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Distributed Ledger: Is your crypto on Celsius or Voyager? Factors that determine whether you may get your money back

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Hello! Welcome back to Distributed Ledger, our weekly crypto newsletter that reaches your inbox every Thursday.  I’m Frances Yue, crypto reporter at MarketWatch, and I’ll walk you through the latest and greatest in digital assets this week so far.

Find me on Twitter at @FrancesYue_ to send feedback, or tell us what you think we should cover. You can also reach me through email to share your personal stories with crypto.

For the past few weeks, several crypto companies have been reported to be in distress. Lender Celsius paused withdrawals since June 12, while Babel Finance and CoinFlex followed suit. Digital asset broker Voyager said on Wednesday it filed for Chapter 11 bankruptcy in New York

What do these mean for their customers? Could they still get their money back? I caught up with Daniel Saval, partner at law firm Kobre & Kim, to break down the situations.

Crypto in a snap

Bitcoin
BTCUSD,
+5.40%

gained 5.3% over the past seven days, trading at around $21,395 on Thursday, according to CoinDesk data. Ether
ETHUSD,
+6.93%

rose about 11.7% over the seven-day stretch to around $1,240. Meme token Dogecoin
DOGEUSD,
+3.28%

went up 2.5% while another dog-themed token, Shiba Inu
SHIBUSD,
4.98
,
is trading 3.4% higher from seven days ago.

Crypto Metrics

Biggest Gainers

Price

%7-day return

Evmos

$2.74

36.7%

Arweave

$11.73

29.9%

The Sandbox

$1.29

22%

Cosmos Hub

$8.97

21.8%

Quant

$62.54

20%

Source: CoinGecko as of July 7

Biggest Losers

Price

%7-day return

TerraClassicUSD

$0.049

-39.7%

Stacks

$0.40

-12.1%

KuCoin

$9.03

-9.4%

Huobi

$4.61

-8%

Litecoin

$50.21

-6.2%

Source: CoinGecko as of July 7

Crypto funds recovery?

If a crypto exchange or lender has halted withdrawals, “it could be a long stretch for the users and the customers before they are able to get anything back,” according to Kobre & Kim’s Saval. 

First, a customer has to look into terms of the user agreements to see if they give the company rights and discretion to pause withdrawals. “Customers may be out of luck,” Saval said. 

“If there’s room to maneuver,” consumers may take legal actions against the company, Saval said. However, such proceedings usually take a long time, while if the companies file for bankruptcy, an automatic stay will be imposed, preventing creditors and other parties from starting or continuing such actions. 

For crypto companies that have already entered bankruptcy proceedings, the key issue would be whether the customers are going to be treated as unsecured creditors.

The issue is important because at many crypto exchanges, customer funds are pooled together and not segregated, Saval noted.

If a customer is “unable to show that they have control over their accounts that they’re able to actually identify or trace their specific crypto assets. Then most likely those assets are going to be considered property of the bankruptcy estate,” according to Saval. It means that the customers will share with all other creditors the pool of assets, instead of claiming what was in their accounts, according to Saval.

“For those brokerages, exchanges or platforms, where the customer can put crypto in and it controls when it gets out, and is the only person that has access to that wallet, you’ll probably have a good argument that the assets are being held in trust by the platform for the benefit of the customer,” Saval said. “It would make it easier for them to point to the specific assets in that segregated account that they control and so they should get it back.”

Saval’s commented echoed the popular expression in the crypto industry – “not your key, not your wallet,” which highlights the risks of centralized entities and pointed to the potential benefits of decentralized finance, or DeFi. Though, to be sure, the DeFi space remains largely unregulated and vulnerable to some risks such as those related to smart contracts.

Struggling miners

Many bitcoin miners, who expanded operations in 2021 to capture more profits, are now struggling as the crypto’s price crashed.

The bitcoin mining industry’s daily revenue plummeted to $18 million from a peak of $62 million in November, when the largest crypto reached an all-time high, according to a Tuesday note by analysts at Arcane Research. 

Due to such pressure, more miners have been selling their bitcoin holdings. In June, Core Scientific sold 7,202 bitcoins at an average price of about $23,000 per coin for a total of $167 million.

What they say

Crypto billionaire Sam Bankman-Fried, chief executive at FTX, said he and his company still have “a few” billion to backstop embattled digital asset companies, as crypto prices crash and the rather nascent industry struggles with ripple effects from the failure of several major players. Bankman-Fried told Reuters that the firm still had enough cash on hand to do a $2 billion deal if necessary, though “it does get increasingly expensive with each one of these.”

Michael Novogratz, founder of Galaxy Digital, said regarding several failed crypto companies, that there will be accusations and prosecutions for fraud. “There will be gross misconduct in some of these companies where you just look at the amount of leverage and inter-lending that went on,” Novogratz told CNBC. MarketWatch’s Joseph Adinolfi wrote more about it here.

Crypto companies, funds

Shares of Coinbase Global Inc.
COIN,
+10.42%

rallied 11% to $57.47 on Thursday, and they were up 22% over the past five trading sessions. Michael Saylor’s MicroStrategy Inc.
MSTR,
+16.05%

jumped 15.5% Thursday to $217.50, and it was up 32.38% over the past five days.

Mining company Riot Blockchain Inc.
RIOT,
+14.79%

shares gained 14.8% to $5.20 Thursday, and were up 24.22% over the past five days. Shares of Marathon Digital Holdings Inc.
MARA,
+22.38%

surged 20.4% to $6.79, with a 27.2% gain over the past five days. Another miner, Ebang International Holdings Inc.
EBON,
+24.40%
,
were up 35.7% to $0.61 on Thursday, contributing to a 52% gain over the past five days.

Overstock.com Inc.
OSTK,
+8.31%
’s
shares traded up 9.1% to $28.87. The shares gained 15.1% over the five-session period.

Shares of Block Inc.
SQ,
+5.40%
,
formerly known as Square, were up 5.9% to $68.78 contributing to a 12% gain for the week. Tesla Inc.
TSLA,
+5.21%

shares went up 5.2% to $733.78, while they were up 9% over the past five sessions.

PayPal Holdings Inc.
PYPL,
+2.29%

rose 2.2% to $74.81, and it was up 7.1% over the five-session stretch. Nvidia Corp.
NVDA,
+4.82%

shares gained 4.9% to $158.74, looking at a 4.8% gain over the past five trading days.

Advanced Micro Devices Inc.
AMD,
+5.38%

shares hiked 5.6% to $79.56 on Thursday, and were up 4.1% from five trading days ago.

Among crypto funds, ProShares Bitcoin Strategy ETF
BITI,
-6.40%

were up 5.3% to $13.22 Thursday, while its Short Bitcoin Strategy ETF
BITI,
-6.40%

lost 5.5% to $38.22. Valkyrie Bitcoin Strategy ETF
BTF,
+6.27%

increased 5.2% to $8.20, while VanEck Bitcoin Strategy ETF
XBTF,
+5.88%

gained 5.4% to $20.77.

Grayscale Bitcoin Trust
GBTC,
+7.03%

rose 7% to $13.47.

Must Reads

Crypto Billionaire’s Firm Is All Things to Bankrupt Voyager (Bloomberg)

Will the crypto crash derail the next web revolution? (The Financial Times)

How Wall Street Escaped the Crypto Meltdown (The New York Times)

Gold Stock News: Burin Gold (TSXV: BURG) Continues to Drill Broad Zones of Gold Mineralisation Including 36.00 m of 1.08 g/t Au at Hickey’s Pond, Newfoundland

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