In the rapidly evolving world of cryptocurrency and digital assets, innovation often outpaces regulation. While this has led to exciting opportunities and significant profits, it also opens the door to risks, including the unfortunate reality that cryptocurrency platforms go bankrupt.
Several platforms and exchanges that have gone bankrupt in the past have damaged the cryptocurrency market space and given investors good reason to pause before pouring money into a volatile system. In return, investors have been frustrated about how to recover losses, unlock frozen assets, or avoid getting caught up in legal issues.
If you lost money in the collapse of an exchange, lender, or cryptocurrency investment platform, you are not alone — and there are several steps you can take to protect yourself and potentially recover your funds. Here are three essential steps to take if you are affected.
Step 1: Submit a claim for compensation (Even if you are unsure of your eligibility)
When a cryptocurrency company files for bankruptcy in the United States, a legal process will begin to determine how to distribute the remaining assets or customer funds. However, if you have a custodial account, receiving a payout may be uncertain, as you will be last in line after secured creditors and lawyers. This is why many experts advise diversifying your cryptocurrency across multiple wallets, as it helps mitigate your risk while still allowing you to move cash balances when needed.
Creditors — including users — may have the right to recover some of their money from cryptocurrency lenders when bankruptcy filings occur. Filing a claim for compensation is the most important step to protect your rights.
Here are some key points to note in this step:
Check the official website or the website of the court-appointed trustee for guidance. For example, platforms like Celsius Network, Voyager Digital, and FTX set up dedicated claims portals.
File early to ensure you meet any filing dates or other deadlines, as some bankruptcy courts have fairly short timeframes.
Even if you are unsure about the exact amount or documentation, submit a claim. It is better to be included and correct it later than to miss out entirely.
Step 2: Document everything you can
A few years ago, during the infamous cryptocurrency collapse in 2022, the FTX platform filed for bankruptcy — along with more than 130 of its subsidiaries — under Chapter 11. The contagion of FTX occurred thereafter, and another cryptocurrency platform, BlockFi, also filed for bankruptcy, stating that this "followed the shocking events surrounding FTX and related corporate entities and the difficult but necessary decision we made to suspend most of our operations on our platform."
In the same year, the domino effect occurred when another exchange, FTX, went bankrupt, as the Securities and Exchange Commission (SEC) charged Gemini and Genesis with "the offering and selling of unregistered securities to retail investors through the Gemini Earn cryptocurrency lending program."
Investing in cryptocurrency is not for the faint of heart, as it remains volatile in 2025. This is why keeping a record of all your investments and transfer and exchange transactions is very important. The more information you have, the higher your chances of recovering your money. This documentation may also be necessary for taxes or legal actions in the future.
Save screenshots of accounts, transaction history, email confirmations, and wallet addresses.
Back up any information showing how much cryptocurrency or fiat money you had on the platform and when.
If the company or trustee provides an account summary or claims report, compare it against your records and report any discrepancies immediately.
Step 3: Talk to a legal or financial expert
Regulation of cryptocurrency, to put it mildly, is a tricky issue. Although the Commodity Futures Trading Commission (CFTC) has authority over cryptocurrency, it generally applies when they are used in derivative markets or involve fraud or manipulation related to virtual commodities traded in interstate commerce.
However, the CFTC's authority over the cash market is limited; the agency maintains enforcement authority against fraud and manipulative practices generally, but how does that apply to cryptocurrency bankruptcy? Cryptocurrency bankruptcy can become complex quickly. Legal and financial professionals can help you understand your options, avoid scams, and potentially take further actions.
Seek out a lawyer specializing in cryptocurrency, bankruptcy, or class action lawsuits.
If your losses are significant, consider joining or forming a creditors' committee or class action lawsuit.
Overall, this is a good way to be wary of “recovery scam” services – scammers often target those who have already suffered losses.
Who owns the cryptocurrency?
Overall, the assets, including various types of cryptocurrencies, held by the platforms are owned by the customers, meaning they will no longer be the assets of the platform when bankruptcy occurs. Customers will recover their assets much faster.
Simply put, if the assets are "owned" by the platforms, then you are essentially nothing more than an unsecured creditor, placing you behind secured creditors and other priority creditors in the related bankruptcy process. This often means that after secured creditors and other priority creditors are paid, there may not be enough assets left for all unsecured creditors to be fully paid. Unsecured creditors are generally ranked equally — so the remaining assets are divided equally among everyone, meaning you might receive cents on the dollar.
Remember that the type of bankruptcy each platform chooses may also affect the time it takes for you to receive a refund.
How bankruptcy affects your taxes
Another factor to note is that bankruptcy proceedings can be very lengthy. While a platform is in the process of bankruptcy, you cannot incur a tax loss. While you are waiting, TurboTax recommends that the best thing you can do is gather relevant documents related to your cryptocurrency accounts.
TurboTax states that once a platform's bankruptcy is resolved and the assets are deemed worthless, "You can offset cryptocurrency losses based on the amount you paid for it against your gains and offset any additional losses against ordinary income such as wages up to $3,000." "Any additional losses over $3,000 can be carried over to the next year."
Overall, options for recovering losses in such cases are very few and far between. Aaron Kaplan, co-founder and co-CEO of Prometheum, notes that recovery from FTX and other disasters is likely to be quite limited due to bankruptcy costs significantly reducing the final payouts that customers' creditors of these bankrupt organizations may receive.
However, Kaplan adds that investors with other capital gains should consult their tax advisor about offsetting losses from these bankrupt organizations against those capital gains.
"Many class action lawsuits have been initiated against many participants or those who assisted and facilitated the activities of failed organizations," he said. "These class actions may yield a small return for the affected investors."