Topic: Can Cryptocurrency Owners Become Insolvent? (Read 205 times)

Being insolvent usually means that we don't have any money left to pay our bills. In my opinion this would also include crypto currencies. Depending on how important the bills are we should convert our crypto coins to fiat to pay the bills. Imagine we can't pay our electricity or heating bills, or even worse we are getting kicked out of apartment because we can't pay the rent. What good do our crypto coins if we are living on the street. Bankruptcy is usually a legal term that is used do try and get debt free after some time. The judge wants to know all our assets and we could try and hide out crypto coins from the debtors. But if words get out of our hidden wealth we could face jail time. That's why all our assets needs to be included when going for a debt relief program.

If you are not running any business, bank, exchange, you are not responsible to handle withdrawal request of anyone, any user, so no insolvency risk.

Your question is very misleading and confusing. Cryptocurrency owner or cryptocurrency founder, what do you mean?

As a cryptocurrency owner, you are not providing any service and won't become insolvent. You only face with risk of loss your capital because the cryptocurrency you invest in turns to 0 in value and nobody trades it on exchange.

As a cryptocurrency founder, especially if you are running an exchange (CEX or DEX), you are responsible for solvency or insolvency for your users.

Example is FTX exchange, which filed bankruptcy after it became insolvent.
https://www.coindesk.com/policy/2022/11/11/ftx-files-for-bankruptcy-protections-in-us/

I begin to change my mind to not trust banks, but maybe not for now because all transactions in my country use banks where all the fiat money is inside. if I change all my fiat money to crypto, of course, will trouble me to buy something I need because except legal currency set, I can't buy food, pay bills, buy gasoline, and others. AndrRight now, I just try to exchange it with half, 50% of fiat and 50% bitcoin for my assets.

Insolvent according to the dictionary: "Unable to meet debts or discharge liabilities; bankrupt." and "Insufficient to meet all debts, as an estate or fund." and "Of or relating to bankrupt persons or entities."

Bitcoin is different because unlike banks, bitcoin is ownership while banks and traditional finance rely on debt.

When you deposit money in a bank, they lend it out to someone else. If they don't take on too much risk and lend to too many people, they will be able to pay back all of your money when you need it. The problem with the traditional financial system is that it relies on someone else having control of your money. If the bank takes on too much risk and they lend your money out to someone who doesn't pay it back, they run the risk of not being able to pay you if you try to withdraw. They would be insolvent.

Bitcoin is different because you can control your own money so you don't need to put it into a bank. If you don't put it into a bank, then there is no insolvency because bitcoin is not a third-party that can't make good on it's credits/debits. It's just a protocol.

Can someone who uses bitcoin be insolvent? Yes, absolutely. If you borrow money to buy bitcoin and the price dumps, you might not be able to repay your debts. You would be insolvent.

Can Bitcoin itself be insolvent? No, because it is not a business or institution or person that manages money on behalf of others and thus it cannot have debt and it cannot be bankrupt.

Bitcoin can be different but most of the cryptocurrencies can be insolvent too by being worthless after a major pump-and-dump or rug-pulled event.  I think cryptocurrency being worthless because of the failure of the developer to deliver roadmap and build a community around the project can be compared to a bank being bankrupt.  So I would say that there is no difference at all.  Failed cryptocurrency scam their investors either by not delivering what is promised or running away with the money while the bank can declare bankruptcy because they failed to pull out and make a profit after scamming their depositors and using the money deposited elsewhere and lost.

Both banks and cryptocurrencies carry a certain level of risk. Banks may go bankrupt, and cryptocurrencies may experience sharp declines in value. While the amount of cryptocurrency you hold may technically remain the same, the value could still plummet, which poses a high risk. Unfortunately, there's no way to avoid risk entirely. Whether you choose to store your funds in a bank or in cryptocurrency, there are risks involved. It's essential to carefully consider your options before making any decisions.

https://www.investopedia.com/terms/
According to the definition given by the link above, it is quite clear that the term 'insolvent' applies in situations where one simply buys stupid shit that don't have any potential of creating  profit except it is sold and for half the original purchasing price.
Of course anyone who cannot afford to pay the bills with a wide deficit margin even if they have or use cryptocurrencies can also be insolvent.

The lines may be getting a little blurred here.  Bitcoin, as in the network and the protocol, is not debt-based and cannot become insolvent.  However, anyone using Bitcoin, whether they be a company or an individual, can still find themselves in debt.  Bitcoin can't stop you from making questionable financial decisions or simply having bad luck.  You can still end up bankrupt if you don't manage your money carefully.

If you use Bitcoin in the way it was intended, with one sender, one recipient and no middlemen involved, any wealth you transfer using Bitcoin is incredibly secure.  If you're doing things properly and taking all reasonable precautions, there should be no factors outside of your control that would result in you losing your money.

i believe you can, we can take the example of Terra(Luna) which is traded at 86$ then in a week's time the price went down too much to 0.0001961$.
it's over 440.000x down from 86$, at that time I believe many people lost their money.

I think you are a bit confused OP, insolvency happens because the bank or the entity where you have gotten your money deposited actually takes your capital and tries to invest it in relatively low-risk ventures, so they can pocket some money and give you a small slice from it, which we usually call "interest".

