Earlier this week, the US crypto exchange Bittrex Inc. filed for bankruptcy in Delaware. The filing comes a few weeks after Bittrex Inc. and its co-founder and former CEO William Shihara were charged by the SEC over operating as an unregistered national securities exchange, broker, and clearing agency.
Bittrex Global, the company’s foreign affiliate, was also charged for failing to register as a national securities exchange.
Bittrex Inc. announced it was shutting down its US operations in April. However, the decision has now been taken to file for bankruptcy.
Richie Lai, who co-founded the exchange nine years ago and was CEO, said: “Nine years later, the crypto ecosystem is very different. Regulatory requirements are often unclear and enforced without appropriate discussion or input, resulting in an uneven competitive landscape.”
Still, the company announced that the bankruptcy wouldn’t affect Bittrex Global, which will continue serving customers outside the US.
Soaring regulatory costs
In the bankruptcy filing, Bittrex says that “the lack of regulatory clarity in the US 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, Bittrex faced an “untenable regulatory and economic environment that compelled them to initiate a restructuring process and an orderly wind down of their US operations”.
According to a court filing, which was shared by Randall Reese of Chapter 11 Dockets, a bankruptcy tracker, Bittrex listed more than $500m in assets and liabilities, to more than 100,000 creditors.
Nonetheless, Bittrex has ensured that its customers will receive a “100 percent like-kind cryptocurrency distribution”, where customers would be entitled access to the Bittrex platform to withdraw their cryptocurrencies.
1.2 million affected customers
By March 27, 2023, Bittrex Inc. had over 600,000 active users, both retail and institutional in 46 states, and a total of 1.2 million customers.
Collectively, including Bittrex Global and Bittrex Bermuda, Bittrex held a total of 1.5 million active users, and over 5.4 million customers were using the services.
According to the bankruptcy filing, Bittrex Inc. had an annual revenue of:
- 2017 – $663m
- 2018 – $439m
- 2019 – $41m
- 2020 – $9m
- 2021 – $36m
- 2022 – $17m
“Today’s action, yet again, makes plain that the crypto markets suffer from a lack of regulatory compliance, not a lack of regulatory clarity.”
Gary Gensler, SEC Chair
SEC charges
According to the SEC’s charges from April 17, 2023, Bittrex earned at least $1.3bn in revenue from 2017 through 2022, without registering any of its activities with the SEC. Bittrex and Shihara also allegedly coordinated with crypto issuers to delete certain “problematic statements” from public channels, statements that Shihara believed would attract regulators to investigate them for offering securities. That included “price prediction[s],” “expectation of profit,” and other “investment related terms.”
“Today’s action, yet again, makes plain that the crypto markets suffer from a lack of regulatory compliance, not a lack of regulatory clarity,” said SEC Chair Gary Gensler. “As alleged in our complaint, Bittrex and issuers that it worked with knew the rules that applied to them but went to great lengths to evade them by directing issuer-applicants to ‘scrub‘ offering materials of information indicating that certain crypto assets were securities.”
“We believe that, had we been afforded the usual opportunity to have a proper dialogue with the SEC, these proceedings could have been avoided.”
Oliver Linch, CEO Bittrex Global
The complaint also alleged that both Bittrex Inc. and Bittrex Global should have registered as an exchange because of their trading activities, including using a shared order book. And that Bittrex Inc should have registered as a clearing agency of its intermediary activities between payments and delivery, plus registered as a broker for engaging in crypto assets that were sold as securities.
The securities involved OMG, DASH, ALGO, TKN, NGC, and IHT. However, those allegations were denied in a statement, with Bittrex saying that no securities were offered or traded on Bittrex, and no products were offered as investment contracts.
Bittrex Global also stated that: “The SEC has initiated these proceedings despite the fact that Bittrex Global has no US customers, has never held itself out as doing business in the US or with US persons, and has taken pains to disclose to US persons that they are not permitted to use its exchange. Bittrex US [Bittrex Inc.] – which operated in the US until it announced in March 2023 that it was winding down operations citing regulatory uncertainty – was and is legally and operationally distinct from Bittrex Global.“
SEC criticism
Lately, the SEC has faced some criticism over not working with crypto companies. Coinbase has complained that: “We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead.”
Coinbase, which met the SEC more than 30 times over nine months, said: “We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so.”
Oliver Linch, CEO Bittrex Global, also voiced his disappointment in the lack of communication with the Commission, saying: “It is a great shame that the SEC has decided to do away with its usual processes, which have been developed over many years to ensure that proceedings are fair, accurate and transparent.” Linch also added that Bittrex is one of the “the longest-standing and most compliant exchanges in the world”.
“We believe that, had we been afforded the usual opportunity to have a proper dialogue with the SEC, these proceedings could have been avoided. Bittrex Global will instead have to explain and defend ourselves in court. We plan to vigorously defend ourselves from the SEC’s allegations.”