FTX Customers Face a Long Road to Try to Get Their Money Back

“If you couldn’t trust an exchange like FTX, you can’t trust any exchange,” Mr. Gibbs said before the bankruptcy filing. “And then if you can’t trust exchanges, the whole premise of cryptocurrency doesn’t work.”

Cryptocurrency exchange FTX was one of the biggest players in the industry, often considered a survivor in a broad market crash that has taken down a number of crypto firms this year. But its rapid collapse this week has left customers wondering if they will ever see their money again.

It isn’t clear how long it might take customers to get their money back, or whether they will get anything at all.

FTX was hit by a run of withdrawal requests this week and the company is scrambling to raise money to cover a shortfall of up to $8 billion, The Wall Street Journal previously reported. The exchange lent billions of dollars to fund risky bets at its affiliated trading firm, Alameda Research, using money that customers had deposited at FTX.

In 2022, big crypto losses are a familiar tale for many people. Lenders like Celsius Network and

Voyager Digital

filed for bankruptcy this year and many of their customers are losing hope that they will get their money back. Even one so-called algorithmic stablecoin, meant to maintain a set value, crashed this year, leaving traders with little recourse.

A spokesman for Voyager said U.S. dollar withdrawals are active but that crypto withdrawals are still on hold until the restructuring process is complete. A spokeswoman for Celsius didn’t respond to a request for comment.

Bankruptcies in the crypto world are still virtually uncharted territory. The cryptocurrency that customers put on these platforms might not belong to them in the eyes of a bankruptcy court, according to regulators and legal experts. Instead, they could go into the bankruptcy estate that creditors divvy up. 

Even if customers eventually get access to their crypto, they could suffer big losses if the market turned down while the bankruptcy played out.

Crypto expanded steadily into the mainstream in recent years, and crypto lenders and brokers pitched themselves as avenues for regular people to make money. Some newbies embraced crypto trading, using platforms like FTX to try to time the market. Others thought they were taking a safer route by using FTX and other crypto firms to park their money as if it were a bank deposit—but earning a much greater yield than any regulated bank would pay. Many in both groups are now in desperate situations.

The website for FTX’s American arm said as of Thursday evening that “trading may be halted on FTX US in a few days.”

A spokesman for FTX declined to comment. In a Thursday tweet, FTX founder

Sam Bankman

-Fried said he is sorry and that his No. 1 priority is to do right by users.

“Every penny of that—and of the existing collateral—will go straight to users, unless or until we’ve done right by them,” Mr. Bankman-Fried said. On Friday, he resigned as CEO of FTX.

Crypto attracted hordes of new traders during the pandemic, many of whom had never given much thought to bitcoin until they were stuck at home. The price of bitcoin and other digital currencies soared in 2020 and 2021 along with the stock market, leaving some new investors with the impression that crypto could only go up.

But crypto in many ways is little more than a casino. Unlike the regulated, traditional financial system, it lacks the government rules and legal protections built into banks and brokerages. Notably, their deposits aren’t guaranteed by the federal government.

Mr. Gibbs, the musician, used FTX to store his bitcoin. The exchange offered a 6% annual percentage yield on bitcoin deposits, he said.

“In the last couple of years, it became possible to generate a yield with crypto assets and that’s a hard thing for people to turn down,” Mr. Gibbs said in an interview.

Mr. Gibbs, 46, said he had “a bit over one bitcoin” at FTX, with one bitcoin worth about $17,800 as of Thursday. He also has bitcoin at other exchanges, including Binance, which on Wednesday walked away from a rescue deal for FTX. Mr. Gibbs got nervous about his FTX holdings after CoinDesk published a report that raised concerns about the financial health of FTX and Alameda.

Julian Figueroa,

based in Vancouver, British Columbia, had been using FTX to trade digital assets and he was regularly withdrawing from his FTX account to pay himself or cover other expenses. Usually, he said, FTX processed his requests in just a few minutes. The withdrawals stopped working Tuesday.

Mr. Figueroa previously lost money in the collapse of QuadrigaCX, once Canada’s largest crypto exchange, which made the problems at FTX particularly frustrating for him. Mr. Figueroa, who runs a YouTube channel called Kinetic Finance, said he has about a year’s worth of salary tied up at FTX.

“It hurts but I’m a young guy,” said the 27-year-old. “I have time to make back a year’s salary.”

Gianluca Giuffra,

a 25-year-old investor from Lima, Peru, used FTX to trade digital assets and picked the exchange because he thought it was a safe bet.

“Sam looks like a very honest person,” he said, “He doesn’t look like the type of guy that would do crazy stuff behind users’ backs.”

On Tuesday, Mr. Giuffra put in four withdrawal requests starting around 5:24 a.m. The first three went through. The last one, made at 5:56 a.m., didn’t. The experience has left him disheartened about the whole industry.

“I guess regulation is not that bad after all,” Mr. Giuffra said. “Because without them, you were kind of guessing and hoping that the CEO or the person in charge is not playing and gambling with all the money that you put in.”

