5 Biggest Crypto-related Bankruptcies of 2022
The year 2022 has been one of the most catastrophic years for the crypto market, with severe challenges striking some of the most prominent crypto firms. June and July were particularly brutal, as they saw a merciless bloodbath throughout crypto. Here are the top five bankruptcies that shocked the crypto community in 2022.
1. FTX Exchange's Unprecedented Bankruptcy
FTX, a top-five exchange by trading volume, filed for Chapter 11 bankruptcy in the US on November 11, 2022. The exchange became insolvent and couldn’t fulfill customer withdrawals, and its troubles began after a November news report that Alameda Research, a crypto trading firm closely tied to the exchange, had liabilities of $8 billion and most of its equity in FTT, the native token of the FTX exchange and a relatively illiquid one. The report prompted Binance, the world’s largest crypto exchange, to sell off its FTT holdings, which sunk the token’s price. Users rushed to withdraw $6 billion from FTX in under 72 hours, and the exchange couldn’t fulfill the withdrawals. FTX filed for bankruptcy because it couldn’t fulfill customer withdrawals, and it owes money to over one million creditors, with a total deficit of $9 billion.
2. The Collapse of Crypto Hedge Fund Three Arrows Capital
Three Arrows Capital (3AC), one of the largest crypto hedge funds managing almost $10 billion in assets, declared bankruptcy in July 2022 as a result of a liquidity crisis triggered by the bear market. We can trace its failure back to the collapse of UST, one of the most popular stablecoin projects, where 3AC had invested around $500 million in the project, which eventually collapsed, taking it to zero. The firm had borrowed funds from popular crypto firms, all of which were affected by the firm’s bankruptcy. According to reports, 3AC's total debt is $3.5 billion.
3. BlockFi's Fall Amidst FTX's Crisis
In November 2022, crypto lending platform BlockFi filed for Chapter 11 bankruptcy, with major exposure to FTX, which collapsed in the same month, leading it to file for bankruptcy too. BlockFi reported owing $275 million to FTX US and having lent over $1 billion of clients’ funds to FTX and its sister trading firm Alameda. BlockFi declared that it owed $1.3 billion to its 50 largest creditors and had $257 million in cash on hand. The company has halted the withdrawal of customer deposits.
4. Core Scientific: Bitcoin Mining Giant Goes Bankrupt
Core Scientific, one of the biggest Bitcoin mining firms, filed for Chapter 11 bankruptcy in December 2022. The price of Bitcoin sank significantly in 2022 to a point where mining wasn’t profitable for Core Scientific. The publicly-traded company reported hundreds of millions of dollars in losses before filing for bankruptcy. Core Scientific declared assets of $1.4 billion and liabilities of $1.3 billion to around 1,000 to 5,000 creditors. The company entered a prepackaged bankruptcy and owes most of its debt to institutional investors. The company has arranged a restructuring that'll see many lenders swap their debt for equity.
5. Voyager Digital's Default and Bankruptcy After 3AC Debacle
Voyager Digital, a US-based crypto exchange, declared bankruptcy following a $660 million default from 3AC. The platform paused withdrawals at the beginning of July but assured the public at the time that it would continue operations. The exchange used $75 million of a 15,000 BTC revolving loan from Alameda Research to offset its exposure to the debts that 3AC had incurred. The total debt owed by Voyager Digital is $1.3 billion, and $270 million has been approved so far.
In conclusion, 2022 was a catastrophic year for the crypto market, and these five biggest bankruptcies have further exacerbated the situation. The bear market has severely affected some of the most prominent crypto firms, bringing them down brutally, and these five bankruptcies serve as reminder of how far the space still needs to grow.