Legal experts tell CNBC that traders hoping to get their money back from failed exchanges are likely to be disappointed.
Users' assets are trapped inside their platforms after the two firms filed for bankruptcy. Liquidity issues were caused by an influx of withdrawals.
Celsius was similar to a bank in that it took customer deposits and lent them out to generate high yields.
There was a model like that of Voyager. The company was caught up in the collapse of Three Arrows Capital, a high-profile hedge fund.
Major firms have fallen like dominoes as a plunge in token prices has unwound excessive leverage in the system.
Cryptocurrencies aren't regulated because they don't offer the same protections as a bank or shares in a broker.
The U.S. Securities Investor Protection Corporation protects traders up to $500,000 in cash and securities if a broker goes under.
If an insured lender fails, the Federal Deposit Insurance Corporation provides up to $250,000 in bank deposit protection.
There are similar schemes in the U.K.
There is no guarantee that investors would be able to recover their funds if an exchange froze someone's account.
Daniel Besikof said there isn't a scheme like that at the moment.
He said that he wouldn't be surprised if one happened down the line. There will be increased calls for enhanced regulation.
It is not completely clear for now. Mt. is an example of a firm filing for bankruptcy. In the U.S., a gox in Japan is rare.
Mt's creditor's Gox is still waiting to be repaid billions of dollars' worth of thecryptocurrencies.
According to Daniel Saval, a lawyer with Kobre & Kim, the problem with centralized platforms is that they can mix different clients funds together to make riskier bets. It is possible that the assets are the property of the exchange.
Saval says users may be surprised to learn that the funds in their accounts may not be considered their own property.
Exchanges will often pool different customers' funds in the same account.
The company's user agreement and how it used their assets will determine what happens to customers' funds in bankruptcies.
In the event of a bankruptcy, funds deposited with the firm may not be recovered. The firm filed for Chapter 11 protection last week, revealing a large hole in its balance sheet.
According to Celsius, they have $167 million in cash. It isn't letting customers withdraw their funds, and hasn't said when it will reopen.
Legal experts and the bank disagreed with the claim that dollars are kept in an FDIC-insured account. Protection of funds in the event of a bank's failure is only offered by the FDIC.
After a reconciliation process with its banking partner, users will be able to regain access to their cash, according to the company.
In addition, the company laid out a plan to reimburse users with the company's own token and any debt recovered from Three Arrows Capital.
The prestigious law firm of Kirkland & Ellis was hired by both Celsius and Voyager.
The value and timing of any recovery unknown is what has placed investors in a difficult position.
There is a lot of work that needs to be done before the issues can be solved.
Chapter 11 is a form of reorganization that allows firms to restructure their debts. By the end of the process, the aim is to make the business viable.
Legal experts said that there is a good chance that Celsius and Voyager's users will be treated as un secured creditor.
They would be at the back of a long line of people waiting to be paid from the court proceedings.
In a regulatory filing in May, the company said its users would be treated as generalUnsecured Creditors in the event of a Chapter 11 filing.
When an exchange collapses, secured creditor are paid back first, along with legal fees, according to the Managing Director of Berkeley Research Group. Customers will be paid at the end of the month. This is a dime on the dollar.
It is likely that customers will have to wait until the full process is complete before receiving remuneration. He took a long time. There are some Mt.. Gox customers have yet to receive any remuneration.
Saval said that the customer's recovery in the bankruptcy proceedings may be further diminished by other creditor groups.
It is possible for investors to move their coins off of an exchange into a self-Custody wallet.
Someone is responsible for their own private key, a secret password needed to gain access to a coin wallet.
The move has its own risks. If a person loses their private key, they won't be able to recover their money.
There are many examples of people who have lost their hard drives.
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