTX which collapsed in the same month, pushing it to also file for bankruptcy. In an unanticipated development, BlockFi Said it owed $275 million to FTX US and had lent at least $1 billion of clients’ funds to FTX and its sister firm Alameda Research.
BlockFi confirmed that it owed over $1.3 billion to its 50 biggest creditors and had $257 million in cash on hand. The firm has stopped all withdrawals of user deposits. However, recovery of the lost funds is now underway.
In December last year, one of the largest Bitcoin mining companies, Core Scientific, filed for Chapter 11 bankruptcy. Bitcoin prices dropped massively in 2022 to a point where mining operations were not profitable for the company.
The publicly-traded firm reported losses in hundreds of millions, including a staggering $435 million in the three months to September 2022. These massive losses eventually pushed Core Scientific to file for bankruptcy.
Notably, the firm declared assets of $1.4 billion and liabilities of $1.3 billion to between 1,000 and 5,000 creditors. Core Scientific went into a prepackaged bankruptcy, which includes negotiating with creditors before the bankruptcy proceedings.
Unlike a majority of the other firms that have filed for bankruptcy, Core Scientific owes lots of its debts to institutional investors and not retail investors. The firm has already arranged a restructuring process that will see most lenders exchange their debt for equity.
Core Scientific is still mining Bitcoin despite its move to file for bankruptcy. That accounts for 10% of the computing power on the entire Bitcoin network.
Voyager Digital is a US-based cryptocurrency exchange that declared bankruptcy in the wake of a $660 million default by Three Arrows Capital (3AC). The platform suspended withdrawals at the start of July 2022 but promised the public at the time that it would continue with its normal operations.
The crypto exchange used $75 million of a 15,000 BTC revolving loan from Alameda Research to offset its exposure to the huge debts that 3AC failed to repay.
Related: Voyager Digital Files For Chapter 11 Bankruptcy Protection
Voyager also confirmed that it has $137 million in cash and crypto on hand. But, with 3AC filing bankruptcy, the exchange’s hopes diminished to recovering the money. Reports show that Voyager Digital owes more than $1.3 billion to 100,000 creditors.
Celsius Network was a cryptocurrency lending and a staking company that crumbled into bankruptcy because of a liquidity crisis arising from the 2022 bear market. The Luna-UST crash worsened matters for Celsius and sent the company further down into financial misery.
THE CELSIUS BLOWUP, EXPLAINED.
Huge sectors of crypto are imploding, and crypto unicorns might be coming down with it.
Luna was first, but now $10b giant Celsius is facing insolvency and even bankruptcy.
Let's dive in:
— Jack Niewold (@JackNiewold) June 13, 2022
The initial signs of trouble became clear to the crypto community when the company instantly stopped all withdrawals and transferred millions of dollars from Aave to FTX for mysterious reasons.
Celsius held multiple leveraged holdings in DeFi protocols that were liquidated due to the persistent bear market. Notably, the company lacked risk hedging to secure the funds which worsened its case. Based on the bankruptcy court records, Celsius has confirmed a balance-sheet deficit of $1.2 billion.
Babel Finance, a Hong Kong-based crypto lender, imploded because of a liquidity crisis that was spurred by the severe 2022 bear market. Unfortunately, the firm had unhedged positions in proprietary trading accounts that recorded massive losses.
This compelled the liquidation of trading accounts and cumulatively resulted in the loss of 8,000 BTC and 56,000 ETH. In general, the firm lost nearly $280 million of customer investments.
The lack of ideal measures for risk management has been said to be the main cause of Babel Finance’s downfall. But, the firm now wants to change $150 million in creditor debt into exchangeable bonds to raise about $300 million. Also, it hopes to get $200 million in revolving credit.
Hodlnaut is a crypto lender that is currently placed under interim judicial management by the Singapore Court for the sake of creditor protection. The company recently stopped user withdrawals citing difficult market conditions, saying that its primary objective was to preserve assets and stabilize liquidity as it worked to find a long-term solution.
The company also withdrew its application for a license from the Monetary Authority of Singapore (MAS) after getting in-principle approval from the central bank in March 2023. Due to that development token deposits and swaps have been suspended. But, there is no adequate information about the amount owed to creditors or the real cause for stopping operations. Investors are said to have lost an estimated $193 million.
Mt. Gox was a Tokyo-based crypto exchange and it declared bankruptcy in 2014 after a huge hack. At its peak, the platform handled over 70% of all Bitcoin transactions globally.
Its massive popularity made it an obvious target for hackers. In 2011, criminals exploited lots of stolen credentials to send bitcoins to their addresses. Later in the same year, flaws in network protocol caused a loss of several thousand bitcoins.
Related: The World’s Most Infamous Crypto Hacks and Scams
Users also highlighted their displeasure with the complexity of withdrawing payments in the months up to early 2014. But, in February 2014, the exchange was attacked in a major hack that resulted in the loss of 850,000 bitcoins. The company soon declared bankruptcy. Later on, it managed to recover 200,000 BTC with the help of multiple authority agencies.
The trustee for Mt. Gox, Mr. Kobayashi, confirmed in November 2021 there is a rehabilitation strategy that comprised the registration and compensation process for different creditors. The process was later finished with the registration of several creditors. Nevertheless, most of the investor funds were unrecoverable.