What are the multiple factors behind Bittrex US's bankruptcy application aside from the SEC's hefty fines?
Bittrex Global's business has not been affected; only its U.S. subsidiary filed for bankruptcy after being charged by the U.S. Securities and Exchange Commission (SEC).Author: Nancy, PANews
Amidst the turbulent cryptocurrency market, the cryptocurrency exchange Bittrex, established in 2015, announced its bankruptcy filing in Delaware, USA on May 9, triggering panic and speculation in the market. Many investors are puzzled as to why this well-known exchange, on par with Bitfinex, would suddenly go bankrupt. In fact, Bittrex Global's operations were not affected; it was only the U.S. subsidiary that filed for bankruptcy after being charged by the U.S. Securities and Exchange Commission (SEC).
U.S. Subsidiary Files for Bankruptcy, Business Shut Down After SEC Charges
In early April this year, Bittrex announced that it would shut down its U.S. platform on April 30 after nine years of operation. In response, Bittrex co-founder and CEO Ritchie Lai stated in a statement that continuing operations was not economically feasible under the current U.S. regulatory and economic environment. Regulatory requirements are often unclear and enforced without proper discussion, leading to an uneven competitive landscape. Therefore, operating in the U.S. has become unviable, but they emphasized that all customer funds are safe and withdrawals are possible. Meanwhile, Bittrex Global, operating in regions such as Europe, Canada, and South America, remains unaffected and will continue to facilitate trading.
However, the proactive exit of Bittrex did not spare it from enforcement actions by U.S. regulators. In mid-April, the SEC's official website revealed that Bittrex and its former CEO Bill Shihara received a "Wells Notice" from the agency, which is a legal notice indicating that the SEC intends to bring a civil enforcement action against them for allegedly violating investor protection laws.
In fact, according to Bittrex's General Counsel David Maria, the SEC's enforcement division had informed Bittrex of potential actions as early as March this year. The Wells Notice issued to Bittrex stated that from 2017 to 2022, Bittrex violated regulatory requirements while generating at least $1.3 billion in revenue. Bittrex operated as an exchange, broker-dealer, and securities trading platform without registering with the regulatory agency, which is against the law.
Weeks after being sued by the SEC, Bittrex announced the bankruptcy of its U.S. subsidiary, stating that customers outside the U.S. would not be affected, but the company still faces SEC enforcement actions. In an interview with Coindesk, Bittrex Global CEO Oliver Linch stated that the company does not provide services to U.S. customers and will contest the SEC's allegations, saying, "We have not really seen an explanation of the SEC's thinking on why this is important, and we believe their legal and factual reasoning is incorrect." Furthermore, Linch mentioned that Bittrex Global was unaware it was under SEC investigation until receiving a notice that the agency had "reached preliminary conclusions," and the regulatory body did not give the company an opportunity to "explain the facts."
According to a court document provided by bankruptcy tracking agency Chapter 11 Dockets, Bittrex has over 100,000 creditors, with estimated liabilities and assets between $500 million and $1 billion. Related entities Desolation Holdings LLC, Bittrex Malta Holdings Ltd., and Bittrex Malta Ltd. have entered bankruptcy proceedings.
Multiple Factors Leading to Bittrex's Closure
The regulatory storm sweeping across the U.S. has changed the survival environment for cryptocurrency institutions, making it difficult for these businesses to thrive. Before Bittrex, exchanges such as Coinbase, Binance, and Kraken had also become targets of U.S. regulatory enforcement, with many institutions even having to pay hefty fines to resolve regulatory crises.
It can be said that under the regulatory storm sweeping the U.S., the survival space for cryptocurrency institutions has been continuously squeezed. Facing such a development environment, Bittrex has not had an easy time.
As one of the oldest and largest exchanges in U.S. history, Bittrex's market share in the U.S. was nearly 23% in early 2018, but it fell below 1% in 2021 and has not recovered since. According to CoinGecko data, Bittrex's trading volume in the past 24 hours was only $8.296 million, ranking 51st, while Coinbase's trading volume reached $1.16 billion.
Looking back at its development over the past few years, Bittrex has faced numerous challenges.
In 2019, the NYDFS (New York Department of Financial Services) rejected Bittrex's application for a Bitcoin license and ordered it to cease operations in New York, halting its expansion plans in the U.S.;
In October 2022, due to its failure to prevent customers from sanctioned countries such as Iran and Cuba from using its platform, Bittrex faced two enforcement actions from the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN), resulting in fines of $24 million and $29 million, respectively. This was the largest virtual currency enforcement action by OFAC to date and the first time FinCEN and OFAC took parallel enforcement actions in this field;
In February this year, Bittrex laid off nearly one-third of its employees, with co-founder Richie Lai stating in an email to staff that "the market downturn triggered by multiple failures in the crypto ecosystem has turned into a complete collapse by the end of the year, leading us to reevaluate our strategy." Just two months later, Bittrex announced the closure of its U.S. operations and faced SEC charges.
Given the hefty fines, shrinking market share, and regulatory uncertainties, Bittrex's exit from the U.S. market may not be surprising.
