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Heads-up! What if your crypto exchange goes bankrupt?

by Shatakshi Gupta

Coinbase Global, Inc., a US-based crypto exchange, recently sparked controversy after a regulatory statement warned that investors’ crypto tokens could be lost if the company went bankrupt. In this context, it’s critical to know how your cryptocurrencies will be impacted lying in Indian crypto exchanges.

According to a Mint story, they spoke with the founder of Wazir X and received assurances that customers’ tokens will not be lost in any such circumstances because they are housed in a separate custodian wallet. WazirX claims to be a transaction execution platform with no control on clients’ assets, and that investors have sole ownership of their bitcoin. Several other popular exchanges, on the other hand, declined to comment on this question.

Crypto ownership in India:

Traditional asset classes, such as stocks and mutual funds, have seen laws emerge over time only to protect investors. Cryptos, on the other hand, are a different story. Stocks and mutual funds vary from other assets in that they have an underlying asset that generates cash flows. In crypto, it’s all about supply and demand.

The regulatory gap is the issue when it comes to crypto asset ownership in India. Some cryptocurrency exchanges practise genuine self-regulation. These platforms function as fiduciaries for their customers, holding their crypto assets in trust for them. Unfortunately, this isn’t true in every circumstance. Customers may be classified as unsecured creditors if the platform or exchange goes bankrupt, and they will have to make due with whatever the company’s liquidated assets have to provide.

Read more: You must check for these 5 fundamentals before investing in any Cryptocurrency

A rule exists in several nations that a custodian, or business that holds crypto for investors, owes a duty of trust to the person for whom the crypto is being held. In India, the rules have yet to be implemented.

Legal experts in India say determining who owns a token is difficult. If the exchange has a wallet that is held by a single person, the assets in that wallet are technically owing to the investor. It all depends on the wallet’s terms and conditions, as well as whether they are kept separate or combined.

Experts’ advice:

Experts feel that if the consumer’s relationship with the wallet provider is properly organized, the tokens will be safe. As a result, investors should carefully read the wallet’s terms and conditions to determine if tokens are held in their names or not. Besides, an effective legislation, regulatory authority, code of conduct, KYC regulations, and the amount of disclosures required for crypto exchanges are all urgently needed to protect investor interests.

Meanwhile, legal experts advise that investors must use crypto sites that are exceedingly trustworthy. Reputable private equity investors that have invested in such a platform could be another indicator of the exchange’s stability. Check to see if an exchange is actively self-regulating and adhering to acceptable business standards.

Another, and unquestionably the safest, approach to keep your crypto safe is to keep it in personal wallets. Keep the key on your person or use a non-custodial decentralized wallet.

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