Cryptoassets - considerations for market participants in times of distress

The cryptoasset markets are facing an extended period of volatility and uncertainty following the bankruptcy filings of significant market participants. Liquidity and solvency concerns are increasing across the market as the fallout from such insolvencies is felt.

As a result, crypto market participants would be well advised to review and consider the terms of their existing agreements, the position of their counterparties and steps that can be taken to protect themselves in all relevant jurisdictions in the event of future price fluctuations, further distress among market participants, and potential insolvency proceedings.

Loan and security agreements, custody arrangements, and applicable terms of service and other relevant contracts should be carefully scrutinized to understand the existing contractual frameworks, applicable governing law, and availability of likely enforcement remedies in a distressed scenario.

Companies exposed to cryptoasset markets should likewise keep themselves informed of existing cryptoasset exposures, the terms of any new contracts or agreements, and ongoing developments with applicable law and regulation. While legislative and case law developments may ultimately provide useful clarity with respect to the treatment of cryptoassets in specific jurisdictions, this may take months or years and, given the continued market volatility, parties cannot afford to wait for certainty before considering how to manage the risks of financial distress.

For participants facing distress, given the potential liabilities for directors of insolvent companies in many jurisdictions, it is essential that directors of any company facing financial distress take proper advice from suitable experienced advisers to assess the debtors’ position and options. Insolvency proceedings should remain a last resort, and restructuring tools may be available in many jurisdictions which have proven capable of assisting companies facing novel challenges and needing to restructure to seek to avoid insolvency.

For a detailed analysis of some of these issues in relation to the UK and US, please see our articles:

Our global Restructuring & Insolvency team includes dedicated restructuring professionals in all major financial centres in which our clients operate. We represent market participants on their highest value, highest profile, and most complex matters. With 30+ years’ experience as a market leader in cross border restructuring, and 123 Band 1 Rankings worldwide in Chambers Global (more than any other firm) including in fintech, we bring our unmatched depth and breadth of experience to deliver in the most demanding situations.

For specific advice from our global network of market leading restructuring and insolvency and crypto finance experts or to receive a copy of our considerations for crypto market participants in times of distress, please get in touch.