Write to Vicky Ge Huang at [email protected]

“If you couldn’t trust an exchange like FTX, you can’t trust any exchange,” Mr. Gibbs said before the bankruptcy filing. “And then if you can’t trust exchanges, the whole premise of cryptocurrency doesn’t work.”

Cryptocurrency exchange FTX was one of the biggest players in the industry, often considered a survivor in a broad market crash that has taken down a number of crypto firms this year. But its rapid collapse this week has left customers wondering if they will ever see their money again.

It isn’t clear how long it might take customers to get their money back, or whether they will get anything at all.

FTX was hit by a run of withdrawal requests this week and the company is scrambling to raise money to cover a shortfall of up to $8 billion, The Wall Street Journal previously reported. The exchange lent billions of dollars to fund risky bets at its affiliated trading firm, Alameda Research, using money that customers had deposited at FTX.

In 2022, big crypto losses are a familiar tale for many people. Lenders like Celsius Network and

Voyager Digital

filed for bankruptcy this year and many of their customers are losing hope that they will get their money back. Even one so-called algorithmic stablecoin, meant to maintain a set value, crashed this year, leaving traders with little recourse.

A spokesman for Voyager said U.S. dollar withdrawals are active but that crypto withdrawals are still on hold until the restructuring process is complete. A spokeswoman for Celsius didn’t respond to a request for comment.

Bankruptcies in the crypto world are still virtually uncharted territory. The cryptocurrency that customers put on these platforms might not belong to them in the eyes of a bankruptcy court, according to regulators and legal experts. Instead, they could go into the bankruptcy estate that creditors divvy up. 

Even if customers eventually get access to their crypto, they could suffer big losses if the market turned down while the bankruptcy played out.

Crypto expanded steadily into the mainstream in recent years, and crypto lenders and brokers pitched themselves as avenues for regular people to make money. Some newbies embraced crypto trading, using platforms like FTX to try to time the market. Others thought they were taking a safer route by using FTX and other crypto firms to park their money as if it were a bank deposit—but earning a much greater yield than any regulated bank would pay. Many in both groups are now in desperate situations.

The website for FTX’s American arm said as of Thursday evening that “trading may be halted on FTX US in a few days.”

A spokesman for FTX declined to comment. In a Thursday tweet, FTX founder

Sam Bankman

-Fried said he is sorry and that his No. 1 priority is to do right by users.

“Every penny of that—and of the existing collateral—will go straight to users, unless or until we’ve done right by them,” Mr. Bankman-Fried said. On Friday, he resigned as CEO of FTX.

Crypto attracted hordes of new traders during the pandemic, many of whom had never given much thought to bitcoin until they were stuck at home. The price of bitcoin and other digital currencies soared in 2020 and 2021 along with the stock market, leaving some new investors with the impression that crypto could only go up.

But crypto in many ways is little more than a casino. Unlike the regulated, traditional financial system, it lacks the government rules and legal protections built into banks and brokerages. Notably, their deposits aren’t guaranteed by the federal government.

Mr. Gibbs, the musician, used FTX to store his bitcoin. The exchange offered a 6% annual percentage yield on bitcoin deposits, he said.

“In the last couple of years, it became possible to generate a yield with crypto assets and that’s a hard thing for people to turn down,” Mr. Gibbs said in an interview.

Mr. Gibbs, 46, said he had “a bit over one bitcoin” at FTX, with one bitcoin worth about $17,800 as of Thursday. He also has bitcoin at other exchanges, including Binance, which on Wednesday walked away from a rescue deal for FTX. Mr. Gibbs got nervous about his FTX holdings after CoinDesk published a report that raised concerns about the financial health of FTX and Alameda.

Julian Figueroa,

based in Vancouver, British Columbia, had been using FTX to trade digital assets and he was regularly withdrawing from his FTX account to pay himself or cover other expenses. Usually, he said, FTX processed his requests in just a few minutes. The withdrawals stopped working Tuesday.

Mr. Figueroa previously lost money in the collapse of QuadrigaCX, once Canada’s largest crypto exchange, which made the problems at FTX particularly frustrating for him. Mr. Figueroa, who runs a YouTube channel called Kinetic Finance, said he has about a year’s worth of salary tied up at FTX.

“It hurts but I’m a young guy,” said the 27-year-old. “I have time to make back a year’s salary.”

Gianluca Giuffra,

a 25-year-old investor from Lima, Peru, used FTX to trade digital assets and picked the exchange because he thought it was a safe bet.

“Sam looks like a very honest person,” he said, “He doesn’t look like the type of guy that would do crazy stuff behind users’ backs.”

On Tuesday, Mr. Giuffra put in four withdrawal requests starting around 5:24 a.m. The first three went through. The last one, made at 5:56 a.m., didn’t. The experience has left him disheartened about the whole industry.

“I guess regulation is not that bad after all,” Mr. Giuffra said. “Because without them, you were kind of guessing and hoping that the CEO or the person in charge is not playing and gambling with all the money that you put in.”

Write to Vicky Ge Huang at [email protected]