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.

Disintermediation failed

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.

Determining jurisdiction

The paper states that customer rights…