Bittrex insolvent after SEC charge

Bittrex filed for insolvency on 8 May, 2023, after the exchange was charged by the US SEC (Securities and Exchange Commission) in April 2023 for allegedly operating as an unregistered securities platform.

All operations ceased in the US on the last day of April. The company disclosed that its worldwide arm, Bittrex Global, which provides services to customers exclusive of the US, would not be affected by bankruptcy protection.

Why did the SEC charge Bittrex? 

Over the past two years, as Bitcoin (BTC) and Ethereum (ETH) neared $70,000 and $5,000, respectively, which made the decentralized finance (DeFi) sector a trillion-dollar economy, the SEC set its sights on many digital assets, labelling several as securities.

On 17 April, the SEC charged Bittrex Inc., Bittrex Global GmbH, and William Shihara, former Chief Executive Officer (CEO) and co-founder, for operating what it called a clearing agency, brokerage, and securities exchange.

The SEC called the Bittrex exchange out because it believes the platform has earned a minimum of $1.3 billion in revenue, including money from US investors.

Gary Gensler, the chair of the SEC, disclosed that the action of the agency shows that the emerging market does not suffer from a lack of regulatory clarity but a lack of regulatory compliance.   

Bittrex Global GmbH CEO says the firm will contest SEC charges

Oliver Linch, CEO of the Bittrex global arm, told Coindesk during a phone interview on 26 April that they never served US customers and will do anything to defend their position.

Like many others in the industry, Linch believes the agency is not showing signs of being interested in providing a clear regulatory framework by which industry stakeholders would abide.

Instead, many agree that it is more interested in regulation by enforcement. The latest act has made many US-based exchanges dissatisfied with the SEC consider quitting the country and moving headquarters to other countries working towards regulation.

Bittrex is not the only aggrieved US-based crypto exchange

Many of the pioneer cryptocurrency companies are based in the US. Coinbase is the country's largest exchange by trading volume, while Ripple is the most recognizable cross-border crypto-backed technology globally. Ripple's native asset XRP is an integral On-Demand Liquidity (ODL) source that settles thousands of transactions daily. Ripple and Coinbase have felt the enforcing rather than the regulatory hand of the SEC.

Brian Armstrong, the CEO of Coinbase, has labelled the SEC as a lone crusader when it comes to its crypto policies, which he flagged as stringent.

While he believes Gary Gensler has changed his position on the sector due to pressure from Wall Street and the US Government, which sees crypto as a threat to the stability of the centralized financial system, Armstrong retweeted a message from pro-crypto Florida governor DeSantis who has launched a 2024 White House Presidential Bid. DeSantis believes policies could be made to disrupt the use of BTC in the next four years, but he would do everything to protect the numerous benefits of cryptocurrency.

In March, Coinbase received a formal warning from the SEC about a possible enforcement action that could be made against the exchange.           

Ripple continues to be embroiled in a case with the SEC. In December 2020, the regulatory body charged representatives of the project for raising more than $1.3 billion via an unregistered, ongoing digital asset securities offering. According to executive Bradley Garlinghouse, there is a huge chance that Ripple could spend around $200 million before its lawsuit with the regulatory agency comes to an end - money that could have been injected into the operational needs of the company looking at the damaging effects of crypto winter over the past year.

Crypto regulation

While the US has failed to lead the world in regulations, the European Union's Markets-In Crypto Asset (MiCA) is scheduled to take effect in 2024.

On 23 May, IOSCO (International Organization of Securities Commission), an organization that regulates the futures and securities market, unveiled what has been described by many news outlets, like Reuters, as the pioneer global approach to bringing some form of regulation to the digital currency and crypto asset market.

IOSCO’s proposed standards cover custody of crypto assets, treatment of retail customers, market manipulation, operational risks, conflicts of interests, and cross-border regulatory cooperation.