Last month crypto lender Celsius halted investor withdrawals of up to $12 billion in assets. Since then Babel Finance, Finblox, Voyager Digital, Binance, CoinFLEX, WazirX, CoinDCX, CoinLoan, and Vauld have stopped or restricted investor withdrawals.
Investors with assets in custodial crypto wallets were the most vulnerable. Custodial wallets hold investors’ private wallet keys in trust. Benefits include convenience, less investor responsibility for passwords and private keys, and avoidance of transaction fees. These benefits come with a cost, however. Investors do not have full control over the funds in their wallets, only the ability to authorize crypto going out of or coming into their wallets.
Custodial wallets, for all their benefits, are vulnerable to asset freezes in times of low liquidity or stages of bankruptcy with exchanges or crypto lenders. The simplest answer to this vulnerability is often for investors to use non-custodial wallets, especially with the bulk of their assets. Guarda and Exodus wallets are only two of many non-custodial wallets available to investors. Guarda and Exodus are very secure, work with many different cryptocurrencies, and are beginner friendly.
The following excerpt from a recent post by livemint .com provides more detail about what happens to investor assets when a crypto exchange or lender gets in a bind:
What happens to investor capital when crypto exchanges and lenders go belly up?
Cryptocurrency exchanges suspending their trading due to volatile market conditions has become a trend since June. The flash crash that began in May followed by the collapse of the Terra sisters, further intensified last month and led to liquidity inadequacy among cryptocurrency exchanges. Due to macroeconomic risks globally, the crypto market suffered a great loss tracking deep depression in the stock market. The liquidation of crypto hedge fund Three Arrows Capital (3AC) is the latest downfall in the market. These all factors led to many crypto exchanges halting their withdrawals and deposits on their platform. While some crypto exchanges are contemplating various options like raising funds from other investors, selling stakes, or forming joint ventures but the last resort has occurred to opt for bankruptcy. This brings the question of what will happen to investors’ money if their trading platform goes bankrupt?
We are not accountants, financial advisors, attorneys, or tax advisers, and as such we cannot and do not give advice on financial, tax, or legal matters. Our trainings and services are for educational and entertainment purposes only. No matter what you may hear us discuss, which is based on our own personal experiences and/or that of our customers, in the end our best advice is… DYOR (Do Your Own Research) and consult your own accountant, financial advisor, legal advisor, and/or tax advisor before investing. As with any other investment opportunity, cryptocurrencies have risk and it is possible that you may lose anything you invest. Therefore, you should not risk money you cannot afford to lose. It is important to repeat… do your own research and make your own informed decisions about how to invest your money.
Original article can be found at;//www.livemint.com/market/cryptocurrency/what-happens-to-investors-money-when-a-cryptocurrency-exchange-goes-bankrupt-11658579490193.html