The American branch of the Bittrex crypto exchange, which declared bankruptcy over a month ago, is prepared to pay out funds to its customers. The process is set to begin tomorrow (Thursday), driven by a decision from the Delaware bankruptcy court.
Bittrex Customers to Regain Their Funds
In yesterday's (Tuesday) verdict, Judge Brendan Shannon authorized Bittrex US to pay customers who do not have any additional legal claims against the platform.
However, the latest decision does not clarify who is the legal owner of the cash and cryptocurrencies frozen in the accounts of the American branch of the exchange. In addition, it does not explain whether the claims of end customers are more important than the claims of the US government against the exchange. The judge also acknowledged that a clawback may occur in the future.
The controversy surrounding the payouts occurred because the United States believes Bittrex wanted to take a 'shortcut' and settle the matter as quickly as possible. In this way, it was allegedly trying to avoid financial consequences sought by local regulatory bodies.
The Downfall of Bittrex in the US
Bittrex's problems began towards the end of 2022 when the United States began to increase regulatory pressure on companies associated with the cryptocurrency industry. This led the exchange to decide to leave the country in April 2023. The Co-Founder and CEO, Richie Lai, wrote that: "Operating in the US is no longer feasible."
After the company decided to leave, declaring bankruptcy a few days later seemed like the natural next step, according to Bittrex. The bankruptcy application concerned only the American branch, while Bittrex Global continues to operate normally.
— Bittrex (@BittrexExchange) April 17, 2023
Bittrex estimated that due to the bankruptcy in the US, over 100,000 creditors may be seeking their funds, and liabilities range from $500 million to $1 billion. The exchange had $250 million in customer deposits in crypto and $50 million in cash.
Refunds could have started sooner if not for opposition from the United States. The US claimed that before Bittrex returns funds to customers, it must first pay out millions for sanctions violations. Among other things, the exchange is accused of operating an unregistered securities platform.
The United States Tightens Regulatory Loop
Bittrex is just one example of the United States cracking down on the activities of cryptocurrency entities. According to current legislative interpretation, a large portion of them should operate as licensed securities providers.
In February, Kraken's cryptocurrency exchange closed its staking service in the United States after settling with the SEC for $30 million. The reason was a lack of proper authorization to offer these types of products.
The regulators' actions intensified this month, and the US focused on the two largest exchanges. A lawsuit against Binance was filed over a week ago for running an illegal exchange, while one against Coinbase was filed a day later.
The charges against Binance and its CEO, Changpeng Zhao, are severe. Although Binance's American operations were independent on paper, the lawsuit included statements from management admitting that Zhao and Binance ultimately controlled the executive decisions in Binance.US.
Coinbase, also facing an SEC lawsuit, is a public company. Its shares have suffered significantly since the SEC sued the company. In recent trading sessions, the Nasdaq-listed entity (Nasdaq: COIN) lost over 15% of its value. Last week, it tested its lowest levels since January.
This article was written by Damian Chmiel at www.financemagnates.com.
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