Bittrex's lawyer says the Bitcoin loan will enable the crypto exchange to return customers' assets.
A U.S. court has given troubled cryptocurrency exchange Bittrex Inc. permission to borrow $7 million worth of bitcoin (BTC) to fund the start of its Chapter 11 bankruptcy case.
According to a Reuters report, Bankruptcy Judge Brendan Shannon approved the exchange’s request on an interim basis at a Wednesday court hearing in Wilmington, Delaware.
Bittrex to Borrow $7M in BTC for Bankruptcy
Recall that Bittrex Inc. filed for bankruptcy protection on Monday, intending to return customer funds and shut down its American businesses.
While the exchange’s offshore entity, Bittrex Global, based in Liechtenstein, was excluded from the bankruptcy filing, Bittrex Malta Ltd. and Bittrex Malta Holdings were affected.
The bankruptcy filing came a few weeks after the firm, which announced that it was leaving the U.S. in March due to regulatory challenges, received a Wells Notice from the Securities and Exchange Commission (SEC) over alleged violations of investor protection laws and the operation of an unregistered securities exchange.
Before going bankrupt, Bittrex stopped accepting new deposits from U.S. customers and asked existing users to withdraw their crypto assets. Court filings have shown that as of March 27, the exchange’s U.S. customer base constituted a minority of its overall users, while affiliates in Liechtenstein and Bermuda made up roughly 77% of the firm’s 5.4 million clients.
During Wednesday’s hearing, Bittrex attorney Susheel Kirpalani told Judge Shannon that the BTC bankruptcy loan would ensure a seamless wind-down that protects user assets as the company has enough cryptocurrency to handle all customer withdrawals.
Bitcoin Loan Offers Favorable Terms
Shannon allowed Bittrex to borrow 250 BTC from Aquila Holdings, its parent company not affected by the bankruptcy. At a later hearing in June, the exchange will seek permission to borrow an additional 450 BTC, rounding off its proposed loan to $19.7 million, based on bitcoin’s price at the time of the bankruptcy filing.
The bankruptcy judge disclosed that he was persuaded to accept bitcoin for the loan because it offered favorable terms compared to other bankruptcy loans. The BTC loan has a 4% interest rate and built-in protections due to the asset’s price volatility. Bittrex will repay the loan in bitcoin and will not be forced to pay more than 110% of the asset’s current value if a need to obtain more coins to repay the loan arises.
Meanwhile, Shannon approved temporary privacy protections enabling Bittrex to remove customer names from court documents.
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