Cryptocurrency’s Clash with Bankruptcy: Insolvent Crypto Exchange Companies Create Difficulties for Courts & Customers

Abstract

This comment explores the novelty of cryptocurrency, its legal ambiguity in the realms of securities, property, and tax law, and the difficulties arising from insolvent crypto-exchange company’s estates within the context of the United States Bankruptcy Code. For the purposes of this comment, individuals who invested in crypto-exchange platforms will be referred to as “customers” rather than “investors” to avoid potential confusion in the context of 11 U.S.C. § 507 of the Bankruptcy Code. Customers who invested with insolvent crypto-exchange companies are concerned about being last in line for repayment of their investments based on traditional bankruptcy creditor priority. These concerns, combined with the alleged mismanagement and undercapitalization of many insolvent crypto-exchange companies, have introduced new issues of legal interpretation and the weighing of various policy concerns both within and outside of the bankruptcy process. By examining the bankruptcy process, the history of cryptocurrency, and analyzing several current cases of insolvent crypto-exchange companies, this comment explores the multi-faceted issues surrounding cryptocurrency as well as the need for guidance and clarity of cryptocurrency’s classification for the purposes of bankruptcy law.