Crypto Crunch: Bittrex Bites the Dust
The cryptocurrency industry is once again grappling with bankruptcy issues. On May 8th, the crypto exchange platform, Bittrex, filed for Chapter 11 bankruptcy protection in Delaware, United States. This move follows a lawsuit filed by the Securities and Exchange Commission (SEC) against Bittrex on April 17th. The agency, led by Gary Gensler, accused Bittrex of violating regulatory rules from 2017 to 2022, resulting in revenue losses of at least USD 1.3 billion.
Several companies in the crypto industry have gone bankrupt over the past year due to the drop in asset prices and tighter regulatory oversight. Bittrex now joins the ranks of FTX and several lenders such as Celsius, Voyager, and BlockFi.
The crypto industry highlights a number of US government policies that are seen as overly restrictive. The bankruptcy of many crypto companies comes at a time when the industry is facing pressure from regulators, including the SEC, which imposes fines on crypto companies that are considered securities or unregistered.
Bittrex Bankruptcy
Bittrex is facing an SEC lawsuit alleging that former Bittrex CEO, William Shihara, ran an unregistered securities exchange and violated security laws. Bittrex has denied the SEC’s allegations, stating that the crypto assets on its platform are not securities or investment contracts.
According to Investopedia, the lawsuit came after the United States Department of the Treasury fined Bittrex USD 53 million for money laundering violations. Bittrex listed the Department of the Treasury in its bankruptcy application as the company’s largest creditor, with a total of USD 24 million.
The SEC not only accused Bittrex of not registering legally, but also of gaining profit from selling unregistered securities. Bittrex had offered more than 300 digital assets to investors, some of which the SEC considers to be unregistered securities.
In its lawsuit documents, the SEC specifically named six tokens as unregistered securities, including OmiseGo (OMG), Algorand (ALGO), Dash (DASH), Monolith (TKN), Naga (NGC), and Real Estate Protocol (IHT). However, none of the six token issuers were listed as defendants in the SEC’s lawsuit against Bittrex. The SEC also did not file a separate lawsuit against the six. Additionally, two other subsidiary companies, Bittrex Malta Ltd. and Bittrex Malta Holdings Ltd., have also filed for bankruptcy protection in court.
Although the SEC lawsuit is still ongoing, Bittrex had previously agreed to pay a USD 29 million fine to the United States Department of the Treasury for “apparent violations” of sanctions and anti-money laundering laws.
According to court filings, the bankrupt crypto exchange has over 100,000 creditors, with the largest depositor holding assets worth USD 14.6 million, and assets and liabilities of around USD 500 million to USD 1 billion. In documents filed in Delaware court, Evan Hengel, Bittrex’s Co-Chief Restructuring Officer, requested that the court reopen customer accounts so that crypto can be returned to their rightful owners.
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Before declaring bankruptcy, Bittrex’s US branch was already going through difficult times and had to lay off 80 people last February. By the next month, they had predicted that bankruptcy would be too difficult to avoid. And the failure of three conventional banks — Silicon Valley Bank, Signature Bank, and the most recent, First Republic Bank — only accelerated Bittrex’s bankruptcy process.
Obtaining Loan Funds
In the Bittrex bankruptcy filing, the Office of Foreign Assets Control (OFAC) was listed as the largest creditor with a claim worth USD 24.2 million, followed by a crypto wallet with a claim worth USD 14.5 million. OFAC is a division under the United States Department of the Treasury that enforces economic sanctions.
Meanwhile, the Financial Crimes Enforcement Network (FinCEN), a department of the United States Department of the Treasury that prevents financial crime by monitoring financial activities, was also listed as one of the top 50 creditors with a claim of USD 3.5 million.
Bittrex will be allowed to borrow 250 BTC from its parent company, Aquila Holdings, which is currently worth USD 7 million. They also plan to request an additional loan of 450 BTC in the June hearing, which could bring the total loan value to USD 19 million if the Bitcoin price remains stable.
The approval of Bittrex’s debt application is not without reason. Bittrex’s lawyer, Susheel Kirpalani, emphasized during the court hearing that the bankruptcy loan would ensure a gradual cessation of the company while protecting customer assets. Furthermore, the terms given by the lender are more favorable than for other types of loans. Aquila Holdings will provide a relatively low-interest rate, reaching 4 percent, and inherent protection related to Bitcoin price volatility.
Then, because the loan facility proposed is in the form of digital currency, the company also intends to repay it in the same form. However, the court apparently decided that Bittrex would not be obligated to pay more than 110 percent of the current Bitcoin value if an additional BTC needs to be acquired for payment.
Bittrex’s bankruptcy marks the latest victim in the cryptocurrency industry as companies struggle with declining asset prices and tighter regulatory oversight. This industry is also facing criticism over government policies deemed too restrictive, as seen in the recent SEC lawsuit against Bittrex. As the crypto sector continues to navigate these challenges, Bittrex’s bankruptcy filing serves as a reminder of the risks and uncertainties in this rapidly developing industry.
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