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A flourishing market for bankruptcy claims has been created by users of defunct cryptocurrency exchanges and funds selling their claims for a small portion of their paper worth.
Numerous well-known digital asset companies were impacted by the 2022 crypto crisis, which resulted in the demise of numerous notable crypto businesses. Investors have begun selling their assets for pennies on the dollar because billions are trapped in bankrupt businesses.
Aleksandar is one of these financiers. He claimed to have hundreds of thousands of dollars’ worth of cryptocurrency stored in FTX during a recent chat with Wired. The cryptocurrency investor made the tough choice to sell his claims against FTX at a significant discount due to electricity costs and other expenditures.
Aleksandar sold his claims to Cherokee Acquisition, a financial company that also runs Claims Market, one of the largest public markets for bankruptcy claims. He claimed that even though he only got less than 20 cents on the dollar for his FTX claim, at least it enabled him to put the matter behind him and move on.
Trading in claims is the buying and selling of claims that creditors have against borrowers during a bankruptcy case. The market gives buyers the chance to make a profit and vendors the chance to recoup some of their losses.
More precisely, it enables sellers to get access to the money right away in exchange for a sizable reduction. However, purchasers can benefit more if the value ultimately given back to debtors is higher than what they paid for the claims.
A flourishing market for bankruptcy claims platforms has resulted from recent bankruptcies in the cryptocurrency industry. There are presently between $20 billion and $30 billion in crypto bankruptcies, according to figures from Open Exchange and Xclaim.
According to Matthew Sedigh, the founder of Xclaim, “We’re giving people the power to make a choice they otherwise wouldn’t have.” He added that since switching its emphasis to only covering cryptocurrency insolvency last year, Xclaim has garnered more users and generated more income than it did the previous two years put together.
A number of significant cryptocurrency businesses went under last year, contributing to a general market decline that began with the failure of the Terra ecosystem, which removed more than $40 billion from the market capitalization of cryptocurrencies.
Several bankruptcies were caused by the repercussions from Terra’s decentralized stablecoin UST, including the demise of significant cryptocurrency loans like Celsius and BlockFi and even the demise of cryptocurrency exchange FTX.
Along with Zipmex, Three Arrows Capital, Core Scientific, Voyager, Babel Finance, and Core Scientific, other well-known cryptocurrency businesses declared insolvency last year. The year 2023 got off to a rocky start when cryptocurrency financier Genesis failed.
Even the traditional banking system was affected by the crypto collapse, which brought down the crypto-friendly bank Silvergate, which declared earlier this month that it would close down its activities and liquidate its subsidiary.
Two additional banks, Silicon Valley Bank and Signature Bank, which both had some exposure to cryptocurrency companies, also declared their closures after Silvergate.
