Crypto asset disputes when prices fall

The recent drop in value of crypto-assets is likely to increase litigation risks for those who participate in the crypto-asset ecosystem.

In our experience, sharp market movements tend to crystallise disputes that were previously “latent”: margin shortfalls, valuation challenges, alleged misstatements and insolvency-related claims. Disputes can be between investors (retail and institutional), exchanges and custodians, lenders, brokers and market-makers, token issuers, “crypto-treasury companies”, directors and officers, and advisers (including introducers and influencers). Below we summarise the main risks on the horizon.

Early 2026 has seen a striking drop in the value of crypto-assets. By 8 February 2025, the cryptocurrency Bitcoin had dropped from its all-time high of over USD120,000 to in the region of USD60,000 before rallying to c.USD70,000,  The Financial Times went so far as to say that ‘Bitcoin is still about $70,000 too high’. Market commentators have been blunt about valuation concerns. Meanwhile, the cryptocurrencies Ethereum and Solana have dropped by over a third during 2026.  

Increased litigation risks

Termination of loans, derivatives and trading positions: Drops in value may lead to attempts to terminate various types of contract, which in turn, may lead to disputes, that typically focus on whether the contractual trigger has been met and whether termination/enforcement has been carried out correctly.

• A company or individual may have borrowed money by giving security to the lender in the form of crypto-assets. Where those crypto-assets drop in value, the drop may entitle the lender to terminate the loan and seek immediate repayment, for example, because a loan-to-value covenant has been breached.
• A company or individual may have chosen to enter into derivative transactions about the value of crypto-assets. Where that is the case, the drop in value of crypto-assets will have a significant impact on the relative exposures of each party. The in-the-money party may be able to terminate or close out the derivative transaction, liquidate the positions and seek payment of the net sum from the out-of-the-money party.
• A company or individual may be trading crypto-currencies on a crypto-asset exchange, having posted margin. Where the margin takes the form of crypto-assets and drops in value, the exchange may be able to liquidate the positions. Claims may follow where liquidation is alleged to have been premature, mis-priced, or executed contrary to platform terms.
• In the above scenarios, where a party attempts to terminate or close out or liquidate, the other party may dispute the right to do so. Potential issues include the interpretation of the language used in the agreement, whether the crypto-currency (or other security or collateral) has been valued correctly (including whether an information feed or ‘Oracle’ was correct), and notification requirements before termination.

Disputes about attempts to reduce the loss: Once a position moves against a party, a wide range of disputes can arise about attempts to reduce the loss involved. These can include

• Whether an attempt is made to post more collateral or security, which might have avoided the need to terminate, close out or liquidate (and whether the receiving party wrongly rejected it).
• Whether an exchange refuses access or stops functioning, and whether it is reasonable to do so, when some traders might attempt to change their positions or post more collateral which would lead to a better outcome.
•  Whether the margin-taker or security-taker sells the crypto-assets or other assets at a reasonable price. There may also be disputes about whether a crypto-asset  has, at a particular time, any immediate cash value.

Complaints about misrepresentation of risk: Someone who loses money because of a drop in value of crypto-assets may seek to bring claims against others for misrepresentation of the risks involved, such as

• Claims against advisers/arrangers for negligent advice, unsuitable recommendations or misleading risk descriptions.  
• A claim against a crypto-exchange platform on the ground that it stated an investment was less risky than it actually was.
• A claim against a company whose business model focused on investing in crypto-assets as a direct means of increasing the company’s value (sometimes called “crypto-treasury companies”), if the company misrepresented the risks or values involved.  
• A claim that a statement about a crypto-asset being backed by other assets (eg fiat currency or real estate) was untrue.
• Some of these disputes may take the form of a claim for damages to compensate the investor for a loss suffered. Other disputes may take the form of a claim to rescind (i.e. unwind) the purchase, so that the purchaser can regain the purchase money paid away.

Insolvency: Any company or individual affected by a drop in value may in turn be subject to corporate distress or insolvency. Notable issues which may arise are

• Disputes about whether a company or individual is able to pay its debts. Disputes may turn on margin call issues, as we have seen above, or on whether other debts are owed where the drop in value of crypto-assets reduces liquidity to pay any other debts due.
• Risks of wrongful trading or fraudulent trading, when a decision is made to continue to trade although insolvency is becoming increasingly likely or inevitable.
• Disputes about whether the crypto-assets held by an insolvent company or individual or an insolvency exchange are held on trust for particular creditors, or form part of the general estate against which all creditors can claim. Some of these disputes may also focus on whether the crypto-asset should be considered to be property at all.

Regulatory scope disputes: While party-versus-party disputes described above are a very real risk where crypto-assets have dropped in value, there are also possible issues arising concerning the scope of regulation. These include

• Whether a regulatory perimeter applies and whether this provides a legal mechanism for the investor to make a claim against a counterparty or advisor.
• Whether a regulator can provide redress.
• Whether a regulator or government has carried out its duties with regard to a particular asset or activity.

Whether a transaction will give rise to a dispute, and if so what type of dispute, depends on a range of factors including the language used in any contract, the governing law of the relevant obligation, the extent of the loss involved and how each party acts in the face of market movements.

Early engagement can be decisive — particularly where evidence (transaction records, platform logs, oracle feeds and communications) needs to be secured quickly.

As a practical next step, parties should preserve all relevant evidence immediately (contracts/terms, transaction histories, pricing/oracle data and communications) and keep a clear record of any platform outages, restrictions or failed attempts to trade or post collateral. It is also important to check notice provisions, valuation mechanics, cure periods and any short time limits before taking (or responding to) enforcement, close-out or liquidation steps, and to secure wallet and administrative access with tightened controls. Where there is any risk of asset dissipation or imminent liquidation, consider pausing withdrawals internally and instruct specialist counsel early to protect your position and assess urgent remedies.

We advise and act for participants across the crypto-asset ecosystem, including in: (i) urgent injunctions and asset preservation; (ii) high-value contractual disputes and close-out litigation; (iii) insolvency and restructuring (including trust/priority disputes); and (iv) contentious regulatory matters and investigations.

Related items:

• Arbitration, crypto assets, and the courts: adapting dispute resolution for a digital economy
• Litigating the ledger: the future of crypto disputes