In 2022, the crypto industry experienced an unprecedented implosion as several major players filed for bankruptcy.
Top-five exchange FTX became insolvent and couldn't fulfill customer withdrawals, leading to its filing for Chapter 11 bankruptcy.
Three Arrows Capital, one of the largest crypto hedge funds, also declared bankruptcy due to a liquidity crisis triggered by the bear market and its large investments in the unstable UST stablecoin project. BlockFi, a crypto lending platform, filed for bankruptcy due to its major exposure to FTX and its sister trading firm Alameda.
Core Scientific, a publicly-traded Bitcoin mining firm, filed for bankruptcy due to the significant drop in the price of Bitcoin making mining unprofitable.
Voyager Digital, a U.S based crypto exchange, filed for bankruptcy following a $660 million default from 3AC. Celsius Network, a crypto lending and staking platform, also filed for bankruptcy due to liquidity crisis and leveraged holdings in DeFi protocols that were liquidated.
Let's get into the nitty gritty details.
In 2022, FTX, a cryptocurrency exchange that was in the top five in terms of trading volume, became insolvent and filed for bankruptcy in the United States.
The troubles began after a news report revealed that Alameda Research, a firm closely tied to FTX, had $8 billion in liabilities and a significant amount of its equity in the illiquid native token of the FTX exchange.
This caused the world's largest crypto exchange, Binance, to sell off its holdings in the token, which led to a decline in its price.
Users of FTX quickly withdrew $6 billion from the exchange in under 72 hours, which the exchange was unable to fulfill. The bankruptcy filing revealed that FTX had been using customer funds for risky trades and lost a significant amount, and also used some for illiquid investments.
The exchange filed for bankruptcy because it couldn't fulfill customer withdrawals, and a new leadership team is currently trying to salvage any remaining funds to repay customers.
Binance had planned to acquire FTX but backed out after conducting due diligence, and FTX owes money to over 1 million creditors with a total deficit of $9 billion.
Three Arrows Capital (3AC) was a leading cryptocurrency hedge fund that managed almost $10 billion in assets.
The fund declared bankruptcy due to a liquidity crisis caused by the bear market.
The collapse of UST, a popular stablecoin project that 3AC had invested $500 million in, was a major contributor to its failure.
Additionally, 3AC had leveraged positions in DeFi protocols that were liquidated as a result of the falling prices of BTC and ETH.
The company had borrowed funds from well-known crypto firms such as Blockchain.com, Voyager Digital, Genesis, and BlockFi, all of which were impacted by 3AC's bankruptcy. Reports indicate that 3AC's total debt is $3.5 billion.
In November, BlockFi, a cryptocurrency lending platform, filed for bankruptcy under Chapter 11.
The company had significant involvement with FTX, which also filed for bankruptcy that same month.
BlockFi revealed that it owes $275 million to FTX US and had lent over $1 billion of its clients' funds to FTX and its sister trading firm Alameda.
The company reported that it owed $1.3 billion to its 50 largest creditors and had $257 million in cash available. As a result, BlockFi has stopped allowing customers to withdraw their deposits.
Voyager Digital was a U.S-based cryptocurrency exchange that filed for bankruptcy after defaulting on a $660 million loan from 3AC.
The platform temporarily halted withdrawals at the beginning of July but reassured the public that it would continue operations.
To offset its exposure to the debts that 3AC was unable to repay, the exchange used $75 million of a 15,000 BTC revolving loan from Alameda Research.
The exchange also reported having $137 million in cash and cryptocurrency on hand. However, with 3AC filing for bankruptcy, Voyager's hopes of recovering the money were dashed.
The exchange now owes over $1.3 billion to 100,000 creditors.
Celsius Network, a platform that offered crypto lending and staking services, filed for bankruptcy due to financial difficulties caused by the ongoing crypto bear market.
The crash of Luna-UST further damaged the company's financial situation.
The public became aware of the company's struggles when it suddenly halted all user withdrawals and transferred large amounts of money from Aave to FTX without explanation.
Additionally, the company had invested heavily in several DeFi protocols which were liquidated as a result of the bear market and had no risk management in place to protect its funds.
According to bankruptcy court records, the company has a deficit of up to $1.2 billion.
In December 2022, Core Scientific, one of the largest Bitcoin mining companies, filed for bankruptcy under Chapter 11.
The drop in the price of Bitcoin in 2022 made mining unprofitable for Core Scientific.
The publicly traded company reported large financial losses, including $435 million in the three months leading up to September 2022, before filing for bankruptcy.
The company listed assets of $1.4 billion and liabilities of $1.3 billion to around 1,000 to 5,000 creditors. Core Scientific entered into a pre-packaged bankruptcy, which involves negotiating with creditors before the bankruptcy proceedings.
Unlike most companies on the list, the company's debt is primarily owed to institutional investors rather than retail investors.
The company has arranged a restructuring plan that would see many of its lenders exchange their debt for equity. Despite filing for bankruptcy, Core Scientific has continued to mine Bitcoin and currently accounts for 10% of the computing power on the Bitcoin network.
In conclusion, the crypto industry has seen a number of high-profile bankruptcies in recent months, including Three Arrows Capital, BlockFi, Core Scientific, Voyager Digital, and Celsius Network.
These bankruptcies have been triggered by a combination of factors, including a bear market, liquidity crises, and the collapse of popular stablecoin projects.
The industry has been hit hard by these events, and it remains to be seen how the market will recover in the coming months. Despite this, many companies continue to operate and evolve in this field.
Overall, it highlights the inherent volatility and risks in the crypto market, and the need for better risk management practices.