Crypto exchange collapses: what happened at Mt. Gox, Celsius and FTX, and the custody lessons

When a crypto exchange or lender collapses, customers usually discover that the coins shown in their account were not held separately for them: they had lent them to the company, or the company had used them, and they became creditors in a bankruptcy that can take years. Mt. Gox in 2014, and Celsius and FTX in 2022, are the best-documented examples. The lessons are about custody: know who legally owns the coins, what the platform is allowed to do with them, and how much of your money depends on a single company.

This guide sets out what happened in each case, sticking to facts established by courts, official filings and mainstream reporting, and then turns those events into practical questions you can ask of any provider. Our guide to crypto wallets and custody explains the basics of custodial and self-custody wallets; this guide goes deeper into the failures themselves.

Why exchange failures matter so much in crypto

In traditional finance, several layers stand between a broker's failure and your savings. Securities are usually held in custody structures separate from the firm's own assets, client money is held in segregated accounts, and in many countries there are compensation schemes for when those protections fail. Our guide to how to check a broker licence explains how those layers work for regulated investment firms.

Crypto platforms grew up largely outside that system. For much of crypto's history, customers deposited coins with companies that were lightly regulated or not regulated at all, under terms of service that few people read. When those companies failed, there was often no compensation scheme, no clear separation of customer assets, and no quick way to get coins back. Rules have tightened since, including the EU's MiCA regime, but the history explains why custody is the first question to ask.

Mt. Gox (2014)

Mt. Gox was a Tokyo-based exchange that, in the early years of bitcoin, handled a large share of all bitcoin trading. It suffered a security breach in 2011 and continued to operate.

On 7 February 2014 it halted bitcoin withdrawals, citing technical problems. At the end of that month it filed for bankruptcy protection in Tokyo, saying that around 850,000 bitcoin, the large majority belonging to customers, were missing. In March 2014 it said it had found roughly 200,000 bitcoin in an old-format wallet, reducing the shortfall to around 650,000. The losses were attributed to theft over a long period, although the company's explanations were disputed at the time.

The legal process was long. The case later moved into a civil rehabilitation process under Japanese law, which allowed creditors to be repaid partly in bitcoin rather than only in cash. Repayments to creditors began in 2024, a decade after the collapse, and the trustee extended the deadline for completing them more than once, most recently to 31 October 2026. Anyone with an interest should check the trustee's own announcements for the current position.

What Mt. Gox showed:

• An exchange's hot wallets are a target. Coins held online to process withdrawals can be stolen, and losses can go unnoticed for a long time if the firm's internal records are poor.
• Withdrawal halts are the warning sign. "Technical problems" with withdrawals, while deposits and trading continue, is a pattern that recurs in later failures.
• Insolvency is slow. Even when assets are eventually recovered, customers may wait years.

QuadrigaCX and the key-person problem (2019)

A smaller but instructive case: QuadrigaCX, a Canadian exchange, collapsed in early 2019 after its founder died and the company said it could not access the cold wallets holding customers' coins. A later investigation by the Ontario Securities Commission concluded that the founder had committed fraud and that much of the customer money had been lost long before his death. The lesson is that "cold storage" is only as good as the governance around it, and that a firm where one person controls the keys is a single point of failure.

Celsius (2022)

Celsius was a crypto lender. Customers deposited coins and were paid interest, sometimes at high rates. Celsius generated returns by lending those coins out and deploying them in other crypto strategies.

In June 2022, during a sharp fall in crypto prices that followed the collapse of the TerraUSD stablecoin in May, Celsius paused all withdrawals, swaps and transfers. In July 2022 it filed for Chapter 11 bankruptcy protection in New York.

The Earn account ruling

The most important custody lesson came from the bankruptcy court. On 4 January 2023, the judge overseeing the case ruled that the coins deposited in Celsius's interest-bearing "Earn" program belonged to Celsius, not to the customers who deposited them. The reason was contractual: Celsius's terms of use, which customers had accepted, transferred ownership of deposited coins to the company. The ruling meant that Earn customers, a group numbering around 600,000 accounts, were treated as unsecured creditors rather than owners of the coins. The ruling applied to the Earn program; other Celsius programs were dealt with separately.

Celsius emerged from bankruptcy in early 2024 with a plan to distribute assets to creditors. Its founder and former chief executive pleaded guilty to fraud charges in December 2024 and was sentenced in May 2025 to 12 years in prison.

What Celsius showed:

• Yield means your coins are being used. If a platform pays interest on deposited crypto, it is lending or investing those coins. That creates a credit risk on top of price risk.
• The terms of use decide ownership. Customers who believed they still owned their coins found that, legally, they had handed them over.
• Contagion is real. Crypto lenders, funds and exchanges had lent to each other. When one failed, others followed; several other lenders froze withdrawals and filed for bankruptcy in the same year.

