In 2022, FTX — one of the world’s largest crypto exchanges — collapsed overnight. Millions of customers woke up to find their accounts frozen. Billions in customer funds were gone. Many are still waiting to recover a fraction of what they lost. FTX was not the first. And it will not be the last.
What You Actually Own on an Exchange
When you hold crypto on an exchange, you don’t hold crypto. You hold an IOU — a promise that they will give you crypto when you ask for it. If the exchange freezes withdrawals, goes bankrupt, or gets hacked, that IOU becomes worthless.
What Happens in a Bankruptcy
In most jurisdictions, crypto held on a bankrupt exchange is treated as property of the estate — pooled with all other assets and distributed to creditors according to bankruptcy law. Customers typically stand in a long line and may receive cents on the dollar, months or years later.
The Warning Signs to Watch For
Exchanges in trouble often show early warning signs: withdrawal delays, rumors of insolvency, sudden changes in leadership, or unusual marketing urgency. When you notice these signs, move your crypto to self-custody immediately.
The Only Real Protection
Self-custody. A hardware wallet with keys only you control. The phrase “not your keys, not your coins” isn’t a slogan. It’s a description of how ownership actually works in crypto.
— Lior H