Bittrex: Regulatory Enforcement And Macroeconomic Headwinds Lead To Another Crypto Bankruptcy – Fin Tech

Bankruptcy filings in the digital asset space continue, as
cryptocurrency exchange Bittrex filed for bankruptcy protection in
the U.S. Bankruptcy Court for the District of Delaware on Monday,
May 8, 2023. The Bankruptcy Docket can be found here. Desolation Holdings LLC and its
affiliated debtors, Bittrex, Inc., Bittrex Malta Holdings Ltd., and
Bittrex Mala Ltd., as debtors and debtors in possession
(“Bittrex US”) filed their chapter 11 petitions alongside
a plan of liquidation. Unlike other exchanges that have sought to
reorganize in fits and starts, Bittrex US heads directly to
liquidation. Activities outside of the US, including Bittrex
Global, shall continue uninterrupted by the filing.

Bittrex US credited negative macroeconomic trends and,
importantly, the lack of regulatory clarity in the US which caused
untenable and overlapping regulatory burdens and soaring regulatory
costs, as key factors in its decision to file bankruptcy and
commence an orderly wind down of its US operations. Bittrex US
further attributes rampant inflation and rising interest rates
starting from 2022, which acutely affected the cryptocurrency
market and lead to significant declines in major cryptocurrencies
and cryptocurrency-focused companies, as a primary cause of its
business decline. It also cited the SEC’s enforcement
activities beginning in 2017 and resulted in the SEC bringing
charges against Bittrex on April 17, 2023 for operating an
unregistered national securities exchange, broker, and clearing
agency. The SEC alleges that 6 crypto assets listed on the Bittrex
platform were securities under U.S. securities laws: OMG, DASH,
ALGO, TKN, NGC, and IHT. The SEC Complaint can be found here.

Of Bittrex US’ top 50 creditors, the largest is the U.S.
Department of Treasury FINCEN and OFAC for $27.5 million owed under
settlement agreements for fines related to its failure to comply
with the Bank Secrecy Act and OFAC regulations. However, similar to
other crypto-exchange bankruptcies, the majority of creditors are
Bittrex US customers. Important to note is that, unlike other
recent cryptocurrency bankruptcies, Bittrex US indicates that it
did not risk, hypothecate, or loan cryptocurrencies needed to meet
its contractual obligations to customers, and the proposed chapter
11 plan contemplates payment in full of the claims of the Bittrex
US customers.

Under its proposed chapter 11 plan, Bittrex US customers
entitled to distributions would receive a 100 percent in-kind
cryptocurrency distribution. A liquidating trust will then receive
the remaining assets of the estate and liquidate them over time for
the benefit of general unsecured creditors, subordinated unsecured
creditors, and equity holders.

Please register for regular updates from Crypto Digest here as well as for updates on matters related
to restructuring and bankruptcy at Restructuring Matters here.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.