FTX (2022)

FTX was one of the largest crypto exchanges in the world, based in the Bahamas, with a separate US affiliate. Its founder also controlled a trading firm, Alameda Research.

In early November 2022, a CoinDesk report raised questions about Alameda's balance sheet and its reliance on FTX's own token. Customers began withdrawing heavily. On 8 November a rival exchange, Binance, announced a non-binding agreement to acquire FTX's non-US business; on 9 November it walked away, citing its due diligence and reports of mishandled customer funds. On 11 November 2022 FTX and around 130 affiliated companies filed for Chapter 11 bankruptcy protection in the United States.

In November 2023 a New York jury convicted the founder on seven counts, including wire fraud and conspiracy, related to the misuse of customer money. On 28 March 2024 he was sentenced to 25 years in prison.

How FTX customers were repaid

Under the bankruptcy plan, customers' claims were valued in US dollars at the prices on the petition date, 11 November 2022, when crypto prices were depressed. The estate later said that most creditors would receive more than 100% of those dollar claims, plus interest, and distributions began in 2025. Creditors who had held coins received dollars based on 2022 values, not the coins themselves, so those whose coins had since risen in price did not share in that rise. Some creditors challenged this approach in court.

Worked example: a claim fixed in dollars

Illustrative numbers only, to show the mechanism. Suppose a customer held 1 bitcoin on a failed exchange.

• On the bankruptcy date, bitcoin is priced at 16,000 dollars, so the customer's claim is fixed at 16,000 dollars.
• The estate eventually pays 118% of allowed claims: 16,000 times 1.18 = 18,880 dollars.
• By the time the payment arrives, bitcoin trades at 60,000 dollars. Had the customer held the coin themselves, it would be worth 60,000 dollars.

On paper the customer was repaid "more than in full". In practice, they received less than a third of what the coin was worth by then (18,880 divided by 60,000 is about 31%), and waited years for it. The reverse can also happen: if prices fall after the bankruptcy date, a dollar claim protects the customer. Either way, a customer of a failed custodian loses control over the asset and its timing.

What FTX showed:

• A large, well-known brand is no protection. FTX was heavily promoted and widely used.
• Customer assets and the firm's own trading must be separate. The criminal case turned on customer money being used for other purposes.
• Opaque related parties are a red flag. An exchange whose owner also runs a large trading firm creates conflicts that outsiders cannot see.
• Bank runs happen fast. Days passed between the first reports and the bankruptcy filing.

Common threads across the failures

Looking across these cases, the same patterns recur:

1. Commingling or misuse of customer assets. Coins were not where customers believed they were.
2. Withdrawal freezes as the first visible sign. By the time withdrawals stop, it is usually too late to get out.
3. Terms that gave the platform rights over deposits. Lending, staking and "earn" products typically involve this.
4. Leverage and lending between firms. Losses at one firm spread to others.
5. Weak or absent regulation in the jurisdiction that actually held the assets.
6. Customers repaid slowly, in a different form, or partly.

The planned guide to how crypto exchanges work explains the internal ledger, hot and cold wallets, and proof of reserves.

Custody lessons you can act on

1. Know who legally owns the coins

Read the terms for the product you are using. Look for words such as "title", "ownership", "rehypothecation", "lend" and "transfer". If the platform may use or lend your coins, you are a lender to the platform, whatever the app's interface suggests.

2. Treat yield as a credit decision

If you are paid to deposit crypto, ask who is paying, how they earn it, and what happens to your coins if a borrower fails. If you cannot answer, assume the risk is higher than it looks. The planned guide to ether staking covers the specific risks of staking through a platform.

3. Check authorisation, and what it covers

In the EU, firms providing crypto custody and exchange services must be authorised as crypto-asset service providers under MiCA, which requires them to keep clients' crypto-assets separate from their own and to have safeguarding arrangements. The planned guide to MiCA explains the regime, and our guide to crypto scams and regulation shows how to check a firm on the official register. Authorisation reduces risk; it does not remove it, and MiCA does not provide a compensation scheme for lost crypto.

4. Understand what proof of reserves does and does not show

Some exchanges publish proof of reserves: evidence that they hold certain coins, often with a way for customers to check that their balance is included. That is better than nothing. On its own it does not show liabilities, it is a snapshot in time, and coins can be borrowed for the day of the check. A full picture needs liabilities and an independent audit.

5. Do not keep everything in one place

Concentration is what turns a failure into a disaster. Spreading holdings between providers, or holding part in self-custody, limits how much any single failure can cost.

