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Jacksonville Bankruptcy Lawyer > Blog > Bankruptcy > Crypto Headed For Bankruptcy, But Is Bankruptcy Headed For Crypto?

Crypto Headed For Bankruptcy, But Is Bankruptcy Headed For Crypto?


The biggest reason that crypto hasn’t “taken over” the internet is that it’s too slow to handle economies of scale. Instead, the tokens are investment chips, legally considered commodities, and can, in fact, stand in for commodities. This could be the future of crypto. What if you could put your home or vehicle on the blockchain and borrow against it as collateral? These are the sorts of opportunities that await us once crypto can manage a large number of transactions at the same time.

In the meantime, cavalier mismanagement of major crypto brokers like FTX has sent the crypto industry into a downward spiral as customers of the exchange wonder whether or not they’ll ever see their assets again. So while crypto is headed toward bankruptcy, there are some who believe that blockchains can be used to buy and sell bankruptcy notes.

In fact, the same folks who tanked the crypto market, are now trying to breathe new life into it. Of course, the question then becomes: Why would anyone ever buy a bankruptcy token?

“I’ll sell you a shovel” 

A salesman sells materials to another man who is building his house. The man begins the process of building his house, he has it all finished, and it immediately falls down. “These materials are bad!” says the homeowner. “My house fell down!” “Oh no,” says the salesman. “I have a shovel you can buy.”

If the situation with the crypto market feels a little like our salesman, then you would not be blamed for calling it out. In fact, many are shocked at the sheer hubris of the new proposal because it appears to repeat many of the same mistakes.

Can I buy a bankruptcy claim?

 Not yet. But if FTX has their way, you can purchase a note from their Chapter 11. Essentially, the notes would be notices of debt from FTX to a creditor. The creditor would be allowed to place the certificate of debt onto the blockchain where it would be purchased by a third party. The third party would then be entitled to recoup payments from the Chapter 11 through the duration of the bankruptcy. In other words, that money would be paid to the individual who owned the bankruptcy token and not the creditor. The creditor would have sold their stake in the bankruptcy.

Is this a good idea, or a bad idea?

 Right now, Bed Bath and Beyond is headed for a high-profile bankruptcy. Would you want to buy stakes in a failing retail venture? You’re going to put down a lump sum to purchase a monthly return that will likely mature well after the purchase. In the meantime, you incur the risk that the bankruptcy is converted into a Chapter 7 or goes into default. If the bankruptcy goes into default, what happens to the note? Is it converted into a claim against the debtor’s estate? Or does it evaporate into thin air?

These are all the sorts of things I’d want to know before investing in a bankruptcy token.

Talk to a Jacksonville Bankruptcy Attorney Today 

Carol M. Galloway represents the interests of Jacksonville natives who are facing financial turmoil. Call the Jacksonville bankruptcy lawyers at our office today to schedule a free consultation and learn more about how we can help.



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