BlockFi crypto customers fail in dispute over coin transfers

A bankruptcy judge has ruled that transfers made as of November 10, 2021 by the cryptocurrency firm BlockFi are void.

Therefore, the customers who attempted to retrieve almost $300 million in crypto following the freezing of transfers last year are not entitled to the digital assets.

An attempt to reallocate assets

The company filed for bankruptcy in November 2021 and plans to either sell or reorganize its business to repay creditors. 

Those who maintained their assets in interest-bearing accounts forfeited certain ownership rights, while those in custodial accounts did not. 

The judge concluded that BlockFi ceased all transfers on November 10, 2021, at 8:15 pm.

After the freeze, some customers attempted to relocate their assets to safer, custodial wallets and were informed via the company’s app that the transfer was successful.

Kaplan stated during a brief court hearing that these notices were incorrect and that “the user interface did not accurately reflect the transactions.”

The question of ownership

The issue of ownership of digital coins and other assets in crypto company bankruptcies has become a central question in recent years.

In a similar case, the ruling was based on Celsius having control over the assets and could use them to generate interest or invest them as it saw fit, rather than the customers having direct ownership of the assets.

The idea was highlighted in the Celsius case, where a federal judge ruled that about 600,000 customers of the company did not own the assets they deposited into their accounts due to the language in the user agreements.

Similar disputes have arisen in other high-profile crypto bankruptcies, including those of Mt. Gox and QuadrigaCX.

In both cases, customers claimed ownership of the digital assets they had deposited on the platforms, but court rulings have found that the bankrupt companies had control over the assets and therefore owned them.

The lack of clear regulatory guidelines for crypto companies has led to uncertainty over asset ownership and left customers vulnerable to potential losses in the event of company failures. 

As the crypto industry grows and more companies emerge, regulators are under increasing pressure to establish clearer rules and protections for customers to avoid these types of disputes in the future.