If Your Exchange Goes Bust: A Canadian Guide to Recovering Bitcoin After Exchange Insolvency

When a cryptocurrency exchange becomes insolvent or suddenly halts withdrawals, holders of Bitcoin can feel helpless. Lessons from recent international failures show that coins kept on exchanges can be difficult to recover, and outcomes vary widely depending on the insolvency process, local law, and how the exchange managed customer assets. This guide gives Canadian and international Bitcoin holders a practical, step-by-step playbook for what to do immediately, how to prepare documentation, and how to improve your chances of recovery while protecting future holdings with self-custody best practices.

Why Exchange Insolvencies Matter for Bitcoin Holders

Unlike bank deposits, crypto balances on exchanges are typically not insured by deposit insurance schemes. In Canada, federal deposit insurance such as CDIC covers eligible bank products but generally does not cover crypto exchange balances. When an exchange becomes insolvent, customer assets may be commingled, pledged to creditors, or otherwise unavailable. Understanding how insolvency works and acting fast can materially change your chances of recovering your Bitcoin.

Immediate First Steps (What to do in the first 24-72 hours)

Time and evidence matter. Even if withdrawals are suspended, you should quickly gather everything that proves your ownership and transaction history.

• Export and save all account statements, trade history, and withdrawal/deposit records from the exchange dashboard. Screenshots plus exported CSVs are ideal.
• Download KYC and verification records you submitted (IDs, proofs of address) or take screenshots—these will be useful when dealing with trustees or regulators.
• Take dated screenshots of any on-site notices about suspensions, maintenance, or insolvency. Note timestamps and copy the exact text.
• If you moved coins to or from the exchange recently, record transaction IDs, addresses, and confirmations from the blockchain explorer. These prove on-chain ownership and flows.
• Do not delete communications from the exchange, email receipts, or support tickets—preserve them in multiple locations (local encrypted drive, printed hard copy).

If Withdrawals Are Still Available: Withdraw to Self-Custody Immediately

If the exchange is still accepting withdrawals, prioritize moving your Bitcoin to a hardware or air-gapped cold wallet under your control. Delays can mean losing the window to withdraw.

Practical withdrawal checklist

• Use a hardware wallet (Ledger, Trezor, or equivalent) with a fresh firmware update and a new receiving address.
• Avoid sending small test amounts only if the exchange enforces dust limits or high fees. A small test then a full withdrawal is the safest pattern when time allows.
• If the exchange supports PSBT or non-custodial signing workflows, follow that secure path. Otherwise, use standard on-chain transfers to your cold wallet address.
• Record the destination address, txid, and confirmations immediately in your records and a secure backup location.

If Withdrawals Are Frozen or the Exchange Is Insolvent

When an exchange announces insolvency, the route to recovery moves into legal and administrative channels. Acting methodically and documenting everything is essential.

1. Identify the insolvency process and appointed professionals

Find the official insolvency filing or notice. In Canada that might be under the Bankruptcy and Insolvency Act or a court-supervised restructuring. Look for the name of the appointed trustee, monitor, or receiver. Contact details for the appointed firm are the gateway to the formal claim process.

2. File a proof of claim

Most insolvency processes require customers to file a proof of claim to assert their creditor status. Prepare a clear submission that includes:

• Account statements and export files from the exchange showing your Bitcoin balance.
• KYC documents and correspondence linking you to the account.
• Transaction IDs and on-chain evidence of deposits and withdrawals.
• Any contract terms, user agreements, or account notifications that describe custody arrangements.

3. Cooperate with the trustee but retain records

Answer reasonable requests from the trustee and provide copies of your records. However, keep originals or verified copies and do not hand over private keys, seed phrases, or non-public crypto keys to anyone. Legitimate trustees will never require you to disclose private keys to validate ownership.

4. Understand creditor categories

Insolvency law often distinguishes between secured creditors, unsecured creditors, and customers with segregated assets. If the exchange maintained true customer segregation, your claim may be treated differently. Documentation is the evidence judges and trustees use to sort claims.

