Although financial restructuring has been developed as a stand-alone practice within international firms, especially during countercyclical economic periods, restructuring the digital-asset space is revolutionary and new.
The crypto industry saw its reckoning in 2022, as many crypto exchanges and startups experienced significant financial challenges. A few, such as Celsius, posed significant risks to the financial system, leading to several bankruptcies and restructuring cases. The collapsed crypto exchange FTX, for example, led to losses of more than $1 billion in customer funds.
Although financial restructuring has been developed as a stand-alone practice within international firms, especially during countercyclical economic periods, restructuring the digital-asset space is revolutionary and new. As financial and advisory firms identify crypto restructuring as a fast-growing area with significant potential revenue streams, they have been developing their expertise and capacity building in recent months to respond to the new environment.
The number of cases is growing fast, calling for broader advisory services. Coinbase, a publicly listed company, announced a restructuring plan, considering the new crypto-economic environment, while Genesis and Babel Finance announced similar plans. Crypto-trading firm Auros is dealing with potential liquidation. Vauld, a Singapore-based crypto-trading firm, has hired Kroll, a risk management and advisory firm, to advise on its restructuring.
Several factors make this trend unusual. Crypto restructuring requires a deep understanding of the technical part of the asset and its trading, which gives a significant edge to firms with technology divisions, such as cyber advisory. It requires a hybrid approach, whereby corporate finance specialists collaborate with experts in the digital assets space.
In addition, the valuation of crypto assets is inconsistent; unlike other financial assets, different methodologies are used to value the assets. Thus, connecting standard valuation work and the new cutting-edge crypto restructuring advisory has been critical.
Also, like mega-restructuring cases in the 2010s, the crypto restructuring wave is enormous, requiring firms to respond quickly with a deep bench and fast delivery times. According to CNBC, crypto investors lost $1.4 trillion in assets globally in 2022. Corporate finance organizations and advisory firms are working to recoup some of these losses, and restructuring the crypto companies behind them if needed.