BaFin Clarifies Crypto Investments Are Not Protected by Deposit Insurance

The German financial market supervisor, the Federal Financial Supervisory Authority (BaFin) clarified on Monday that deposit insurance protection in the mainstream financial industry does not cover losses with cryptocurrencies.

“BaFin now points out that crypto-assets do not fall under the protection of deposit insurance and, as a rule, the protection of investor compensation does not apply either,” the latest warning stated (translated from German).

In addition, the agency pointed out that existing insolvency laws in the country and the collapsed crypto company’s agreement with customers will determine the recovery of customers.

“The position of the customer is based on insolvency law, and, therefore, depends on whether there is a right of segregation after the design and implementation of the contractual relationship between the custodian and the customer,” the agency added.

Under the European Union law, customer deposits in the banks are protected by up to €100,000, which is a safety net that is not available to crypto companies.

The latest clarification came as an amendment to the existing warning of BaFin against crypto investments, which the regulator issued last February. Then, the German market supervisor termed crypto investments very risky.

Crypto Companies Going Under

The amendment and clarification came when the cryptocurrency industry is witnessing several abrupt bankruptcy
Bankruptcy

Bankruptcy or insolvency constitutes a legal term and refers to being unable to repay debts. A business and a person can declare bankruptcy. When a person or company claims bankruptcy, it is described as a voluntary bankruptcy, and when your debtors force you into bankruptcy, it is referred to as involuntary. A voluntary bankruptcy occurs when the debtor or borrower, the party that owes the money files with the courts. Involuntary bankruptcy happens when your credits file a petition with the courts. Bankruptcy can only occur with a court filing. Since bankruptcy is a legal state, once the petition is filed with the appropriate court, local and state laws vary greatly. Different Kinds of Bankruptcy In the US, these legalities are referred to as Chapters 7 and 11, 12, and 13. Chapter 7 is a liquidation procedure, where all assets are sold, and the court oversees the distribution of the money to creditors based on their standing. Both businesses and individuals can file for chapter 7. Chapter 11 is a reorganization process where businesses are allowed to freeze their debts and continue to operate. In contrast, a method and procedure are negotiated through the courts to satisfy the obligations of the company. Chapter 13 is called a wage earner plan and helps people attempt to restructure their debts to repay their debts. This can include some debt forgiveness by creditors or reduced interest rates or balances. Not all private persons are eligible for Chapter 13, high amounts of debt don’t qualify, and the person must file Chapter 11 or 7. Most individuals choose Chapter 13 over Chapter 11 or Chapter 7 because it aids them in avoiding foreclosure on their residence. The filing of bankruptcy is considered a last resort when businesses and persons have not been able to negotiate terms directly with their creditors.

Bankruptcy or insolvency constitutes a legal term and refers to being unable to repay debts. A business and a person can declare bankruptcy. When a person or company claims bankruptcy, it is described as a voluntary bankruptcy, and when your debtors force you into bankruptcy, it is referred to as involuntary. A voluntary bankruptcy occurs when the debtor or borrower, the party that owes the money files with the courts. Involuntary bankruptcy happens when your credits file a petition with the courts. Bankruptcy can only occur with a court filing. Since bankruptcy is a legal state, once the petition is filed with the appropriate court, local and state laws vary greatly. Different Kinds of Bankruptcy In the US, these legalities are referred to as Chapters 7 and 11, 12, and 13. Chapter 7 is a liquidation procedure, where all assets are sold, and the court oversees the distribution of the money to creditors based on their standing. Both businesses and individuals can file for chapter 7. Chapter 11 is a reorganization process where businesses are allowed to freeze their debts and continue to operate. In contrast, a method and procedure are negotiated through the courts to satisfy the obligations of the company. Chapter 13 is called a wage earner plan and helps people attempt to restructure their debts to repay their debts. This can include some debt forgiveness by creditors or reduced interest rates or balances. Not all private persons are eligible for Chapter 13, high amounts of debt don’t qualify, and the person must file Chapter 11 or 7. Most individuals choose Chapter 13 over Chapter 11 or Chapter 7 because it aids them in avoiding foreclosure on their residence. The filing of bankruptcy is considered a last resort when businesses and persons have not been able to negotiate terms directly with their creditors.
Read this Term filings. Celsius, Voyager Digital and a few others became insolvent. However, the normal recovery process for the customers is time-consuming: Mt. Gox
Mt. Gox