6. Learn self-custody properly before relying on it

Self-custody removes the exchange as a point of failure but makes you responsible for keys. People lose coins permanently through lost seed phrases, phishing, wallet-draining approvals and sending to the wrong address. The planned guides to seed phrases and private keys and crypto phishing and wallet drainers cover the main risks. Practise with a small amount first.

7. Watch for the warning signs

• Withdrawals delayed or paused "for maintenance" while deposits continue.
• Unusually high, stable yields.
• Heavy reliance on the platform's own token.
• Unclear ownership or related trading firms.
• Sudden changes to terms of use, particularly around withdrawals or ownership.

Where crypto CFDs fit

Trading crypto through a CFD with a regulated investment firm involves a different kind of custody risk. You hold no coins, so there are no coins to lose; you have a contract with the broker, and your cash is client money. EU investment firms must keep retail client money segregated from their own, and in many EU countries an investor compensation scheme covers eligible clients up to a limit if a firm fails and cannot return client money. For firms regulated by CySEC, the Investor Compensation Fund limit is 20,000 euros per client. The investor compensation scheme and segregated funds entries explain these protections.

That is not the same as saying a CFD is safer overall. CFDs carry leverage and most retail CFD accounts lose money. Our guide to crypto CFDs vs buying crypto compares the two routes in full.

Worked example: limiting the damage from one failure

Illustrative numbers only. Someone holds 10,000 euros of crypto.

• All on one platform: if that platform fails and creditors eventually recover 60% after several years, the holder recovers 6,000 euros, eventually, and loses access in the meantime.
• Split three ways (4,000 euros on one authorised exchange, 3,000 on another, 3,000 in a hardware wallet): if one exchange fails with the same 60% recovery, the loss on the failed part is 40% of 4,000 = 1,600 euros, and the other 6,000 euros remain accessible.

Splitting does not change price risk, and self-custody has its own risks, but it limits how much one company's failure can cost.

Common mistakes

• Assuming a big brand is safe. FTX was one of the largest exchanges in the world.
• Chasing yield without asking where it comes from. Interest on deposits means your coins are being lent or used.
• Ignoring the terms of use. At Celsius, they decided who owned the coins.
• Waiting for clarity when withdrawals slow down. Delays have been the first sign of every major failure.
• Treating proof of reserves as an audit. It shows assets at a moment, not liabilities.
• Moving everything into self-custody overnight without learning how to secure a seed phrase.
• Falling for "recovery" services that promise to retrieve funds lost in a collapse for an upfront fee. Our guide to forex scam red flags describes recovery scams, which target victims of failures.

Frequently asked questions

What happened to FTX customers' money?

FTX filed for bankruptcy on 11 November 2022 after customers rushed to withdraw and it could not pay. Its founder was later convicted of fraud related to the misuse of customer funds and sentenced to 25 years. Customer claims were valued in dollars at November 2022 prices, and the estate began distributions in 2025, saying most creditors would receive more than 100% of those dollar claims.

Why did Celsius customers not get their coins back?

Celsius froze withdrawals in June 2022 and filed for bankruptcy in July 2022. In January 2023 the bankruptcy court ruled that coins in its Earn program belonged to Celsius under its terms of use, so those customers were unsecured creditors rather than owners. They were repaid through the bankruptcy plan, not by having their coins returned.

What was Mt. Gox?

A Tokyo-based bitcoin exchange that once handled a large share of bitcoin trading. It halted withdrawals in February 2014 and filed for bankruptcy that month, saying around 850,000 bitcoin were missing, of which about 200,000 were later found. Repayments to creditors began in 2024, and the trustee extended the completion deadline to 31 October 2026.

Is it safe to keep crypto on an exchange?

It carries counterparty risk: if the exchange fails, is hacked or misuses customer assets, you may lose some or all of your holdings or wait years for partial repayment. Authorisation under rules such as MiCA improves safeguards but does not remove the risk. Many people limit how much they keep on any one platform.

Does proof of reserves mean an exchange is solvent?

Not on its own. Proof of reserves shows that an exchange controlled certain assets at a point in time. Solvency depends on liabilities as well, which a reserves snapshot does not show, and assets can be borrowed for the moment of the check. An independent audit of both assets and liabilities gives a fuller picture.

Would a compensation scheme cover crypto lost in an exchange collapse?

Generally not. Investor compensation schemes in the EU cover certain investment services by authorised investment firms, such as failing to return client money, up to a limit. MiCA does not create a compensation scheme for crypto-assets held with a crypto-asset service provider. Check what protections apply to the specific firm and service before depositing.