The cryptocurrency market’s latest swoon is giving investors a painful lesson about the risks of trading digital tokens through intermediaries, WSJ Pro Bankruptcy reported. Sliding digital asset values pushed lending service Celsius Network LLC this week to freeze all customer withdrawals and explore options that include a financial restructuring. In a bankruptcy restructuring, crypto investors would be navigating uncharted territory. What can safely be predicted is that there will be litigation, and there will be delay,” said Prof. Adam Levitin of Georgetown University Law. Crypto exchanges and lending services provide individual investors an on-ramp to markets, but the cryptocurrency that customers put on these platforms might not belong to them in the eyes of a bankruptcy court, according to regulators and legal experts. If a cryptocurrency company goes bust, its users’ digital assets will likely go into the bankruptcy estate that lawyers, financial advisers, lenders and other creditors divvy up. Customer assets could be repaid at a loss, rather than simply returned to the users. Even if customers of a troubled cryptocurrency firm eventually get access to their tokens, they still could suffer big losses if the market turned against them while the bankruptcy played out. Many people were motivated to put crypto assets in Celsius to earn interest rates as high as 18%. The lender took customer deposits and put them in decentralized finance investments to get a return or lent the funds out to other users for a fee.
