Preference (Section 547)

A preference under Section 547 of the US Bankruptcy Code is a transfer a debtor made to a creditor within 90 days before its bankruptcy filing, or within one year for insiders, which the bankruptcy trustee can claw back so that all creditors share losses evenly rather than rewarding whoever exited first.

Why it matters

Crypto customers met this statute the hard way. Users who withdrew from Celsius or FTX in the final weeks before those platforms filed in 2022 later received demands to return the funds, sometimes years afterward, because a withdrawal from an insolvent platform can be a preferential transfer even though the customer did nothing wrong. Defenses exist, including transfers made in the ordinary course of business, but they turn on facts and litigation.

The doctrine's reach depends on ownership: clawback logic applies to transfers of the debtor's property, which is why the legal characterization of customer assets, property of the customer or claim against the platform, matters so much.

In the gold vs bitcoin debate

Preference risk exists only where assets sit with intermediaries. Coins moved to self-custody long before any trouble, or bars stored in one's own name, are outside the 90-day window by definition. The practical moral both communities draw is identical: withdrawing early is not just prudent risk management, it is legally cleaner than withdrawing late.