Signs of Distress in the Crypto Winter

Some crypto related companies are facing financial difficulties (and in certain cases, bankruptcies) as a result of the crypto winter.

The downturn and steep drop in crypto prices are certainly reasons why we are seeing an increasing number of distressed crypto related businesses, but they are no different to any other traditional business. 

All businesses encounter cycles and traditional business fundamentals still apply. Organisations that will survive are likely to adapt quickly, implement strategy change, spread risk and ensure there is sufficient liquidity to survive the bear cycle. 

However, some of the recently reported failures show the need for investors to do their due diligence and for companies to be more diversified to reduce risk. Each of these companies share a number of common themes:

• Promises of high returns - anything that promises a high yield ought to ring alarm bells
• Highly levered - borrowing money to either make bets or to cover outstanding loans
• Secretive, complex strategies - investment strategies and investments made were not disclosed
• Poor reporting - account statements were not current or not produced
• Difficulty receiving payments - frozen accounts and preventing participants from cashing out

The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals. 

FTI Consulting, Inc., including its subsidiaries and affiliates, is a consulting firm and is not a certified public accounting firm or a law firm.