In the fast-moving world of cryptocurrency and digital assets, innovation often outpaces regulation. While this has led to exciting opportunities and big returns, it’s also opened the door to risk, including the unfortunate reality of crypto platform bankruptcies.
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Several platforms and exchanges that went bust in the past have marred the crypto market space and given investors good cause to pause before dumping money into a volatile system. In turn, investors have been left frustrated about how to recoup their losses, unlock their frozen assets, or avoid getting caught up in legalities.
If you’ve lost money in the collapse of an exchange, lender or crypto investment platform, you’re not alone — and there are a few steps you can take to protect yourself and possibly recover funds. Here are three essential steps to take if you’ve been affected.
When a crypto company goes bankrupt in the United States, a legal process begins to determine how its remaining assets or customer funds will be distributed. However, if you have a custodial account, getting payment could be doubtful, because you will be last in line after creditors and attorneys. This is why many experts advise spreading cryptocurrencies among multiple wallets, as that reduces your risk while giving you the flexibility to transfer currency balances as needed.
Creditors — including users — may be entitled to recover some portion of their funds from crypto lenders when there are bankruptcy filings. Filing a claim is the most important step to preserving your rights.
Here are some key takeaways for this step:
Check the official website or the court-appointed trustee’s site for instructions. For example, platforms like the Celsius network, Voyager Digital, and FTX set up dedicated claim portals.
File early to ensure you meet any petition dates or other deadlines, as some are surprisingly short windows with bankruptcy courts.
Even if you’re uncertain about the exact amount or documentation, submit a claim anyway. It’s better to be included and correct later than to miss out entirely.
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A few years ago, during the now infamous collapse of crypto in 2022, the FTX platform filed — along with its more than 130 subsidiaries — for Chapter 11. The FTX fallout contagion ensued, and fellow crypto platform BlockFi also filed for bankruptcy, saying this “follows the shocking events surrounding FTX and associated corporate entities and the difficult but necessary decision we made as a result to pause most activities on our platform.”
In that same year, a domino effect occurred as another one bit the FTX dust, as the Securities and Exchange Commission (SEC) charged Gemini and Genesis for “the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program.”
Crypto investing is not for the faint of heart, as it still remains volatile in 2025. This is why documenting all of your investments and surrounding transfers and exchanges is crucial. The more information you have, the better your chances of recovering your funds. This documentation may also be needed for taxes or future legal action.
Save account screenshots, transaction histories, email confirmations, and wallet addresses.
Back up anything that shows how much crypto or fiat currency you had on the platform and when.
If the company or trustee offers an account summary or claim statement, compare it to your records and report discrepancies immediately.
Crypto regulation, to put it lightly, is a sticky wicket. Though the Commodity Futures Trading Commission (CFTC) does regulate cryptocurrencies, generally when they are used in derivatives markets or there is fraud or manipulation involving a virtual currency traded in interstate commerce.
However, the CFTC’s regulatory authority over cash markets is limited; it maintains general anti-fraud and manipulation enforcement authority, but how does that apply to crypto bankruptcy? Crypto bankruptcies can get complicated fast. Legal and financial experts can help you understand your options, avoid scams and potentially take further action.
Look for attorneys who specialize in crypto, bankruptcy, or class-action litigation.
If your losses were significant, consider joining or forming a creditor committee or class-action suit.
In general, it’s a good way to watch out for “recovery scam” services–fraudsters often prey on people who have already suffered losses.
Generally, assets, including varying cryptocurrencies, held by the platforms are owned by the customers, then they will not be the property of the platforms in bankruptcy. The customers should receive their assets back much more quickly.
Simply put, if the assets are “owned” by the platforms, then you are essentially nothing more than an unsecured creditor, which ranks you behind secured and other priority creditors in the related bankruptcy process. That often means that, after the secured and other priority creditors have been paid, there are insufficient assets for all unsecured creditors to be paid in full. Unsecured creditors typically rank equally amongst each other — so the remaining assets are divided evenly amongst everyone, meaning you’ll probably receive cents on the dollar.
Keep in mind that the type of bankruptcy selected by any particular platform can also dictate the length of time required for you to receive any repayment.
Another factor to bear in mind is that bankruptcy proceedings tend to be very lengthy. While a platform is in bankruptcy proceedings, you can’t take a loss on your taxes. While you are waiting, TurboTax recommends that the best thing you can do is gather documents related to your crypto account.
Once the platform’s bankruptcy is settled and the assets are deemed worthless, “You can offset the loss of the crypto based on what you paid for it against your gains and offset any additional loss against ordinary income like wages up to $3,000,” said TurboTax. “Any additional loss over $3,000 can be carried over to the next year.”
All in all, options to recoup losses in such instances are few and far between. Aaron Kaplan, founder and co-CEO of Prometheum, noted that recovery from the FTX and other debacles likely will be quite limited as the costs of bankruptcy will materially reduce the ultimate payments that will be available to customer creditors of these failed institutions.
However, Kaplan added that investors who have other capital gains should consult their tax advisors about writing off their losses from these failed institutions against such capital gains.
“Many class-action lawsuits have been commenced against various participants and or aiders and abettors in the failed institutions’ activities,” he said. “These class actions will probably add some small return to damaged investors.”
Yaël Bizouati-Kennedy contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: Take These 3 Steps If You Have Lost Money in Crypto Bankruptcies
