Exchange Bankruptcy and Customer Claims

The Clause That Decided It

Celsius is the clearest case, because a court ruled on it directly. The January 2023 memorandum opinion held that when assets were deposited into Earn accounts they became Celsius's property, and those still there on the petition date became property of the bankruptcy estate. Around six hundred thousand accounts holding about 4.2 billion dollars were caught by it.

The deciding text was a terms of use clause granting Celsius all right and title, including ownership, plus the right to pledge, rehypothecate, sell or lend the assets. The court found that almost every account holder had accepted a version containing it. The consequence it stated plainly: those holders are unsecured creditors, and what they recover depends on distributions under a confirmed plan.

The Other Way It Goes Wrong

It would be tidy if a title transfer clause were the whole story. It is not, and assuming so leaves you guarding the wrong door.

FTX's terms of service said the opposite of Celsius's: title to your digital assets remains with you and does not transfer, and customer assets are not the property of the company. Excellent wording, and it did not survive contact with practice. The Commodity Futures Trading Commission's amended complaint quotes those very clauses and then alleges customer funds were wired to accounts controlled by an affiliate, never segregated, and that the two firms commingled assets and used customer assets as if they were their own.

Customer property you cannot trace is not customer property you can recover. Celsius and FTX are two separate lessons, and merging them into one loses both.

The Insurance That Was Not There

Voyager supplies a third. In July 2022 the Federal Deposit Insurance Corporation and the Federal Reserve jointly ordered the firm to stop suggesting it was insured. Deposit insurance covers the failure of a bank, not the failure of a company that banks with one, and it has never covered crypto at all.

The practical rule: before leaving a meaningful balance anywhere custodial, find the title clause in the terms and find out whether assets are segregated or pooled in an omnibus wallet. "Not your keys, not your coins" is usually heard as a warning about hackers. It is really a statement about who a bankruptcy judge will say owns the asset, and that turns out to be settled by a paragraph almost nobody reads.