It’s been a hard year for cryptocurrency. The values of most cryptocurrencies, including major coins such as Bitcoin and Ethereum, have continued to tumble. In fact, the price of one stablecoin, which is a form of cryptocurrency tied to another currency, commodity or financial instrument, de-pegged from its cryptocurrency token and entered into a downward spiral. Ultimately, the stablecoin and the crypto token it was pegged to collapsed, erasing $18 billion of value with it. In addition, one major cryptocurrency exchange platform recently warned investors that, in the event of bankruptcy, its users’ assets may be treated as property of the estate, which would leave users in the unfortunate position of being treated as unsecured creditors. This revelation caused that entity’s stock to plummet.

Then, the bankruptcy filings actually started.

First, Three Arrows Capital filed in the British Virgin Islands for the appointment of joint provisional liquidators who will be charged with the liquidation of the company’s assets. Three Arrows Capital is an investment firm that focused on trading cryptocurrency. Because the company was so heavily invested in crypto, the plunging value of those assets resulted in the company defaulting on its loan obligations.

On July 6, 2022, the filing of Three Arrows Capital caused one of its major lenders, Voyager Digital Holdings, to file for Chapter 11. Voyager Digital is a cryptocurrency brokerage firm that allows customers to buy, sell and trade crypto on its platform. The company also provides custodial services, allowing customers to store their cryptocurrency on its platform, and furnishes loans to counterparties, usually in the form of a specific cryptocurrency. At the time of filing, Voyager Digital’s loan to Three Arrows Capital was one of its largest outstanding loans.

The snowball has only continued to grow. On July 13, 2022, Celsius Network filed Chapter 11. The New Jersey-based company is a cryptocurrency-based finance platform that enables users to pay expenses, make purchases or otherwise monetize their crypto investments by first transferring the crypto to Celsius and then borrowing government-issued currency (or other digital assets) against those assets.

Each company’s first day filings state that their respective bankruptcies were the result of macroeconomic factors such as COVID-19 and the war in Ukraine as well as the so-called “crypto-winter.” In Celsius’ case, the overall economic environment spooked investors into withdrawing their crypto assets from the platform. The withdrawal was massive and rapid, similar to a run on the bank, and it forced Celsius to pause all withdrawals, swaps and transfers between accounts about a month prior to the filing–a move that infuriated many of its users.

Celsius’ trading pause was intended to preserve assets and, in its first day filings, Celsius defends the move by arguing that the pause will facilitate a fairer reorganization process. Celsius’ filings also note that other companies have put in place similar limits and pauses on withdrawals. Regardless of the justifications, Celsius’ decision brings to the forefront a question that will be critical in every crypto bankruptcy—who holds the title to the crypto assets held by these firms and platforms?

Notably, Voyager Digital has categorized its customers as creditors with unsecured claims, and has taken the position that crypto assets in customer accounts are the company’s property. In response, the judge questioned whether Voyager, instead of filing Chapter 11, should instead be liquidating as a broker-dealer with protected customer accounts.

Unfortunately, courts addressing this issue will have little guidance from the existing regulatory framework because, although multiple bills have been introduced in Congress, all efforts to definitively classify crypto-assets have stalled. The most recent legislation proposed assigning the bulk of oversight to the Commodity Futures Trading Commission (CFTC), but both the CFTC and the Securities Exchange Commission have exercised some level of regulatory oversight.

Instead, courts addressing this question may rely on existing principles and analogous case law in different industries. Courts may also insist on making individual, fact specific decisions by evaluating how each customer used the bankruptcy platform and the underlying customer contracts. For example, when using a certain Celsius service, users agree to (i) transfer all right and title to their crypto to Celsius and (ii) allow Celsius to invest or use the crypto within its full discretion.

The interconnected nature of the crypto industry has never been more aggressively on display than when these entities started falling like dominos. Soon, we may see additional entities file for bankruptcy, and the strategy for any filing will be guided by what happens in these cases. Depending on how these cases unfold, other entities may need to seek forms of relief outside of court, including rescue financing or loan forbearances. Crypto investors should watch these cases closely.