- Bittrex has kicked off bankruptcy proceedings.
- The crypto exchange’s funding source for legal fees has recently been revealed.
- Bittrex plans to receive the funding in two tranches.
After a challenging year that saw it lay off over 80 employees in February, Bittrex’s United States arm filed for bankruptcy in federal court in Delaware on Monday, May 8.
Bittrex’s decision to file for bankruptcy came weeks after receiving a lawsuit from the U.S. Securities and Exchange Commission for allegedly violating investor protections law by failing to register as a securities exchange, even despite the firm’s intentions to shut down its business at the end of April.
While many have sympathized with the business following its Chapter 11 filing, some questioned Bittrex’s decision to take on legal fees from bankruptcy proceedings. Reports reveal that the firm plans to cover these legal fees with Bitcoin loans.
Bittrex to Receive 700 BTC to Fund Legal Fees
Bittrex plans to bankroll its bankruptcy case with Bitcoin loans from its parent company Aquila Holdings, as reported by Reuters on Wednesday, May 10.
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The firm is expected to receive 700 BTC, worth about $19.2 million at the time of writing to cover the start of legal proceedings and a hearing in June. Bittrex plans to receive the loan in two tranches of 250 BTC and 450 BTC, respectively.
The court has already granted the crypto exchange permission to take the first loan of 250 BTC worth approximately $6.86 million at current rates.
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U.S. Bankruptcy Judge Brendan Shannon underlined that Bitcoin’s low interest rate and volatility protections played a key role in his decision to permit the loan. Bittrex reportedly plans to repay the loan in Bitcoin.
The crypto exchange has assured customers that deposits are intact and enabling withdrawals would be prioritized during bankruptcy.
As several sad reactions have trailed Bittrex’s bankruptcy decision, many have questioned U.S. crypto regulations and its role in the exchange’s collapse.
“An Untenable Regulatory and Economic Environment”
Bittrex notably tipped difficult regulatory and economic conditions for its decision to leave the U.S. and file for bankruptcy.
“The lack of regulatory clarity in the U.S. created a substantial negative economic impact on the digital asset industry and resulted in overlapping regulatory burdens and soaring regulatory costs on both the state and federal level.
As a result, the Debtors faced an untenable regulatory and economic environment that compelled them to initiate a restructuring process and an orderly wind-down of their U.S. operations,” Bittrex Chief Restructuring Officer Evan Engel asserted in the firm’s filing.
Court documents show that Bittrex’s #1 creditor is the U.S. Treasury Department’s Office of Foreign Asset Control.
In October 2022, the crypto exchange entered a $24.3 million settlement agreement with OFAC for allegedly violating U.S. sanctions against Iran, Sudan, Syria, Cuba, and the Russian-occupied Crimea region of Ukraine.
On the Flipside
- Bittrex’s global arm is unaffected by the bankruptcy.
- It remains to be seen how and when customers can withdraw their deposits on the bankrupt exchange.
Why You Should Care
Bittrex’s ability to secure a loan for its legal fees suggests that it is unlikely to touch customer deposits during the bankruptcy process.
Read this to learn more about the Bittrex case:
Bittrex Bankrupt: SEC Claims Another U.S. Crypto Victim
The U.S. Congress appears to be making significant strides towards a consensus on crypto, but not all are on board with this plan:
Rep Sherman Likens Crypto to Cocaine Production Ahead of Joint Congress Hearing
