Recently, I’ve been compiling historical cases of cryptocurrency exchanges going bankrupt and found that this issue is more serious than most people think. Many people enter the crypto space only concerned with price fluctuations, but they overlook a more deadly risk — the exchange you choose could disappear at any moment.

Let’s start with a few well-known examples. In 2014, MT.Gox was once the world’s largest Bitcoin exchange, but it was hacked and 850k BTC were stolen, leading to bankruptcy. In 2015, Taiwan’s Yes-BTC also collapsed after the chairman embezzled over 1,600 BTC from user funds and vanished. By 2020, FCoin was even more outrageous — the founder used a “trading mining and coin dividend” model to become the world’s top trading volume in half a month, but later ran off because it couldn’t sustain high dividends, and users’ 7,000 to 13,000 BTC were forever unrecoverable.

But the most shocking was FTX. In 2022, it was still the second-largest exchange globally, and its founder was hailed as a genius in the crypto world. Yet, within just two weeks, it declared bankruptcy and was labeled by the U.S. as “one of the biggest financial frauds in history.” What was the root cause? The founder diverted customer funds to related companies for high-risk investments, and when these investments lost money, the capital chain broke. The founder was later sentenced to 25 years in prison, and users waited over three years to start receiving compensation — calculated at the Bitcoin price at the time of bankruptcy, which was under $20k, whereas now it’s over $100k.

In 2023, Bittrex also went under, once one of the world’s top three exchanges, with over 100k creditors. There are many other names you might not have heard of, like 796, DrogonEX, HuFu, JPEX, etc., almost every year a crypto exchange collapses.

Why does this happen? Mainly for two reasons. Internal factors include security vulnerabilities exploited by hackers, founders embezzling funds, and flawed management systems. External factors are regulatory crackdowns and bear markets. When a bear market hits, trading volume plummets, exchange revenue drops sharply, and small platforms find it hard to survive.

So, how should you choose? My recommendations are: first, prioritize security — don’t choose small platforms just because they have lower fees. Second, look at the number of supported coins and liquidity — mainstream coins are available everywhere, but new coins are usually only listed on mid-sized platforms. Third, consider trading experience and speed, especially important during extreme market conditions.

Regarding specific options, I’ve observed several types in the market. One is large centralized exchanges, which are big, highly liquid, and have comprehensive security measures. These platforms may not have the lowest fees but are the most controllable risk-wise. Another is decentralized exchanges, which have no risk of running away but may lack liquidity and smooth user experience compared to centralized platforms. There are also regulated margin trading platforms, which are overseen by multiple authorities, implement fund segregation measures, and keep user funds separate from company operating funds. They often have insurance policies to protect user assets in extreme situations.

Finally, I want to emphasize that exchange bankruptcies are not rare events. CoinMarketCap currently lists 670 operating exchanges, but many have already failed. When choosing an exchange, be very cautious and avoid relying on luck. If you happen to fall into a bankrupt platform, whether you can recover your funds depends on the bankruptcy laws of the platform’s jurisdiction — usually only partial refunds, and often after a long wait. FTX is a vivid example — users waited three years to start getting paid. So, instead of waiting for the worst, it’s smarter to choose a safe and reliable platform from the start.