Picking Up the Pieces: A Closer Look at 10 Crypto Bankruptcies of 2024 

The crypto world continues to experience turbulence in 2024, with several high-profile bankruptcies shaking the industry. These events reflect the persistent challenges within the sector, from market volatility to regulatory pressures.

Notable Cases

1. CoinFLEX (February 2024)

This Hong Kong-based crypto exchange specialized in derivatives trading. They halted withdrawals due to “liquidity issues” stemming from a counterparty defaulting on a large loan. 

The impact: CoinFLEX users lost access to their funds, and the exchange’s future remains uncertain.

2. Luno Singapore (March 2024): 

A subsidiary of the global crypto exchange Luno, the Singapore branch abruptly shut down citing “unforeseen market circumstances.” This left many Singaporean users scrambling to recover their assets. 

The impact: Luno Singapore users faced difficulties withdrawing their funds, raising concerns about the stability of the broader Luno platform.

3. USTC (TerraClassic) Ecosystem Projects (April-May 2024): 

Several projects built on the TerraClassic blockchain, previously known as Terra, filed for bankruptcy following the dramatic collapse of the USTC stablecoin in May 2022. These bankruptcies were a delayed consequence of the original TerraUSD crash, impacting developers and users who remained invested in the ecosystem. 

The impact: Investors who held onto USTC or projects within the TerraClassic ecosystem after the initial crash faced further losses.

4. QuadrigaCX (January 2024): 

This Canadian exchange, embroiled in a legal battle since its founder’s sudden death in 2019, finally filed for bankruptcy in January 2024. The long-running saga exposed the vulnerabilities of centralized exchanges and the challenges of asset recovery in such situations. 

The impact: QuadrigaCX users have been waiting years to recover their lost funds, highlighting the need for clearer legal frameworks around crypto custody.

5. MyCryptoWallet (June 2024): 

This lesser-known crypto wallet provider shut down unexpectedly, citing “security vulnerabilities.” Users reported difficulties accessing their private keys and recovering their crypto holdings. 

The impact: MyCryptoWallet users faced the potential loss of their crypto assets, raising concerns about the security of self-custody solutions.

6. NFTfi (May 2024): 

A platform focused on Non-Fungible Token (NFT) lending and borrowing, NFTfi declared bankruptcy in May 2024. The reasons cited were “liquidity problems” and a decline in the NFT market. 

The impact: NFTfi users who had borrowed or lent NFTs through the platform faced uncertainty regarding the status of their loaned assets.

7. Hero (June 2024): 

This South Korean crypto exchange filed for bankruptcy after facing allegations of market manipulation and fraudulent trading practices. 

The impact: Hero users lost access to their funds, and the exchange’s collapse eroded trust in the South Korean cryptocurrency market.

8. GymGold (April 2024): 

A project promising rewards for fitness activities using its native token, GymGold, filed for bankruptcy in April 2024. The project faced accusations of being a “pump and dump” scheme, where the token’s price was artificially inflated before a sharp decline. 

The impact: Investors who bought GymGold tokens likely lost a significant portion of their investment.

9. Woonkly (March 2024): 

This decentralized exchange (DEX) focused on privacy-oriented transactions filed for bankruptcy in March 2024. The reasons cited were “regulatory pressure” and difficulties in maintaining anonymity in a shifting regulatory landscape. 

The impact: Woonkly users who valued privacy in their crypto transactions were left searching for alternative solutions.

10. BlockFi (Potential – Ongoing Restructuring):

This major crypto lending platform faces ongoing financial difficulties and potential bankruptcy in 2024. BlockFi has been actively seeking a bailout or restructuring plan to avoid collapse. 

The impact: A BlockFi bankruptcy would have significant ripple effects across the crypto lending market, impacting both borrowers and lenders.

Impact on Retail Investors

The human cost of these bankruptcies is substantial. Retail investors, often the most vulnerable, have borne the brunt of these collapses. In 2022, the failure of exchanges like FTX wiped out significant investments. Many regular investors lost their life savings, facing financial ruin. The lack of robust regulatory protections has left many without recourse, amplifying calls for stricter investor safeguards.

The Role of Venture Capital

• Venture capital firms have played a pivotal role in the crypto boom, funding many of the companies that later went bankrupt. 
• Their aggressive investment strategies often prioritized rapid growth over sustainability. 
• This influx of capital encouraged risky behavior, as startups pursued ambitious projects without solid financial grounding. 
• The fallout has raised questions about the responsibility and oversight of these investors in the crypto ecosystem.

The Rise of Decentralized Finance (DeFi) and its Risks

While centralized exchanges have faced severe challenges, the DeFi sector is not immune to risks. DeFi bankruptcies could present unique issues, such as difficulties in asset recovery and the absence of centralized control. 

The decentralized nature of these platforms complicates legal proceedings and creditor settlements, potentially leading to prolonged insolvency resolutions.

Global Differences in Regulations

Regulatory approaches to cryptocurrency vary widely across the globe. In regions with stricter regulations, such as the European Union, there is a push for greater transparency and consumer protection. 

Conversely, looser regulations in other areas have allowed for more rapid innovation but at the cost of increased risk. This regulatory divergence could lead to a geographic shift in crypto operations, as companies seek favorable environments.

Environmental Impact of Crypto Bankruptcies

The energy consumption of proof-of-work blockchains, such as Bitcoin, remains a significant concern. Crypto bankruptcies could lead to a temporary reduction in mining activities, slightly alleviating environmental impact. However, the long-term footprint of the industry depends on the adoption of more sustainable practices and technologies.

The Future of Crypto Lending

Crypto lending platforms were severely impacted in 2022. Moving forward, the sector may see tighter regulations and the development of safer lending models. These changes could help rebuild trust and stability, attracting more cautious investors and promoting sustainable growth.

The Legal Precedent Being Set

Court rulings from recent crypto bankruptcies are setting important legal precedents. These decisions will shape future bankruptcy proceedings, influencing how digital assets are valued and how creditor claims are handled. The evolving legal landscape will provide clearer guidelines for both investors and companies.

The Rise of “Phoenix” Companies

Some companies that filed for bankruptcy in 2022 are attempting to re-emerge in new forms. These “phoenix” companies face scrutiny regarding their ethical practices and business models. The potential risks include repeating past mistakes and the challenge of regaining investor trust.

The Role of Media and Public Perception

Media coverage of crypto bankruptcies has significantly influenced public perception. While it can create a negative image of the cryptocurrency market, it also serves as a cautionary tale. This coverage highlights the need for better regulation and investor education, ultimately contributing to a more mature and stable market.

Conclusion

The wave of crypto bankruptcies in 2024 underscores the volatility and risks inherent in the cryptocurrency industry. From the human impact on retail investors to the evolving role of venture capital and regulatory differences, the sector faces numerous challenges. However, these crises also offer opportunities for growth and reform, paving the way for a more resilient and responsible crypto ecosystem.

Frequently Asked Questions

1. Will crypto.com fail?

Due to limited demand from major financial institutions, Crypto.com announced on June 9, 2023, that it would close its institutional exchange in the United States by June 21.

2. Have FTX clients got their money returned?

On February 16, 2023, FTX founder Sam Bankman-Fried, left, enters a federal courthouse in Manhattan. Following the demise of FTX, a cryptocurrency exchange, nearly all of its users will receive their money back plus interest after 17 months.

3. Which coin will 2024 see reach $1?

Ten different coins—TRON, Shiba Inu, Astar, Kaspa, Dogecoin, Stellar, Kava, Polygon, Cronos, and VeChain—have different chances of hitting the $1 threshold in 2024 in the ever-changing cryptocurrency market.