When Crypto Exchanges Fail: What Happens to Customers’ Money

When a bank fails, insured deposits are protected. When a crypto platform fails, customers usually join a line of creditors and wait years.

What to know

1. Crypto held on an exchange isn’t covered by FDIC insurance, and SIPC doesn’t cover crypto that isn’t a security.
2. In a bankruptcy, customers’ crypto may be treated as property of the company, making them creditors.
3. FTX customers’ claims were valued in dollars as of the November 2022 bankruptcy, not at later prices.
4. Read the terms of service, avoid platforms that lend out customer coins, and don’t keep more on any platform than you need there.

Crypto platforms can fail through fraud, hacks or bad bets with customer money. The collapses of 2022, including Celsius, Voyager, BlockFi and FTX, showed what that means for ordinary customers.

No safety net by default

Protection	What it covers	Crypto on an exchange?
FDIC insurance	Deposits at insured banks if the bank fails	No
SIPC	Securities and cash at failed brokerage firms	Generally not crypto that isn’t a security
Bankruptcy law	Orderly distribution of a failed company’s assets	Yes, but customers may be treated as creditors

What failure looked like in practice

• Celsius froze withdrawals in June 2022 and filed for bankruptcy in July 2022. A judge ruled that coins in its “Earn” accounts belonged to Celsius under the terms customers had accepted.
• FTX collapsed in November 2022. Its founder was later convicted of fraud. In the bankruptcy, customer claims were valued in dollars as of the filing date. The estate began distributions in 2025 and said most creditors with smaller claims would receive more than 100% of those dollar amounts. Because crypto prices had risen sharply since 2022, many customers still received far less than their coins would have been worth.

Reducing the risk

1. Read the terms of service. Look for whether you or the platform owns the coins in your account, and whether the platform can lend them out.
2. Be wary of yield. Platforms that pay interest on deposits are usually lending your coins to someone else.
3. Don’t keep more on a platform than you need there; consider self-custody for long-term holdings.
4. Use regulated, well-established platforms, and check state licensing.
5. Withdraw early if withdrawals slow down or the platform changes its terms suddenly.

Red flag

Platform failures attract scammers. After a high-profile collapse, fake claims sites and “recovery” offers multiply. Use only the official bankruptcy claims process; see crypto recovery scams.

Losses from a failed platform also raise tax questions, so keep your records and the claim documents.

Common questions

Isn’t my exchange FDIC-insured?

Some platforms hold customers’ cash dollars at FDIC-insured banks, which can protect those dollars if the bank fails. That doesn’t cover crypto, and it doesn’t protect you if the exchange itself fails.

What happened to Celsius customers?

Celsius filed for bankruptcy in July 2022. A court later ruled that coins in its interest-earning accounts belonged to the company under its terms of use, so those customers became unsecured creditors.

How long do crypto bankruptcies take?

Years. FTX filed in November 2022 and began paying customers in 2025.