As the crypto sector experiences a wave of bankruptcies, investors are selling their assets for pennies on the dollar, creating a booming marketplace for bankruptcy claims.
The crypto crash of 2022 took a heavy toll on digital asset firms, resulting in the collapse of several high-profile crypto firms. With billions of dollars invested in these failed companies, investors have had no choice but to sell their claims for a fraction of the original value.
Aleksandar, a crypto investor, told Wired that he had hundreds of thousands of dollars locked in FTX before it went under. To cover his bills and other expenses, he sold his FTX claims to Cherokee Acquisition’s Claims Market at a significant discount. He said he received less than 20 cents for every dollar of his claim, but at least that allowed him to “put it behind him and move on.”
Claims trading is the buying and selling of claims held by creditors against debtors in a bankruptcy. It gives sellers access to immediate funds in exchange for a deep discount, while buyers can earn a greater return if the value eventually recovered by creditors is higher than what they paid for the claims.
The numerous bankruptcies in the crypto sphere have given rise to a vibrant market for bankruptcy claims marketplaces. According to Open Exchange and Xclaim, there could be as much as $30 billion locked up in crypto bankruptcies right now.
“We’re giving people the chance to make decisions they wouldn’t have normally,” said Matthew Sedigh, founder of Xclaim. He added that the company, which shifted its focus to crypto bankruptcies last year, has seen a more substantial user base and higher income than in the two years prior.
High-Profile Crypto Firms Fall Prey to Market Downturn
The crypto market downturn that began with the disintegration of the Terra ecosystem wiped out more than $40 billion from the market cap, leading to the downfall of some major crypto companies.
Following the demise of UST, Celsius, BlockFi, and FTX were among the crypto firms that went under. Three Arrows Capital, Core Scientific, Voyager, Babel Finance, Hodlnaut, and Zipmex also filed for bankruptcy before the end of the year. The crypto sector saw another blow at the start of 2023 with crypto lender Genesis going insolvent.
The crypto market downturn also spread to the mainstream banking system, with crypto-friendly Silvergate Bank announcing that it is winding down its operations and liquidating its subsidiary. Silicon Valley Bank and Signature Bank, two other banks with exposure to crypto firms, soon followed suit.
