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FTX, Celsius, 3AC Bankruptcies Rocked the Crypto World in 2022

Crypto fans entered 2022 optimistic and buoyed by the record-shattering highs of 2021. But this year, crypto fortunes were dramatically reversed, with market leader Bitcoin hitting a two-year low and a crypto winter that showed no signs of abating.

May’s Terra Luna fiasco had set the stage for what was to come. Several high-profile companies would soon file for bankruptcy and leave customers unable to salvage their money in time. The bankruptcies sometimes triggered a “contagion” that spilled into the entire space, especially considering what happened with FTX.

No one had anticipated FTX’s dizzying fall from grace. It went from being the third-largest exchange worldwide to ashes almost overnight.

These bankruptcies delivered another crack on crypto’s already fragile reputation. “We have been set back a few years,” CZ, Binance’s CEO, observed. 

Now, with industry captains forced to recalibrate, 2022 will doubtless offer more teachable lessons for participants.

In this feature, we’ll break down the top five bankruptcies in crypto in 2022 and how they unfolded.

FTX logo

#1. FTX

FTX’s beginning of the end came amid revelations that crypto hedge fund Alameda Research, its sister company, had nearly $6 billion in FTT, FTX’s native token.

This raised questions on the financial stability or solvency of Sam Bankman-Fried’s crypto empire, which included both companies. The WSJ would later report FTX’s illegal funds’ transfer to Alameda to prop up the hedge fund.

Soon, Binance announced it would sell its FTT tokens worth $529 million, triggering a “bank run” with customers panic-withdrawing $6 billion in 72 hours.

FTX would take another blow when Binance backed out of a deal to acquire the embattled exchange over “mishandled customer funds and alleged US agency investigations.” On November 11, FTX filed for bankruptcy protection.

What made FTX’s fall stunning was SBF’s image as a crypto wunderkind, along with FTX’s quick ascent to the top in just three years. It was also remarkable in that unlike in other crypto failures, FTX’s fallout spilled over into the political sphere. Thanks to SBF’s campaign donations to both parties, conversation often devolved into political point scoring and recriminations.

The result is the exchange’s toppling had a seismic effect on the entire industry.

SBF was arrested by Bahamas police on December 12 to await extradition to the US. He’ll face charges from the Southern District of New York, the Securities Exchange Commission (SEC), as well as testify to the US Congress.

#2. Three Arrows Capital

Three Arrows Capital, or 3AC, was a crypto hedge fund that took on huge loans to amp up its market trades, hoping to reap huge dividends if the market rebounded.

Such hopes were effectively dashed when Terra Luna, which the company held a lot of, crashed by 99.9%. Terra Luna only exacerbated an existing crypto winter, spelling doom for 3AC. As such, the company could not honor its credit obligations. This caused it to be liquidated under a court order in the British Virgin Islands.

The company’s reps filed for Chapter 15 bankruptcy in the United States to likely avoid being liquidated there.

According to the bankruptcy court filing, 3AC owes up to $3.5 billion in credit, including $685.5 million to crypto hedge fund Voyager Digital.

#3. BlockFi

BlockFi is a former crypto assets lender that went down as a direct casualty of the FTX fallout. The company filed a Chapter 11 bankruptcy petition on November 28 in a New Jersey court where it is based.

BlockFi had “significant exposure” to FTX, which included $335 million frozen in FTX and $680 million owed by Alameda. The company had blocked customer withdrawals the same day FTX filed for bankruptcy.

According to the bankruptcy filing presser, customers can’t withdraw their money until BlockFi recovers “all obligations owed to it by its counterparties, including FTX”.

#4. Voyager Digital

Voyager Digital was a crypto asset broker and lending firm that let users buy, sell, and earn interest on their crypto. Voyager’s troubles were also occasioned by the crypto winter and its vast loss from exposure to 3AC. On July 6, the company filed a bankruptcy petition in the US Bankruptcy Court of the Southern District of New York.

Voyager had a few days earlier paused trading, deposits, and withdrawals in a “tremendously difficult decision” a few days earlier.

Several crypto companies are now looking to acquire Voyager Digital. Binance is launching a new bid for the platform after the former front-runner for the bailout, FTX, went bust.

#5. Celsius Network

Celsius Network was one of the highest-rated crypto and DeFi startups — hence why it was an utter shock when the company folded. On July 13, the company said it initiated a Chapter 11 bankruptcy petition to allow it to restructure and “maximize value for all stakeholders.”

The development came after the crypto lender halted customer withdrawals, swaps, and transfer functions the month prior over “extreme market conditions,” – a decision that got it caught in the crosshairs of several US states. In the July press release, the company sought to explain June’s “difficult but necessary” decision.

Celsius went on to explain, “Without a pause, the acceleration of withdrawals would have allowed certain customers…to be paid in full while leaving others behind…”.

The Bottomline: Contagion is Real

If one thing is apparent from 2022’s crypto bankruptcies, we’re still experiencing growing pains. One lesson the industry can glean from this year is the peril of intertwined crypto platforms. When one such platform goes down, it pulls others down with it and that’s far from ideal.

Meanwhile, crypto entrepreneurs can learn a ton from how these companies handled things.

For crypto investors, two key mantras bear repeating: “Not your keys, not your coins,” and “Never invest more than you’re willing to lose.” The former means you shouldn’t store your funds in an exchange for long. Instead, secure your funds in cold storage (the bonus is you get to actually have autonomy over your money).

For now, crypto is battered and bruised, but proponents should remember it’s just another season.

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Hope Mutie

About the Author

Hope Mutie

Hope Mutie is a professional writer and editor whose interests include fintech, cryptocurrency, and blockchain. She engages with crypto audiences by curating content that’s fun-to-read, educational, and offers unmatched value. Hope is part of the brilliant team at Go Full Crypto – a podcast and service that enables your transition into crypto.

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