8/17/2023 0 Comments Inform studio chicagoFor example, in August 2021, each of the companies in figure 1 offered interest rates on stablecoin investments in a range from 7.4% to 9%. The pitch for the high-yield products was simple and highly attractive on the surface: Invest in crypto-assets like Bitcoin or a stablecoin and receive guaranteed interest rate payments higher than those of other investment options. High-yield products were a key magnet for customers at some platforms. Securities and Exchange Commission (SEC) and various news reports. Sources: Authors’ calculations based on data from United States Bankruptcy Courts, bankruptcy filings (Official Form 206) U.S. platform did not pause withdrawals until it filed for bankruptcy on November 11, 2022. In the case of FTX, FTX’s international platform paused withdrawals on November 8, 2022, while its U.S. The dates of withdrawal pauses come from various news reports. The number of customers may include those with high-yield investment products, custody accounts, and other types of accounts. The SEC reported that about 340,000 of Gemini’s customers invested in Genesis (see the SEC’s January 12, 2023, press release), and Genesis’s bankruptcy filing lists an additional approximately 600 nonretail customers. In the case of Genesis, Gemini offered a retail-facing platform that allowed customers to place funds with Genesis, which did not deal directly with retail customers. Each firm may have had additional customers that did not have positive claims at the time of the bankruptcy filing. Notes: This figure lists the number of customers with positive claims when each crypto-asset platform filed for bankruptcy. Number of total customers owed debts in bankruptcy filing Major crypto-asset platforms that have entered bankruptcy since the beginning of 2022 Moreover, Celsius cumulatively had about 1.8 million customers, and the pace of new customer registrations peaked in late 2021. In addition, Voyager Digital once reported 3.5 million customer registrations and 1.19 million funded accounts in contrast, at the point of its bankruptcy filing, it had 975,000 customers with positive balances. For instance, FTX’s bankruptcy lawyers reported that it once had 9.7 million customers, larger than the 1.9 million with positive balances at the point when the firm filed for bankruptcy. The number of customers each firm had as of its bankruptcy filing in figure 1 likely understates each one’s peak customer count, since the popularity of crypto-asset platforms declined during the early months of 2022 and customers left during the runs described throughout this article. These platforms had both retail and institutional customers based in the United States and internationally. Figure 1 details a selection of platforms-focusing on those that have entered bankruptcy and shut down since the start of 2022. These platforms attracted users by offering the ability to easily trade and custody crypto-assets and invest in high-yield investment products. For example, the price of Bitcoin rose almost ten times from January 2020 to November 2021.Īmid this boom, customers flocked to crypto-asset platforms. As funding flowed into crypto-asset markets, prices rose rapidly and peaked around November 2021. Interest in crypto-assets grew enormously over 20. These episodes together formed a classic financial crisis in a novel setting that has raised urgent policy concerns. In one of the most severe episodes, customers withdrew a quarter of their investments from the platform FTX in just one day, according to our analysis of data from its bankruptcy filing. The platforms were subject to run risk: They allowed customers to withdraw funds on demand while using those funds to make illiquid and risky investments, in part to generate the high rates of returns promised to customers on investment products. These platforms offered and marketed to customers a number of products and services related to crypto-assets, including high-yield investments, trading, and custody services. In this article, we describe the spectacular collapse of several crypto-asset platforms in 2022 following investment losses and widespread customer withdrawals.
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