Bittrex Obtains Court Approval for $7 Million Bitcoin Loan Amid Bankruptcy Proceedings
Bittrex Navigates Bankruptcy and Regulatory Challenges with Bitcoin Loan Approval
Thu, 11 May 2023, 10:42 am UTC
Facing bankruptcy, digital currency exchange Bittrex Inc. received court approval on Wednesday to secure a $7 million Bitcoin loan to facilitate its Chapter 11 proceedings. The company filed for bankruptcy on Monday, aiming to return customer funds and cease its US operations. While Bittrex's international subsidiaries will continue operating crypto exchanges for clients outside the United States, the company cites the challenging regulatory landscape in the US following the Securities and Exchange Commission's (SEC) lawsuit, which accuses Bittrex of running an unregistered securities exchange.
Prior to filing for bankruptcy, Bittrex ceased accepting new deposits from US customers and advised existing users to transfer their cryptocurrencies off the platform. Bittrex's US clientele constituted only a small fraction of its active user base. Court documents reveal that exchanges located in Liechtenstein and Bermuda accounted for approximately 75% of the company's estimated 5.5 million users.
The bankrupt crypto exchange anticipates that its existing cryptocurrency reserves will be sufficient to fully reimburse all remaining customers. The obtained bankruptcy loan will facilitate a smooth transition while safeguarding client assets, as explained by attorney Susheel Kirpalani during a court hearing in Wilmington, Delaware, on Wednesday.
US Bankruptcy Judge Brendan Shannon granted interim approval for Bittrex to borrow 250 Bitcoin from its parent company, Aquila Holdings, which is not undergoing bankruptcy proceedings. Bittrex aims to obtain permission for an additional 450 Bitcoin loan at a June hearing, with the total proposed loan amounting to $19.7 million based on Bitcoin prices at the time of the bankruptcy filing.
Judge Shannon accepted the use of "novel currency" for the loan, citing its favorable terms compared to other bankruptcy loans. These advantages include a small interest rate of 4% and provisions to account for fluctuations in Bitcoin's price. Bittrex plans to repay the loan in Bitcoin and will not be obligated to pay more than 110% of Bitcoin's present value if additional Bitcoin is required for repayment, according to court records.
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