In a surprising turn of events, the American cryptocurrency exchange Bittrex has filed for Chapter 11 bankruptcy, citing more than 100,000 creditors. Both estimated liabilities and assets are within the range of $500 million to $1 billion. This development comes just a few weeks after the U.S. Securities and Exchange Commission (SEC) charged Bittrex for its alleged failure to comply with securities law by not registering with the financial watchdog.
According to the SEC’s criminal complaint, the exchange did not register as a broker-dealer, exchange, or clearing agency. As a result, it is believed to have accumulated at least $1.3 billion in illicit revenue between 2017 and 2022. In March, Bittrex announced it would cease operations in the US, with its CEO Richie Lai attributing this decision to the “current U.S. regulatory and economic environment.” Despite the uncertainty, the exchange reassured its US customers that their funds would remain secure.
Founded in 2013, Bittrex is a relatively small Seattle-based company with a 24-hour trading volume of just over $5 million. It currently ranks as the 82nd largest digital asset exchange according to CoinGecko. However, its bankruptcy filing occurs amidst a broader landscape of regulatory crackdown on the crypto industry. The SEC has been aggressively pursuing American crypto companies with fines, targeting prominent brands accused of selling unregistered securities.
Although the SEC has not explicitly defined any digital asset as a security, it relies on the Howey test to make this determination. SEC Chairman Gary Gensler asserts that most digital assets are securities, with the exception of Bitcoin, the largest by market cap.
The ongoing assault on crypto companies from regulators has intensified since the collapse of the major digital asset exchange FTX in November. It is worth noting that Bittrex agreed to pay $29 million last year to settle enforcement cases with US authorities. These cases involved apparent violations of sanctions against countries like Iran, Cuba, and Syria.
This bankruptcy news raises critical questions regarding the future of cryptocurrency exchanges and their ability to navigate the increasingly complex regulatory landscape. While some argue that stringent regulation is necessary to protect investors and ensure market stability, others contend that it stifles innovation and limits market growth. As the debate continues, the fate of Bittrex and other similarly situated exchanges hangs in the balance. The ultimate outcome will undoubtedly reshape the crypto industry moving forward.