Bittrex approved to borrow $7 million bankruptcy loans in bitcoin
By Dietrich Knauth
(Reuters) – Bankrupt cryptocurrency exchange Bittrex Inc received court permission on Wednesday to borrow $7 million in bitcoin to finance the start of its Chapter 11 case.
Seattle-based Bittrex filed for bankruptcy on Monday, saying it intended to return customer funds and wind down its US operations. The company’s international affiliates will continue to operate crypto exchanges for customers outside the US, but Bittrex said the US regulatory environment had become unsustainable after the SEC sued the company for allegedly operating an unregistered securities exchange.
Before filing for bankruptcy, Bittrex stopped accepting new deposits from US customers and asked its existing users to withdraw crypto from the platform.
Bittrex’s US operations made up a minority of its total users. Affiliated exchanges based in Liechtenstein and Bermuda accounted for about 77% of the company’s 5.4 million users as of March 27, according to court filings.
Bittrex believes it has enough cryptocurrency to repay all remaining customers in full, and the bankruptcy loan will ensure a smooth liquidation that protects customers’ assets, attorney Susheel Kirpalani told U.S. Bankruptcy Judge Brendan Shannon during a Wednesday court hearing in Wilmington, Delaware.
Shannon approved the loan on a temporary basis, allowing Bittrex to borrow 250 bitcoin from parent company Aquila Holdings, which is not filing for bankruptcy. Bittrex will seek permission to borrow an additional 450 bitcoins at a hearing in June, and the total value of the proposed loan is $19.7 million, based on bitcoin prices when it filed for bankruptcy.
Shannon said he was persuaded to accept a “new currency” for the loan because it offered favorable terms compared to other bankruptcy loans, including a relatively low 4% interest rate and built-in protections related to bitcoin’s price volatility. Bittrex intends to repay the loan in bitcoin, and it will not be forced to pay more than 110% of bitcoin’s current value if it is later forced to acquire more bitcoin to repay the loan, according to court documents.
Shannon also approved temporary privacy protections that allow Bittrex to remove customer names from court documents. Bittrex attorney Patricia Tomasco pointed out that one major account holder has more than $14 million in crypto still on Bittrex’s platform, and said that revealing the customer’s name would expose them to a barrage of phishing emails.
“That’s a pretty hefty prize for low-tech skullduggery,” Tomasco said.
Shannon said he will revisit the privacy issue at a later hearing.
The case is Bittrex Inc, US Bankruptcy Court for the District of Delaware, No. 23-10598.
For Bittrex: Susheel Kirpalani and Patricia Tomasco of Quinn Emanuel Urquhart & Sullivan
Read more:
Crypto exchange Bittrex files for bankruptcy after SEC complaint
US SEC charges Bittrex with operating unregistered securities exchange
(Reporting by Dietrich Knauth)
