When an exchange or lender fails, the first question for a customer is not how much is left. It is whether the coins were ever theirs to get back. In the 2022 and 2023 cases the answer turned on three things that are easy to skip in due diligence: what the customer terms said about title, how the assets were held, and which insolvency law the court applied. This piece describes rulings and rules; it is not legal or investment advice.
Title decided the outcome, and the terms decided title
The central ruling is the US Bankruptcy Court for the Southern District of New York's memorandum opinion of 4 January 2023 on the Earn programme of Celsius Network. At the petition date the programme had about 600,000 accounts holding cryptocurrency worth roughly $4.2 billion at market value on 10 July 2022. The court read the controlling terms of use (version 8, effective 15 April 2022), under which the customer granted the company "all right and title to such Eligible Digital Assets, including ownership rights", together with the right to "pledge, re-pledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use" them "separately or together with other property".
The court found that the terms formed a valid contract, that 99.86% of Earn account holders had accepted version 6 or a later version, and that the terms "unambiguously transfer title and ownership" of the assets to the company. Stablecoins in Earn accounts were treated the same way. The consequence, in the court's words: if the debtors own the assets, account holders are unsecured creditors, and their recovery depends on distributions under a confirmed plan or, in a liquidation, on the Bankruptcy Code's priority rules.
Title was not the only problem. In a footnote the court recorded the debtors' counsel telling it that "we do not have enough coin to give everybody their coin back in kind", so even terms that left title with customers would not have returned every coin. The ruling also left questions open. It expressly did not determine the ownership of assets in the company's Custody Program, Withhold accounts or Borrow Program, or any individual customer's defences. It records a state regulator's objection that the company had not segregated Earn assets from Custody and Withhold assets, which would make it hard to establish who owned which assets.
What the Custody category got
The category that might have sat outside the estate was not settled by one clean return. The court's order of 20 December 2022 found that digital assets in the company's Custody wallets were not property of the estate, but authorised withdrawals only for narrow categories, chiefly assets that had only ever been in the Custody programme, and reserved decision on assets transferred into Custody but not held in those wallets. Press reporting put the value covered at roughly $44 million; the order itself gives no dollar figure. An order of 21 March 2023 then approved a settlement under which Custody account holders who opted in could withdraw 72.5% of their remaining Custody balance in kind, in two instalments of 36.25%, in exchange for agreeing not to litigate the claim and for releases. The point stands: a claim to sit outside the estate has to be proved against a record of how wallets were run, and a negotiated haircut can be the price of not proving it.
The Earn ruling still governs. In a decision dated 6 July 2026, the same court dismissed an adversary complaint from an Earn account holder who argued the company was only a custodian or bailee of a tokenised-gold holding and that the transfer of title should be rescinded. The court held the plaintiff bound by the 2023 Earn order, the claims bar date order and the class claim settlement.
Custody as the counter-example
New York's financial regulator, in guidance of September 2025, expects a custodian to take possession "only for the limited purpose of carrying out custody and safekeeping services" so that it will "not thereby establish a debtor-creditor relationship with the customer". The Earn terms did the opposite. The differences between qualified custodians, trust charters and national regimes are covered in who actually holds institutional assets; this piece is about what happens when the holder fails.
Why claims were counted in dollars on the petition date
Once customers are creditors rather than owners, they are owed value, not the asset, and the date that fixes the value is the filing of the petition. In the FTX Trading cases, a Delaware bankruptcy court estimating claims to three tokens held for third parties wrote that "the value of the claims must be determined as of the petition date as if the bankruptcy had never occurred", citing 11 U.S.C. section 502(b), and observed that no bankruptcy court had ever estimated the value of cryptocurrency-based claims. Its opinion of 26 June 2024 applied discounts to market price of 100%, 99.9% and 18.6% to the three tokens, most of which were contractually locked. It covers those tokens, not every customer claim, but it shows how far a petition-date value can sit from a screen price.
The Celsius court put the general principle in a sentence: creditors are "entitled to their share of the value of the Debtors' Estates on the Petition Date". Its corrected memorandum opinion of 9 November 2023 approving the CEL Token settlement, issued alongside the plan confirmation order, shows the dispute this creates. The plan valued CEL Token deposit claims at $0.25 per token, and the opinion records that the token traded at $0.28 on the date the platform paused withdrawals and rose to $0.81 before the petition date.
A customer whose coins later appreciated therefore does not receive those coins back; one whose coins later fell may come out relatively better.
What the distributions recovered
FTX's plan was confirmed on 8 October 2024 and became effective on 3 January 2025, according to the notice of effective date, more than two years after the November 2022 petition. The debtors' announcement of 7 May 2024 forecast between $14.5 billion and $16.3 billion available for distribution, full payment of non-governmental creditors on the value of their claims as determined by the court, and interest at up to 9% (the "Consensus Rate") from the start of the cases. By the fifth distribution, announced on 17 July 2026 for payment on 31 July, the customer classes had received 105% cumulatively, the general unsecured and digital asset loan classes 103%, and convenience claims 120%. Those are percentages of dollar claims, and the excess over 100% reflects the plan's interest provisions.
