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What happens when a crypto exchange goes bankrupt?
Exchange insolvency is when a crypto platform holding customers' assets cannot pay what it owes and fails, sometimes halting withdrawals and entering bankruptcy. In the US, the SEC's investor office warns that depositors may cease to have legal ownership of deposited assets and may not get them back.
What it means for you
In the US, the SEC's investor office has said accounts with crypto asset entities do not carry the SIPC protection of registered broker-dealer accounts or FDIC deposit insurance. In a Chapter 11 case, filing triggers an automatic stay that suspends collection actions, and customers' claims are sorted into creditor classes under a court-supervised plan, so how much they recover, if anything, can be unclear.
A common mistake: “My coins on an exchange are mine, so if it goes bankrupt I can just withdraw them.”
In fact: The SEC's investor office warns that people who deposit crypto with a platform might cease to have legal ownership of it, notes unclear recoveries in some platform bankruptcies, and urges wariness of claims that you always retain ownership.
How it works
Under Chapter 11, a failed company usually stays in control as 'debtor in possession' and proposes a plan of reorganization. The plan sorts creditors into classes — secured, priority unsecured, general unsecured, equity — and states how each is treated; impaired classes vote on it. The SEC's investor office notes that some crypto platforms suspended withdrawals and entered bankruptcy with unclear recoveries, and that combining exchange, broker and custody functions in one firm creates conflicts. Registered broker-dealers, by contrast, must keep customer assets separate from their own. For payment stablecoins held by a custodian, the GENIUS Act gives customers' claims priority.
Sources: SEC investor alert: Exercise Caution with Crypto Asset Securities, US Courts: Chapter 11 bankruptcy basics, GENIUS Act, Public Law 119-27 (govinfo compilation) · checked 4 October 2026
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