Report: Bankruptcy Law Can Be Unclear When Crypto Custodians Go Belly Up

As Cointelegraph reports, “The past few years have seen a glut of cryptocurrency exchanges becoming insolvent. But what legal rights do their customers have with regards to the return of their held assets? “A paper recently published by the Law Faculty of the University of Oxford examines the legal risks of depositing cryptocurrency with custodians […]

By Chris Sykora · June 1, 2020

Report: Bankruptcy Law Can Be Unclear When Crypto Custodians Go Belly Up

“A paper recently published by the Law Faculty of the University of Oxford examines the legal risks of depositing cryptocurrency with custodians in the event of insolvency. The paper, featured in a June 1 blog-post by the faculty, also suggests ways that regulation and practice can help to mitigate this risk.

“Cryptocurrencies were initially created as a way to be free from the interference of governments, banks and other intermediaries. However, the reality is that a large proportion of Bitcoin (BTC) and other cryptocurrencies is currently held through custodians such as exchanges, rather than by investors themselves.

“This creates significant risks related to the possible insolvency of these custodians, and the rights of customers with regard to their held assets in such an event. Exchange insolvencies are common, and it can take years before customers find out what will happen to their funds.

“The paper states that customer rights ultimately depend on the applicable insolvency and property law. However a lack of international standards related to the legal status of cryptocurrency, along with the global nature of blockchain-based transactions, can make it hard to determine which laws apply.

“Ideally, the paper suggests, priority would be given to the contractual law agreed between custodian and customer, with local law applying at the custodian’s place of corporation serving as a fallback. So a custodian’s terms and conditions should be essential reading before depositing or purchasing tokens…”

Read the full story on Cointelegraph.