Cryptocurrency Exchange Collapse Wave: Why Are the Risks More Frightening Than Price Fluctuations?

The Hidden Real Threat

When investors enter the crypto space, they are often repeatedly told the concept of “high volatility, high returns,” building psychological expectations based on the ups and downs of cryptocurrency prices. But reality is often more brutal—compared to the fluctuations of the coin prices themselves, the losses caused by exchange closures are even more unpredictable and can instantly wipe out user assets.

What’s more alarming is that this is not an isolated incident. According to market statistics, there are about 670 operating virtual currency exchanges worldwide, but dozens of well-known exchanges have already permanently shut down. This means that exchange closures are becoming a recurring risk.

How the Once-Giants Fell into Decline

The Fall of MT.Gox (2014): The First Alarm Bell

Founded in 2010, MT.Gox was once the world’s largest virtual currency trading platform. Between 2011 and 2013, as Bitcoin prices soared, MT.Gox handled about 70% of global trading volume, making it the “New York Stock Exchange” of the crypto world. However, everything changed in an instant due to a hacker attack—85,000 Bitcoins were stolen from the platform, worth approximately $473 million at the time. This incident made the entire industry realize that security vulnerabilities can destroy even the largest empires.

The Collapse of FCoin (2020): The Price of Greed

Launched in 2018, FCoin once created a myth in the crypto exchange world—within just half a month, its trading volume surpassed the combined total of exchanges ranked 2-7 globally. The founder attracted many users through a “trading mining + coin holding dividends” model, causing the platform’s token FT to soar in price.

But this prosperity was short-lived. The high-dividend model eventually exhausted the platform’s reserves, leading to a sharp decline in trading volume and coin prices. In 2020, the founder, after fleeing overseas, admitted that users’ 7,000-13,000 Bitcoins could no longer be redeemed. What seemed like an innovative incentive mechanism ultimately turned into a Ponzi scheme variant.

The FTX Abyss (2022): An Epic Collapse

If the previous cases serve as warnings, then FTX was a financial disaster.

By November 2022, FTX was still the second-largest virtual currency exchange globally, valued at $32 billion, and its founder SBF was hailed as a “savior” of the crypto industry. But within just two weeks, everything collapsed.

The truth is: FTX’s rapid expansion was built on the backing of its affiliated company Alameda Research. Alameda owed $8 billion, with most assets in the illiquid native token FTT. When a report exposed these facts, market panic erupted instantly— the world’s largest exchange announced the sale of FTT, causing its price to plummet, users rushed to withdraw funds, and FTX’s liquidity chain was broken.

Deeper issues surfaced: FTX transferred customer funds to Alameda for high-risk investments, which is outright misappropriation of funds. Ultimately, SBF was sentenced to 25 years for fraud. Although FTX launched a compensation plan in 2025, victims recovered far less than their initial losses—calculated at Bitcoin prices below $20,000 at bankruptcy, now exceeding $100,000.

The Silent Demise of Bittrex (2023): The Sword of Regulation

Founded in 2014, Bittrex was once one of the world’s top three virtual currency exchanges, known for its security, with a market share approaching 23%. But in 2023, U.S. regulators suddenly filed charges, claiming illegal operations. Just one month later, Bittrex filed for bankruptcy protection. According to statistics, this bankruptcy involved over 100,000 creditors, with assets estimated between $500 million and $1 billion.

The Systemic Roots Behind Closures

From these cases, it’s clear that exchange closures are not random events but follow predictable patterns:

Internal governance flaws: security system vulnerabilities, poor private key management, fund misappropriation, lack of management systems—almost every closed exchange has committed at least one of these errors.

Unsustainable business models: FCoin’s high-dividend scheme, FTX’s leverage expansion—all tried to attract users with incentives that cannot be sustained long-term. When the market turns, these models collapse immediately.

Regulatory risks: As the crypto market grows, governments worldwide are increasing regulation. Exchanges unwilling to comply face closure risks, which explains why many suddenly announce shutdowns in certain years.

Market cycle dependence: During bull markets, crypto prices are high, trading volume is large, and many poorly managed exchanges can survive. But when a bear market hits, trading volume shrinks, revenue drops sharply, and fragile exchanges reveal fatal problems.

How Investors Can Protect Themselves

In the face of such risks, choosing an exchange should not be a casual decision:

Prioritize security credentials: Check if the exchange is licensed, has established a risk reserve fund, has security systems audited independently, and has a record of being attacked. Never choose unknown small platforms just to save 0.01% on fees—risk factors are completely disproportionate.

Assess operational stability: Observe the exchange’s market position, user base, and trading volume trends. Larger platforms with more institutional users generally have lower closure risks because they have more resources to handle emergencies.

Trading speed and experience: After ensuring security, consider fee levels, trading speed, and variety of trading products. During extreme market conditions, platform lag can lead to huge losses.

Diversify holdings: Do not concentrate all funds on a single exchange. Even highly secure platforms should be supplemented with backup options.

Cold Reflection

The wave of exchange closures reflects a core reality—in this industry, counterparty risk is often more deadly than market risk. Bitcoin may plummet 50%, shrinking investor assets, but the assets still exist; however, if an exchange closes, assets can be wiped out or frozen for years.

The process of choosing an exchange is essentially about selecting a trusted partner. When trust is broken, even the best technical analysis cannot save you. Therefore, every crypto investor should prioritize “security assessment of exchanges” over market analysis.