If you have Bitcoin and you keep it in your own wallet, practicing self-custody in a proper manner. You cannot experiment insolvency (in terms of satoshis) because you are not trusting your satoshis to anyone. You can't suffer from insolvency if you hold the asset by yourself.

On the other hand, if what you actually meant was possible losses due to price variation, that is actually a possible with most assets, including several FIATs (or all of them, depending whom you ask).

I would recommend you to do your own research about terms like: liquidity, interest, Dollar cost Average, risk management, leverage, etc. 

Your question is too broad. Everybody uses different definitions to discuss the topic you asked for, which led to different conclusions. You don't even share where you hear that claim and share your own opinion on this topic either. What kind of discussion do you expect to happen?

At the end of the day, both are wealth that people can own. Fiat though is guaranteed to never be fully controlled by individuals. As for crypto, some of them behave like fiat while others don't, as mentioned above. If both of them lose in value, then your wealth is definitely getting wiped out, regardless of where you store them. Neither of them is invincible to that, just like any other asset.

What is your definition of cryptocurrencies, as not all cryptocurrencies are decentralized, as many platforms are centralized and can freeze and delete your coins, even if it is inside your wallet.

• Stablecoins can freeze your funds.
• BSC is a fully centralized network.
• Most altcoins can be easily suspended from the network.

So there is no difference between it and your accounts in the bank, on the contrary, in the bank there is a body that guarantees your money if the deposits are less than a certain amount, which is not found in cryptocurrencies.

When you have fiat currency in the bank with you, it does not make any difference much that profit you over time than undergoing inflation and reducing in value over time as well becau the price value depreciate as well, instead, you can have bitcoin and hodl it over a period of time in order to make it more profitable for you sice it is volatile and aapreciates over, bank is never a better option than bitcoin

If you look at the nature of cryptocurrency it is definitely different from traditional banking in many ways, My opinion is that cryptocurrency owners may still experience financial difficulties and even bankruptcy and One factor to consider is the volatility of cryptocurrency prices, which can fluctuate quickly and unpredictably and It is also can cause losses to investors who fail to manage their portfolios properly or who invest in highly speculative assets.

I guess that what people are trying to say is that you can conceal your Bitcoin if you become bankrupt. Then when your bankruptcy expired, you can start to use your Bitcoin if it hasn't been claimed by the receiver. Just bear in mind that that is usually illegal in most countries.

Bankruptcy and insolvency is a thing mostly affected with a company. Exchanges can go into bankruptcy when the funds they have stored in them actually gets stolen or hacked or faces liquidity problems like the FTX scandal. This in turn affects every bitcoin owner that stores their funds on this custodian wallets.

For those using a non custodian wallets bankruptcy or insolvency can occur when you use a borrowed money to invest in a coin that either hits the rock or your Wallets get compromised. The only way one who stores in bitcoin can get bankrupted is when he or she faces and emergency and sells off at lower price during a bearish period or also lost his holdings on a hacked wallets. Bankruptcy can also be faced by a person or family when the private key to there bitcoin investment gets missing.

No, they're not necessarily different. Insolvency happens when a company does not have enough funds to pay to their creditors. And that happens to cryptocurrency as well. It happened a number of times. Try searching for the latest bankruptcies that happened in the crypto industry and you will realize that it is no different.

Things would only be different if you and you alone own and control your private keys. Meaning, you do not deposit your cryptocurrencies in centralized exchanges and in any custodial wallets. Otherwise, insolvency could happen.

Cryptocurrency holders cannot technically become insolvent. Insolvency applies to an organization, entity or individual which now has more liabilities than it has assets, and can no longer afford to pay their liabilities owed. Cryptocurrency holders who should have only invested spare money cannot go insolvent. But if you sink you entire worth into cryptocurrency, it is possible to not be able to pay your debts or bills owed if it goes sideways.

A cryptocurrency company can go insolvent like every other company.

A cryptocurrency trader can also if they take out to much leverage and lose the trade.

- Jay -

That's not the case, the @OP talk about the crypto owner become insolvent, this is because nowadays developers who create shitcoin project are only focus about money or their share, while Bitcoin didn't have like that. The developers and contributors in Bitcoin never ask or demanding any money, they only focus to develop the project. So if they're want to get Bitcoin, they can mine with their own CPU.

If the owner run with investors money, it's not insolvent, but it's scam.

Can Cryptocurrency Owners Become Insolvent? Yes.

Leverage makes many crypto owners become insolvent. Exchanges give you a leverage of as much as 100x just to get you out of the game and people think they have the edge when it's 99% sure they are going to lose the bet. It's more of gambling at 1% odd rather than a calculated risk.

Exchanges liquidated almost $83.34 million in the past 24 hours. Data from: https://www.coinglass.com/LiquidationData
Almost 25,216 traders got rekt. Most of them are now insolvent.

Those who are dealing in spot trading and if they do not store their crypto in a reputed exchange, are surely going to lose it and become insolvent.
Also, even if you are using a hardware wallet like Ledger or Trezor and you keep on approving random web3 websites for few bucks, you are tend to lose your money and get insolvent.

So the answer is yes. I hope this all makes sense.