Despite growing interest in cryptocurrency, many trading platforms are facing challenges and shutting down. The reasons vary: from suspicion of criminal activity to financial insolvency and hacker attacks.
In this article, we will look at well-known cases of P2P platform and crypto exchange collapses and the reasons behind them.
Crypto, Darknet, and Bitzlato
One of the most high-profile cases is the closure of Bitzlato by U.S. authorities on January 19. Its founder Anatoly Legkodymov was arrested in Miami. According to the U.S. Department of Justice, he facilitated money laundering from drug sales and malware distribution. The French prosecutor’s office, together with partners from Spain, Portugal, and Cyprus, seized Bitzlato’s infrastructure and arrested five participants.
According to Europol, Bitzlato converted about 1 billion euros in assets linked to criminal activity. More than $700 million passed through the exchange for operations with the darknet marketplace Hydra, which was shut down in 2022.
Bitzlato also worked with other sanctioned platforms (Chatex, Blender.io) and wallets of hacker groups. The administration was aware of this but turned a blind eye. As a result, the exchange was closed.
U.S. Department of Justice Investigations
In 2022, Denis Dubnikov, co-founder of Coyote Crypto and EggChange, was arrested and charged with laundering $400,000 from Ryuk ransomware attacks. The total amount laundered is estimated at $70 million. Platforms Suex and Chatex had also previously been sanctioned by the U.S. for links to hackers and Hydra.
Suex became the first Russian crypto project blocked by the U.S. Chatex has been under technical maintenance since 2021, with users losing access to funds.
Other Reasons for P2P Platform Closures
LocalCryptos shut down in 2022, citing the health of the team. In reality, the bear market and declining trading volumes were to blame. LocalBitcoins also closed in 2023 due to the prolonged crypto winter.
According to Crypto Wisser, 62 platforms worldwide closed since early 2022. Main reasons inсlude regulatory issues and financial difficulties.
FTX Bankruptcy
The $32 billion exchange collapsed due to misconduct by Sam Bankman-Fried. User funds were used to cover Alameda Research losses, triggering mass withdrawals and FTX’s bankruptcy. Bankman-Fried faces eight criminal charges.
Celsius Collapse
Celsius froze investor assets in 2022 and filed for bankruptcy. The reason was unethical use of user funds for the company’s interests.
Mt.Gox — The Largest Hack in History
In 2014, hackers stole 850,000 BTC from Mt.Gox, sparking a Bitcoin recession. Security issues dated back to 2011. Later, part of the funds was found in accounts linked to Alexander Vinnik. Fund recovery is ongoing.
BTC-E Closure
BTC-E was shut down in 2017 over money laundering suspicions. The FBI seized servers and funds. User accounts were moved to WEX, which also closed without returning assets.
Why Exchanges Shut Down and What It Means
Closures are caused by management errors, underestimating hacker threats, regulatory problems, and fraud. The worst scenario is misuse of user funds for company interests (as with FTX).
The crypto market remains fragile, but as the industry matures, such cases should become rarer. The key is to choose reliable platforms and diversify risks. Major market players tend to remain stable even in crises.
