Crypto Exchange Insolvency: When Your Coins Can Be Segregated and When They Fall Into the Estate

Anyone leaving a balance on a trading platform is entrusting it to somebody else's company. As long as withdrawals go through, nobody gives it a thought. The ownership question becomes interesting on precisely the day a custodian becomes insolvent, and by that point the answer can no longer be changed. It was settled by contracts and procedures that had been in force long before. The reliable answer is that everything turns on a single condition. Not on instinct, but on the right of segregation, and whether it exists is something you can read up on before your first deposit. This piece explains what it depends on, which rules have applied since MiCAR, and which clause to look for in the custody terms. This has to be kept apart from the tax side of the same question. Whether holdings lost after a collapse can be claimed for tax purposes is covered in our article on writing off coins lost in a crypto exchange insolvency. Here the subject is solely the prior question of civil and supervisory law: who owns the holdings in the first place. Deposit Guarantee and Investor Compensation: Why Neither Covers Crypto-Assets With a current account the position is familiar: if the bank goes under...