The cryptocurrency industry is again overtaken by bankruptcies.
Since March, the fledgling financial services industry, powered by Blockchain technology, thought that it had bankruptcies behind it.
It was also the big winner of the problems of the traditional financial system, marked by the failure of three regional banks - Silicon Valley Bank, Signature Bank in New York and more recently First Republic Bank. Many unknowns remain about the soundness of the traditional banking system.
But an event just reminded the crypto sphere that it is not immune, and that FTX's problems were not isolated. Bittrex, a cryptocurrency exchange, filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court in Wilmington, Del. on Monday.
The Chapter 11 filing only covers the U.S affiliate, which is based in Seattle, Washington. Bittrex Global, which serves customers outside the US, will continue to operate as normal, the company said.
A Lawsuit from the SEC
The exchange believes it has more than 100,000 creditors, with estimated assets ranging between $500 million to $1 billion, according to a court filing.
This announcement is not really a surprise. The U.S subsidiary of Bittrex had warned in March that it would cease its operations in the country at the end of April.
This decision was due, the platform explained, to the "current U.S. regulatory and economic environment." A few weeks earlier, Bittrex had cut most jobs in the United States.
The wind-down in the United States did not prevent the U.S. Securities and Exchange Commission from filing a suit against Bittrex last month, accusing the platform of operating a national securities exchange, broker and clearing agency in violation of federal statutes. The SEC also sued Bill Shihara, the former CEO of Bittrex and Bittrex Global.
The federal regulator alleges that tokens OmiseGo (OMG), Algorand (ALGO), Dash (DASH), TokenCard (TKN), i-House Token (IHT) and Naga (NGC) are securities. In other words, Bittrex should have registered with the SEC and applied specific transparency rules before offering these cryptocurrencies.
SEC Enforcement Director Gurbir Grewal said, at the time, that the lawsuit against Bittrex "should send a message to other non-compliant crypto market intermediaries."
"As laid out in our complaint, Bittrex’s business model was based on three things: circumventing the registration requirements of the federal securities laws; counseling issuers of crypto asset securities to do the same by altering their offering materials; and combining multiple market intermediary functions under one roof to maximize profits," Grewal argued.
Customers Expected to Be Paid in Full
Bittrex Global CEO Oliver Linchsaid said that the company will fight the charges in court.
"For over five years, and despite multiple, specific requests to do so, the SEC would not provide notice of the specific conduct that it thought violated the federal securities laws," Bittrex said last month in a statement. "Specifically, on multiple occasions, we asked them to tell us what digital assets on our platform they viewed as securities, so that we could review and potentially delist them. They refused to do so."
In April, Bittrex told its U.S. customers to withdraw their funds by Apr. 30, when the company shut down its operations, according to its website. For customers who didn’t withdraw by the end of last month, Bittrex said on Apr. 8 that their funds "remain safe and secure” and that its top priority is to ensure that they are made whole.
But the bankruptcy court will now decide how the company’s assets will be distributed.
Customers are expected to be paid in full, court papers show.
In less than a year, the crypto industry has seen a host of big names file for bankruptcy. Besides FTX, platforms Celsius Network, Voyager Digital, Three Arrows Capital and BlockFi went bankrupt in 2022.
It is unclear whether other companies will join them in the crypto cemetery soon.
