Bankruptcy filings in the digital asset space continue, as cryptocurrency exchange Bittrex filed for bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware on Monday, May 8, 2023. The Bankruptcy Docket can be found here. Desolation Holdings LLC and its affiliated debtors, Bittrex, Inc., Bittrex Malta Holdings Ltd., and Bittrex Mala Ltd., as debtors and debtors in possession (“Bittrex US”) filed their chapter 11 petitions alongside a plan of liquidation. Unlike other exchanges that have sought to reorganize in fits and starts, Bittrex US heads directly to liquidation. Activities outside of the US, including Bittrex Global, shall continue uninterrupted by the filing.

Bittrex US credited negative macroeconomic trends and, importantly, the lack of regulatory clarity in the US which caused untenable and overlapping regulatory burdens and soaring regulatory costs, as key factors in its decision to file bankruptcy and commence an orderly wind down of its US operations. Bittrex US further attributes rampant inflation and rising interest rates starting from 2022, which acutely affected the cryptocurrency market and lead to significant declines in major cryptocurrencies and cryptocurrency-focused companies, as a primary cause of its business decline. It also cited the SEC’s enforcement activities beginning in 2017 and resulted in the SEC bringing charges against Bittrex on April 17, 2023 for operating an unregistered national securities exchange, broker, and clearing agency. The SEC alleges that 6 crypto assets listed on the Bittrex platform were securities under U.S. securities laws: OMG, DASH, ALGO, TKN, NGC, and IHT. The SEC Complaint can be found here.

Of Bittrex US’ top 50 creditors, the largest is the U.S. Department of Treasury FINCEN and OFAC for $27.5 million owed under settlement agreements for fines related to its failure to comply with the Bank Secrecy Act and OFAC regulations. However, similar to other crypto-exchange bankruptcies, the majority of creditors are Bittrex US customers. Important to note is that, unlike other recent cryptocurrency bankruptcies, Bittrex US indicates that it did not risk, hypothecate, or loan cryptocurrencies needed to meet its contractual obligations to customers, and the proposed chapter 11 plan contemplates payment in full of the claims of the Bittrex US customers.

Under its proposed chapter 11 plan, Bittrex US customers entitled to distributions would receive a 100 percent in-kind cryptocurrency distribution. A liquidating trust will then receive the remaining assets of the estate and liquidate them over time for the benefit of general unsecured creditors, subordinated unsecured creditors, and equity holders. 

Please register for regular updates from Crypto Digest here as well as for updates on matters related to restructuring and bankruptcy at Restructuring Matters here.

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Photo of Richard J. Lee Richard J. Lee

Richard J. Lee is a partner in the New York office of Crowell & Moring. He focuses on derivatives, finance, and distressed debt and claims trading. Richard is a CFA® charter holder. He has extensive experience advising investors and lenders in a wide…

Richard J. Lee is a partner in the New York office of Crowell & Moring. He focuses on derivatives, finance, and distressed debt and claims trading. Richard is a CFA® charter holder. He has extensive experience advising investors and lenders in a wide range of alternative credit investments and structured financing transactions.

Photo of Frederick (Rick) Hyman Frederick (Rick) Hyman

Restructuring and bankruptcy counsel require a broad and deep skill set to guide their clients through difficult times. Whether representing financial institutions, purchasers of distressed assets, or companies facing challenges, Rick applies his 30 years of experience to help clients chart a path…

Restructuring and bankruptcy counsel require a broad and deep skill set to guide their clients through difficult times. Whether representing financial institutions, purchasers of distressed assets, or companies facing challenges, Rick applies his 30 years of experience to help clients chart a path and maximize their outcome. Rick focuses his practice on the representation of domestic and foreign lenders in connection with in-court and out-of-court workouts and restructurings. He regularly advises agents and lenders in large and middle-market credit facilities in connection with the development of strategies to maximize their recoveries. Rick has extensive experience negotiating forbearance agreements and waivers, amendments, and all other elements of out-of-court restructuring and recapitalization.

Photo of Matthew Repetto Matthew Repetto

Matthew Repetto is an associate in Crowell & Moring’s New York office and a member of the firm’s Corporate Group. Matthew advises public and private companies on a broad range of transactions and general corporate matters, including mergers, acquisitions, entity formation, corporate governance, 

Matthew Repetto is an associate in Crowell & Moring’s New York office and a member of the firm’s Corporate Group. Matthew advises public and private companies on a broad range of transactions and general corporate matters, including mergers, acquisitions, entity formation, corporate governance, joint ventures, private equity, venture capital, and debt financing.

During law school, Matthew was a St. Thomas More Scholar and associate managing editor of the American Bankruptcy Institute Law Review. He participated in the Securities and Exchange Commission’s Student Honors Program and served as a judicial intern to Judge Debra Freeman of the U.S. District Court for the Southern District of New York. Matthew also interned with FINRA’s Department of Enforcement and served as a student advocate in the St. John’s Securities Arbitration Clinic.