Celsius sits at the other end. The debtors' financial adviser's liquidation analysis, as recited in the November 2023 opinion, showed approximate recoveries of 67.0% under the NewCo transaction, 61.2% under an orderly wind-down and 47.4% in liquidation. The court recorded acceptance of the plan and CEL settlement at 98.71% in number and 95.93% in amount. CoinDesk reported on 31 January 2024 that the company was emerging from bankruptcy and would distribute more than $3 billion to creditors, who would also take a stake in a newly formed mining company. No court-filed figure for the final realised recovery was found, so none is given here.
Read together, the cases show that "recovery" is not one number. It depends on the size of the pool, the ranking of the claim, the valuation date, the currency of distribution and the wait.
What has changed since, and how firm each change is
European Union: in force
Regulation (EU) 2023/1114 (MiCA) applies to crypto-asset service providers from 30 December 2024, and ESMA states that the transitional period for existing providers ran until 1 July 2026 at the latest. Article 70 requires providers holding client assets to "make adequate arrangements to safeguard the ownership rights of clients, especially in the event of the crypto-asset service provider's insolvency", and to prevent the use of client assets for their own account. Article 75 requires client holdings to be held separately from the provider's own on the ledger, and legally segregated from its estate "in accordance with applicable law, so that creditors of the crypto-asset service provider have no recourse" to them, in particular in insolvency. It also makes a custodian liable for losses caused by incidents attributable to it, capped at the market value of the lost asset at the time of loss. How providers obtain authorisation is covered in MiCA CASP authorisation.
The phrase "in accordance with applicable law" matters. MiCA sets the duty; the national insolvency regime still decides how a liquidator treats the assets, so it is a clear improvement on terms that transfer title but not a uniform bankruptcy rule.
New York: guidance, replaced
The Department of Financial Services' industry letter of 23 January 2023 told virtual currency custodians to segregate customer assets, treat them as belonging solely to customers and not use them to secure any obligation. It has been superseded by updated guidance of 30 September 2025, which keeps the limited-purpose custody language, allows omnibus accounts held "as agent or trustee for the benefit of those customers", requires written disclosure of terms with an acknowledgment of receipt before the first transaction, and treats a new sub-custody arrangement as a material change needing the department's prior approval. It applies only to custodians the department licenses or charters.
United States federal: staff positions
Two SEC items bear on custody, and neither sets an insolvency rule. Staff Accounting Bulletin 122 of 23 January 2025 rescinded the earlier staff accounting guidance on crypto safeguarding obligations; it concerns how a firm reports, not who owns the assets. On that side, see digital assets in the financial statements. The Division of Investment Management's no-action letter of 30 September 2025 said advisers and funds may treat state trust companies as qualified custodians for crypto assets if conditions are met, including a written agreement that the assets are "segregated from the State Trust Company's assets" and will not be lent, pledged or rehypothecated without prior written authorisation. The letter states that it has no legal force or effect and does not alter applicable law.
United Kingdom: adopted, not yet applying
The FCA published policy statements PS26/9 to PS26/13 on 30 June 2026, and the instruments in PS26/11 come into force on 25 October 2027. Under CASS 17.3.3R a firm safeguarding client cryptoassets must do so as a trustee, and must ensure the client has agreed to that. The FCA states that the rule does not create a statutory trust and that firms have some flexibility in how they create private trusts. Exemptions cover qualifying cryptoasset lending, settlement of trades on UK trading platforms and certain other services. Consultation respondents raised the limits of this design: trust law is not recognised in every jurisdiction, and one said no firm could guarantee that none of its creditors could claim client cryptoassets. The FCA agreed that this depends on applicable law, including any future special insolvency regime in the UK.
Hong Kong: in force for licensed platforms
The Securities and Futures Commission's Guidelines for Virtual Asset Trading Platform Operators (current version dated 1 June 2023) say an operator "should only hold client assets on trust for its clients through its Associated Entity", which may do no other business. Client virtual assets sit in designated wallets segregated from the operator's, in the same kind and amount as owed, and may not be lent, pledged or encumbered except for settlement and fees under the client's authority. The guidelines expect 98% of client virtual assets in cold storage and an approved compensation arrangement covering 50% of those in cold storage and 100% of those in hot and other storage. They apply only to platforms licensed in Hong Kong. As at 29 September 2026 the SFC lists the June 2023 version as current; a circular of 15 August 2025 set out expected custody standards and good practices without amending these requirements.
Questions worth putting to a counterparty
These are prompts for a conversation with your own counsel, not a checklist that guarantees an outcome.
- Do the terms say title passes to the platform, or that assets are held for the client, and is the operative clause available rather than a summary?
- Which entity holds the assets, in which jurisdiction, and which insolvency law would a liquidator apply?
- Are assets held on trust, in a bailment or in omnibus wallets, and does the contract say so as well as the marketing?
- Can the platform lend, pledge or rehypothecate client assets, and does that right reach a balance labelled "custody"?
- Who is the sub-custodian, and is it regulated to a comparable standard?
- How often are entitlements reconciled to on-chain holdings, and by whom?
- If the counterparty failed, would a claim be in coins or in dollars, and valued on what date? Proof of reserves does not answer that.
For the credit side, see crypto lending after 2022.
What remains unresolved
Three things are open. Rules requiring trust or segregation are only as good as the insolvency law that recognises them, as the FCA's own response concedes. Guidance from a state regulator or an SEC division is not a bankruptcy statute. And no ruling testing MiCA's segregation duty in a provider's insolvency was found for this piece, so how it performs there is untested.