If a crypto exchange shuts down overnight, your cryptocurrencies along with fiat assets in that exchange will possibly get locked for a very long time, until the exchange resolves the issue that caused it shutdown.
To make it simpler, your funds could be locked for an indefinite period.
Why do Crypto Exchanges Shut Down?
Exchanges shut down primarily because of these following reasons (which are taken from the real world):
- Exchange got hacked, (Mt Gox in 2014 and Bybit in 2022).
- Exchange funds were drained by owners i.e., a rug-pull (FTX, 2022).
- Exchange Chief Executives die (Quadriga CX in 2019).
Some exchanges are able to recover their assets like Bybit did through debt, however, other less fortunate ones, eventually shudown permanently.
How Does Resolution Work?
In the interest of the users, the government typically steps in and brings a resolution plan or proceeds with bankruptcy.
In Mt. Gox’s case, the exchange went through a bankruptcy tribunal which restored much of users funds, with many getting more than they lost in dollar terms i.e, $16 billion was recovered.
In the FTX case, the exchange got processed again by a bankruptcy tribunal where a capable team was set to address resolutions. FTX repaid approximately $7.6 billion as of late 2025.
It is noteworthy that these repayments are lesser in terms of crypto recoveries. However, since the crypto markets have exploded since the hack, the bankruptcy plans have worked in the favor of the users.
What Happens if it the Exchange Never Reopens?
it is possible that the funds are lost forever in this case.
There was a case in 2019 when the CEO of QuadrigaCX, Gerald Cotten, died a sudden death taking with him the passcode to user funds. The exchange had to file for bankruptcy in 2019 and around $235 million of user funds were never recovered.
How Can Users Reduce Risk Exposure to Such Events?
Users can get self-custody wallets such as Ledger, MetaMask, Trust Wallet, Phantom Wallet, etc., to keep their cryptocurrencies with them. If they want higher security, a hardware wallet like Ledger works better, otherwise, a free hot wallet like MetaMask, or Trust Wallet is enough.
Frequently Asked Questions
Can users still access their funds after an exchange shuts down?
Usually no, atleast not immediately. Users might have to wait till a resolution process ends. For Bybit, it was less than a week, for FTX it was 3 years, for Mt. Gox it was 10 years.
Do users legally own the crypto held on an exchange?
Depends on local laws. For USA, the funds in an exchange totally belongs to the exchange and not users in case of any bankruptcy. However, this is not a standard practice in other areas.
Are funds always lost when an exchange shuts down?
In most cases no. In the four examples shown before, only QuadrigaCX funds were lost forever because of how blockchains work. Otherwise, for FTX and Mt Gox users, partial recoveries were possible. For Bybit users, a full recovery was made.
Disclaimer: The current article by The Layer is for informational purposes only and does not constitute trading or investing advice. Please refer to a financial consultant before trading or investing.
