Introduction
Cryptocurrency has become a major talking point and an accessible investment option for retail investors. As it has become mainstream, and the ownership of cryptocurrency has become easier and more user friendly, the value associated with most cryptocurrencies including Bitcoin, Ethereum and Nano has seen huge gains.
However, some investors in cryptocurrency are not aware of the previous boom to busts cycles of various cryptocurrencies. The insolvency of the Bitgrail cryptocurrency exchange should serve a warning to investors who bought early and never saw their investment decrease until the exchange they had used to purchase their cryptocurrency became insolvent.
Background
In 2015 a new cryptocurrency known as RaiBlocks was launched with a point of difference that it had no fees connected to the trading of the cryptocurrency. Following the bull market for cryptocurrency in 2017, the RaiBlocks cryptocurrency was rebranded as Nano. Many of the investors in the RaiBlocks or Nano cryptocurrency in 2017 had utilised the cryptocurrency exchange Bitgrail. Bitgrail was owned and operated in Italy by Francesco Firano. Throughout 2017 the value of Nano cryptocurrency had increased dramatically but in 2018 the value of the Nano cryptocurrency fell almost as quickly as it had risen.
In February 2018, Bitgrail announced that the cryptocurrency exchange had been the victim of a cyber-attack and that it had lost approximately 17 million tokens of the Nano cryptocurrency from its holdings, valued at US$170 million. The users of the Bitgrail cryptocurrency exchange had lost all their investment in the Nano cryptocurrency.
Insolvency
The Bitgrail cryptocurrency exchange was placed into liquidation in Italy with significant losses for its users. The Receivers of the insolvent Bitgrail cryptocurrency exchange recovered some assets and expect to make a small distribution to the creditors of the Bitgrail cryptocurrency exchange in the coming months. Mr Firano was declared bankrupt in Italy for his involvement in the insolvency of the Bitgrail cryptocurrency exchange and ordered to make repayments to the Receivers of the insolvent Bitgrail cryptocurrency exchange on behalf of its users.
Conclusion
Despite the vast increase in value of cryptocurrency in recent months, the previous boom to bust cycles of various cryptocurrencies and the previous insolvency of cryptocurrency exchanges demonstrate that cryptocurrency investment is not without risk.
About the author
Simon Murphy
About Simon
Simon is an partner within our Insolvency & Corporate Restructuring team. He acts for clients across a wide spectrum of insolvency and litigation matters, and acts for all stakeholders including liquidators, receivers and examiners.