Mt. Gox is the name of a Japan-based cryptocurrency exchange that was infamously hacked for 850,000 BTC worth roughly $450 million at the time in February of 2014. During July 2010 Mt. Gox formally launched Mt. Gox launched its exchange and price quoting service. It was subsequently sold to French developer Mark Karpelès in early 2011.Prior to its hacking, Mt. Gox suffered from other security vulnerabilities as early as June 2011. On 19 June, 2011, a security breach of the exchange caused the nominal price of a bitcoin to fraudulently drop on Mt. Gox itself, after a hacker allegedly used credentials from a Mt. Gox auditor’s compromised computer to transfer a large number of bitcoins illegally to himself. Additionally, in October 2011 over 2,600 BTC was sent to invalid addresses and effectively lost. This exposed a weakness in the network protocol as a standard client would check for such an error and reject the transactions.Mt. Gox Controversy and CollapseIn early 2014 Mt. Gox suspended trading, subsequently closing its website and exchange service, and filed for bankruptcy protection from creditors. Liquidation proceedings began shortly after.During this time, the company had publicly announced that nearly 850,000 BTC belonging to customers and the company were missing and presumed stolen.Since then, nearly 200,000 BTC have since been located, though the reasons for the disappearance were unclear. The most likely scenario involves some combination of theft, fraud, or mismanagement.New evidence presented in 2015 by Tokyo security company WizSec led them to conclude that “most or all of the missing bitcoins were stolen straight out of the Mt. Gox hot wallet over time, beginning in late 2011.”At its peak, more than 70 percent of Bitcoin transactions took place on Mt. Gox. The hack was the largest in the history of cryptocurrency until the CoinCheck hack that took place near the beginning of 2018. More than 24,000 customers lost access to their money. The BTC that the exchange lost represented over 6 percent of all of the Bitcoins in circulation at the time. At the time the hack was had a seriously destabilizing effect on the price of Bitcoin and the overall sentiment around the Bitcoin network.

Mt. Gox is the name of a Japan-based cryptocurrency exchange that was infamously hacked for 850,000 BTC worth roughly $450 million at the time in February of 2014. During July 2010 Mt. Gox formally launched Mt. Gox launched its exchange and price quoting service. It was subsequently sold to French developer Mark Karpelès in early 2011.Prior to its hacking, Mt. Gox suffered from other security vulnerabilities as early as June 2011. On 19 June, 2011, a security breach of the exchange caused the nominal price of a bitcoin to fraudulently drop on Mt. Gox itself, after a hacker allegedly used credentials from a Mt. Gox auditor’s compromised computer to transfer a large number of bitcoins illegally to himself. Additionally, in October 2011 over 2,600 BTC was sent to invalid addresses and effectively lost. This exposed a weakness in the network protocol as a standard client would check for such an error and reject the transactions.Mt. Gox Controversy and CollapseIn early 2014 Mt. Gox suspended trading, subsequently closing its website and exchange service, and filed for bankruptcy protection from creditors. Liquidation proceedings began shortly after.During this time, the company had publicly announced that nearly 850,000 BTC belonging to customers and the company were missing and presumed stolen.Since then, nearly 200,000 BTC have since been located, though the reasons for the disappearance were unclear. The most likely scenario involves some combination of theft, fraud, or mismanagement.New evidence presented in 2015 by Tokyo security company WizSec led them to conclude that “most or all of the missing bitcoins were stolen straight out of the Mt. Gox hot wallet over time, beginning in late 2011.”At its peak, more than 70 percent of Bitcoin transactions took place on Mt. Gox. The hack was the largest in the history of cryptocurrency until the CoinCheck hack that took place near the beginning of 2018. More than 24,000 customers lost access to their money. The BTC that the exchange lost represented over 6 percent of all of the Bitcoins in circulation at the time. At the time the hack was had a seriously destabilizing effect on the price of Bitcoin and the overall sentiment around the Bitcoin network.
Read this Term creditors still did not receive their claims.