FTX, BlockFi, Voyager, Celsius: Awful Year For Crypto Investors

It's been a dark year for the crypto space. 

Investors, both retail and institutional, are living through a nightmare that seems to have no end: a series of cascading bankruptcies of crypto firms and some star cryptocurrencies. 

To this add the slump in cryptocurrency prices. The crypto market has lost nearly $2.2 trillion from a year earlier.

"Always the same story; We are fine. We are unaffected. We are little exposed but still fine don't worry. Deploying more capital. We have halted and frozen your funds temporarily. We filed for bankruptcy. It’s not your fault," complained one crypto investor on the social media platform Reddit.

"As soon as I hear 'withdrawals are paused' I  know I'm never seeing any of that money again," added another crypto investor.

"Withdrawals are paused" are like when politicians say 'I'm resigning to spend more time with my family'," one user concurred. 

Seven Major Bankruptcies Since May

Since May there have been seven major bankruptcies in the crypto industry. In all of them customers and investors are unsure whether they'll get their money back. 

It started on May 9 when sister cryptocurrencies Luna and UST, or TerraUSD, suddenly crashed, wiping out at least $55 billion. 

Luna, which was hyped by crypto evangelists like the billionaire Mike Novogratz, precipitously lost its value. The rout caused a credit crunch that ended up taking out the hedge fund Three Arrows Capital, or 3AC, to which many crypto firms had entrusted their clients' money to invest.

The impact on the industry was huge: Eminent crypto lenders like Celsius Network and Voyager had to file for bankruptcy due to their exposure to Luna and UST through 3AC. BlockFi, which was also affected, had to be bailed out by the FTX cryptocurrency exchange and its founder, Sam Bankman-Fried. 

Just over three months later, FTX and its sister company Alameda Research have filed for bankruptcy. BlockFi has done the same, and there's no doubt that other crypto firms will follow because Bankman-Fried had rescued many companies during the liquidity crisis last summer, industry sources say.

All these bankruptcies have the same victims: investors, who do not know if they will be able to recoup their money. The top 50 creditors of FTX, for example, are owed over $3 billion, according to court documents.

Investors' frustration also stems from the fact that these companies often assured them that everything was fine -- only to end up preventing them from withdrawing their money a few days or even hours later by simply suspending withdrawals. Bankman-Fried said Nov. 7 that FTX's assets were "fine." 

Bitcoin Is Down 76%

The next day he announced an agreement to avoid the bankruptcy of his crypto empire. But in reality the situation was disastrous as revealed by Changpeng Zhao, the CEO of Binance, a competitor of FTX, which had initially agreed to acquire FTX before giving up.

"In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help," Binance said on Nov. 9.

On Nov. 14 BlockFi assured its customers that its situation was not as dire as speculation had it. Two weeks later, the group filed for Chapter 11 bankruptcy.

"I just lost 1btc with them and am furious I don’t even know what to do," one customer lamented on Reddit, referring to bitcoin.

"Cries in Celsius - I'm with you, brother. I received my proof of claim from their chapter 11 case just this week. I guess time will tell how strongly some businesses honor debts to their clients. I'll be rooting for you," another investor commented.

For crypto investors, there is almost no safe haven. 

In addition to the more than likely loss of the money they had in the form of cryptocurrencies deposited in accounts on these bankrupt platforms, they have also seen coin prices drop sharply over the past year. 

Bitcoin, the most popular cryptocurrency, is down 76% since its all-time high on Nov. 10, 2021, at $69,044.77, according to data firm CoinGecko. 

Ether, the second largest digital currency by market value, fell 75% from its all-time high of $4,878.26.