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Bittrex’s efforts to return funds to customers have encountered a significant obstacle from the United States, raising concerns regarding the proposed resolution for the cryptocurrency exchange’s bankruptcy proceedings.
The company sought Chapter 11 bankruptcy protection in Delaware in May, shortly after the US Securities and Exchange Commission (SEC) accused it of running an unregistered exchange. Two additional entities – Bittrex Malta Ltd. and Bittrex Malta Holdings Ltd. – also sought bankruptcy protection in the US Bankruptcy Court for the District of Delaware.
The firm’s cryptocurrency division faces allegations of breaching federal regulations, including the Bank Secrecy Act, and engaging in business with foreign nationals from sanctioned countries.
US Government’s Grounds for Objection
The US government’s objection to Bittrex’s proposal aimed at compensating customers represents another significant setback and is viewed as a coordinated effort to undermine the industry without genuinely safeguarding investors.
Historically, the state has been known to reject cryptocurrency bankruptcy proposals. Due to government intervention, Binance.US withdrew from a $1 billion deal to acquire assets from the bankrupt crypto lender Voyager Digital, citing an “uncertain regulatory climate.”
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The government’s court filing on Wednesday indicated,
“The Debtors have not demonstrated why the issues of ownership of cryptocurrency assets need to be determined before the confirmation of the Plan. Finally, siloing creditors into subordinated classes outside of the confirmation hearing is improper. For these reasons, which are discussed more fully below, the Motion must be denied.”
Elaborating on the basis for the objection, the government’s court filing noted:
- The critical vendor standard does not justify the relief requested;
- It is premature;
- It improperly seeks to subordinate creditors outside of a plan
Bittrex’s Difficult Conclusion in the United States
Bittrex was previously one of the largest exchanges in the US. Before entering bankruptcy, the exchange announced its intention to exit the country, attributing its decision to the unfavorable regulatory landscape.
The company’s assets and liabilities are each estimated to be valued between $500 million and $1 billion, according to a prior court filing that also highlighted the presence of over 100,000 creditors.
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