Crypto Exchange Collapse Risk Checklist | Essential Safety Guide for Investors

Exchanges going bankrupt—this scenario, which seems like a low-probability event, actually occurs every year in the crypto world. Compared to the price volatility of cryptocurrencies, the collapse of an exchange often results in even greater, unpredictable losses—user funds evaporate instantly, and years of accumulated assets are wiped out. This is not accidental but a systemic risk that must be acknowledged.

Which well-known exchanges have gone bankrupt in recent years?

According to CoinMarketCap data, there are currently 670 active crypto exchanges, but the number of defunct ones is equally astonishing. Each bankruptcy case has its own tragic story.

MT.Gox (2014): The fall of the once-largest exchange

In 2010, Jed McCaleb, the creator of eDonkey, founded MT.Gox, which was later managed by Frenchman Mark Karpeles. Between 2011 and 2013, with rising BTC prices and support for multiple fiat currencies, MT.Gox became the world’s largest BTC exchange. However, this prosperity was short-lived. In 2014, hackers infiltrated the system, stealing 850,000 BTC (worth about $473 million at the time), and the exchange immediately declared bankruptcy. This disaster served as a wake-up call for the entire market: no platform is immune to security vulnerabilities.

FCoin (2020): The bubble burst of the high-yield dividend model

In May 2018, writer Zhang Jian founded FCoin, attracting investors with the slogan “trading and mining, holding coins for dividends.” Within half a month, it topped the global trading volume charts. But this aggressive dividend model was inherently unsustainable. As the market adjusted, trading volume and the platform’s token FT plummeted. The founder was unable to stabilize the situation and eventually fled overseas, claiming that user funds of 7,000–13,000 BTC could not be paid out.

FTX (2022): The biggest financial scam in recent years

Founded in 2019 by American businessman SBF, FTX became the second-largest exchange globally by 2022. This star platform’s rapid expansion was supported by two main factors: massive acquisitions and high leverage operations. Its related company, Alameda Research, was tightly linked to FTX, giving the platform strong market manipulation capabilities but also hiding significant risks.

In November 2022, a key investigative report revealed the truth: Alameda Research owed up to $8 billion, with most assets in the illiquid FTT token. Once the news broke, panic spread. The world’s largest exchange announced it was selling off its FTT holdings, triggering a price collapse. Confidence shattered, and a wave of mass withdrawals ensued, but FTX was unable to cope.

In fact, FTX had transferred customer funds to Alameda for high-risk investments, most of which had poor liquidity and high risk. When Alameda suffered huge losses, the capital chain broke inevitably. Industry insiders had already reported internal issues with FTX’s financial compliance and suspected fraud before the crisis erupted.

Ultimately, SBF was sentenced to 25 years in prison for fraud and related charges. FTX has begun a phased creditor repayment plan in 2025, with the third round starting in September, promising full cash compensation plus interest. However, the payout is based on the BTC price at bankruptcy (less than $20,000), while BTC has now exceeded $100,000, meaning victims’ actual losses far surpass the compensation.

Bittrex (2023): Over 100,000 creditors and a huge shortfall

Founded in 2014, Bittrex (B Network) was once one of the most trusted US exchanges, established by tech company employees, known for security, and holding about 23% of the global market share. In April 2023, it was accused of illegal operations by the US SEC, and just one month later, filed for bankruptcy. Its assets and liabilities ranged between $500 million and $1 billion, with over 100,000 creditors suffering losses.

Why do exchanges go bankrupt? What are the root causes?

Behind bankruptcy cases are two main risk sources: internal factors and external factors.

Internal factors: Fatal management flaws

Security system failures: Hacker attacks are the most common cause of exchange failures. From MT.Gox to later platforms, nearly all exchanges have faced similar threats. The difference lies in whether the platform has sufficient reserves to cover losses—resilient platforms survive, while fragile ones collapse immediately.

Misappropriation of funds and fraud: Founders embezzling user assets for investments or personal use is a common problem among FCoin and some small exchanges. When investments fail or the capital chain breaks, the “insolvency” tragedy occurs instantly.

Design flaws in mechanisms: Overly aggressive dividend promises or unstable rule adjustments can cause community confidence to collapse. An extreme case is a Canadian exchange where the founder suddenly died, and no one could access the private keys, resulting in $145 million worth of assets being permanently frozen—an example of poor management.

External factors: Regulatory and market double blows

Regulatory storms: As the crypto market expands, governments frequently intervene. US regulatory actions, China’s crackdown policies, Singapore’s new frameworks—all have directly shut down exchanges. In 2023, many platforms were forced to close for failing to meet local financial regulations.

Bear market winter: During bull markets, the cake is big enough for exchanges to thrive. But in a bear market, trading volume shrinks sharply, revenue drops, and even well-prepared platforms cannot sustain expenses, leading to insolvency and collapse.

How to safely choose an exchange? Four core considerations

Priority One: Security must not be compromised

Seeing so many exchanges fail, you must understand—security comes first, and other conditions should be sacrificed accordingly. Key points to check include:

• Does the platform hold valid licenses? Is regulatory information clearly displayed on the official website?
• Are risk reserves and fund segregation mechanisms in place?
• Has the platform experienced hacking incidents before? How were they handled?
• What is the background of the technical team and third-party security audits?

Don’t choose an obscure platform just because of lower fees; the risk far outweighs the savings.

Priority Two: Trading costs

Under the same security conditions, compare transaction fees. A difference between 0.01% and 0.02% matters for large traders, but if the former might run away at any time, the latter could be a more cost-effective choice.

Priority Three: Coin coverage

Mainstream coins like BTC and ETH are available on almost all exchanges, with little difference. But if you want to trade small-cap or new tokens, you may need to go to second- or third-tier exchanges, as these projects often don’t meet the listing standards of top-tier platforms.

Priority Four: Trading experience

Speed is critical during extreme market conditions. Larger exchanges usually have more stable performance. Also, consider whether the interface and chart tools suit your habits—try them out in advance.

Which exchanges are worth considering?

Based on data from CoinMarketCap, MyToken, and other platforms, Binance is currently the world’s number one centralized exchange, leading in security, liquidity, coin variety, and user base, making it the top choice for most investors.

In November 2023, Binance reached a settlement with the US government, paying a $4.3 billion fine, and significantly strengthened its compliance measures, entering a “mature regulatory phase.” Its operations are now stable, user funds remain unaffected, and there’s no need to overly worry about past issues.

If you still have concerns about centralized exchanges, you can consider decentralized exchanges (DEX), where funds are fully controlled by yourself, avoiding platform bankruptcy risks.

After an exchange goes bankrupt, can I recover my assets?

Are funds still there after bankruptcy?

It depends on the cause of the bankruptcy. If the platform ran off with your funds, recovery is basically impossible. If it went bankrupt due to insolvency but still holds assets, users are usually paid back proportionally, but the process can take years. For example, FTX took over two and a half years—from bankruptcy in November 2022 to the start of the first creditor payout in 2025.

When can I get my assets back?

This depends on the bankruptcy laws of your country. Until the liquidation audit is complete, it’s impossible to know how much will be returned. Investors need to be patient and wait for the judicial process to proceed.

Lessons from history

Every bankruptcy case reminds us that the risks of crypto exchanges are real and unpredictable. Exercising caution when choosing a platform is a way to protect your assets. There are no completely safe exchanges, but there are relatively safer options—look for licensed, compliant platforms with fund segregation and sufficient reserves. Large, well-regulated platforms are always the most pragmatic choice.