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Do You Actually Own Your Crypto Assets?

By Jakob A. Siegfried, Esq.

Possession is nine-tenths of the law.  Or at least that's how the famous saying goes.  In the case of crypto assets, however, mere possession may not be enough comfort for those who hold these assets.

You have likely heard that high profile cryptocurrency markets are in distress.  This "crypto winter" has landed crypto platforms such as FTX, Celsius, and BlockFi in U.S. Bankruptcy Court because of the stark decline in value and stability in cryptocurrency assets over the past year and a half.  One of the most significant issues to be decided across all of these bankruptcy cases is who actually owns the crypto-assets and what is considered property of the bankruptcy estate.  While it might be common sense to think that the customers of these crypto platforms own their personal assets themselves, that might not be the case.  In fact, this issue of crypto ownership entirely depends on how the customer held the particular crypto-assets through the crypto platform at the time the platform entered Chapter 11.  This article will focus on this issue in the context of the BlockFi bankruptcy since it has yet to be resolved, while using the Celsius case, which is further along in the Chapter 11 process, as guidance.

BlockFi offers its customers two different account types, Wallet Accounts and BlockFi Interest Accounts (BIA).  Wallet Accounts are default accounts in which one can buy and sell crypto, whereas a BIA is an account that earns interest on the crypto-assets while also offering the ability to buy and sell those assets.  BIA is similar to the Earn accounts that Celsius offered that permitted customers to earn up to 18% interest annually.

The fine print included in the deposit agreement on both of these accounts, especially the interest bearing accounts, is key to the issue of ownership.  In the Celsius case, the court found that the collective $4.2 billion deposited into Earn accounts belonged to Celsius's bankruptcy estate because of the Terms of Use in the Earn account deposit agreement.  Specifically, these contractual terms granted Celsius all right and title to the crypto assets.  This ruling means that most claims from Celsius customers to recover their assets will be lower priority than other secured creditors and customers who held non-interest bearing accounts.  As a result, these customers will be treated as unsecured creditors in terms of priority for asset recovery.

Where a BIA is like a typical bank deposit account, Wallet Accounts are analogous to a safety deposit box.  Individual Wallet Account holders are the actual owners of these accounts, not the crypto platform.  This ownership is based on the terms and conditions used in products similar to BlockFi's Wallet Account.  For example, terms for Celsius's Custody Account, its version of the Wallet Account, never provided Celsius with actual title over the assets.  In fact, the terms for the Custody Account, provided for the exact opposite stating, "Title to any of your Eligible Digital Assets in a Custody Wallet shall at all times remain with you and not transfer to Celsius."  The court in the Celsius bankruptcy case recently authorized Custody Account holders to withdraw all of their assets as long as the assets were only in the Custody Account.  The court has also authorized withdrawals for customers who transferred assets into a Custody account in the 90 days before Celsius filed for Chapter 11 in an amount not to exceed $7,575.

Thus, while those who held their crypto assets in interest bearing accounts might not receive favorable treatment for recovery in these bankruptcy cases, there is more hope for those with Wallet Accounts as seen in the Celsius case.

We are guilty, from time to time, of not reading the fine print.  As these cases may illustrate, however, the fine print is vitally important, because it might just determine that you do not own the crypto assets that you think you own.  We will continue to keep you updated on these issues as these cases progress through the bankruptcy courts.


This article provides an overview and summary of the matters described therein. It is not intended to be and should not be construed as legal advice on the particular subject.

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