On-Chain Evidence: How to Use the Blockchain to Support Your Claim

Bitcoin’s public ledger can be powerful proof. If you can show coins were deposited into an exchange address you controlled or that coin flows match your account statements, this strengthens a claim.

• Collect txids for each deposit and withdrawal. Export the raw transaction or take screenshots from a reliable blockchain explorer.
• If you previously withdrew coins from the exchange, those txids show you had control of the coins prior to insolvency and may help in tracing.
• If coins appear to be moved on-chain by the insolvent exchange, record the destination addresses—tracing firms or the trustee might follow them.

Working with Regulators and Canadian Authorities

In Canada, exchanges operating as money services businesses should be registered with FINTRAC, and securities regulators can be involved where a platform dealt in securities. If you suspect wrongdoing or mismanagement, file complaints with provincial securities commissions or FINTRAC where appropriate. Regulators can be slow, but their involvement can support recovery and shape broader legal remedies.

When to Seek Legal Advice or Professional Tracing

If your claim involves significant value, or if the trustee disputes your documentation, consult a lawyer experienced in insolvency and crypto. Specialized asset-tracing firms can analyze on-chain flows and sometimes identify recoverable funds. These steps are costly, so weigh the potential recovery against fees.

Common Outcomes and What to Expect

Outcomes vary. Some insolvency processes return a portion of assets to customers after recovery and legal costs. In other cases, customers are classified as unsecured creditors and receive pro rata distributions that may be significantly less than their balances. Where assets were misappropriated, recovery can be prolonged and uncertain. Having clear documentation increases the chance you will be included in any distribution.

Tax Considerations for Canadians

If you eventually recover some or all funds, tax implications depend on whether you realized gains or losses. If the insolvency leads to an irrecoverable loss, you may be able to claim capital losses. Keep careful records of claims, distributions, and receipts; your tax professional can advise on the correct reporting with the Canada Revenue Agency (CRA).

How to Reduce Future Risk: Self-Custody Best Practices

The most reliable way to avoid exchange insolvency risk is to hold your Bitcoin in self-custody. Here are practical steps to improve long-term safety:

• Use a hardware wallet and practice restoring from the seed phrase periodically in a secure environment.
• Consider a multi-sig setup for larger holdings to distribute trust among devices, family members, or professional co-signers.
• Use steel seed backups and geographic redundancy to hedge against fire, theft, and natural disaster.
• Keep only the amount you actively trade on exchanges; treat exchanges as counterparty warehousing, not long-term storage.
• Document your ownership and recovery plan in a secure, legal-friendly way so trustees or executors can act if needed.

A Practical Checklist to Keep Handy

• Export and back up exchange statements and trade histories regularly.
• Record deposit/withdrawal txids and addresses in a secure vault.
• Keep KYC documents linked to exchange accounts in a secure folder.
• Define a withdrawal strategy and threshold to move funds to cold storage.
• Prepare a legal contact and insolvency lawyer if holdings exceed a threshold where recovery action is worth the cost.

Realistic Expectations and Final Thoughts

Recovering Bitcoin from an insolvent exchange can be slow, bureaucratic, and sometimes unsuccessful. That reality underscores a central Bitcoin lesson: custody matters. For Canadians and international users alike, combining careful documentation, fast action, and robust self-custody will minimize exposure to exchange failures. If you are affected, preserve evidence, file a formal claim promptly, and seek professional advice when appropriate. Whether you ultimately recover funds or not, treating exchanges as temporary custodians and controlling your private keys will keep your Bitcoin safer in the long run.

Pro tip: Regularly practice withdrawals to your hardware wallet and run a quarterly audit of balances and records. When trouble hits, the time you spent preparing will be the difference between clarity and chaos.

If you want, I can provide a printable checklist you can store with your records, or walk you through step-by-step how to withdraw safely to a hardware wallet in Canada. Just tell me what hardware wallet you plan to use and how comfortable you are with seed backups.