The US authorities have denied Bittrex US’s request to allow client withdrawals of their cryptocurrency holdings as the exchange’s bankruptcy case proceeds.
The bankrupt cryptocurrency exchange Bittrex US requested permission from the US authorities to release user funds, but this request was rejected. The government has opposed the request and scheduled a hearing for June 14 in response to Bittrex US’s intention to allow client withdrawals of crypto assets.
The government claims that Bittrex’s proposal is premature and unjustly prioritizes creditors outside of a plan that has been approved. Bittrex US presently owes the Financial Crimes Enforcement Network (FinCEN) $5 million, which has an impact on this claim.
In its initial move, Bittrex US suggested classifying creditors according to how important they are for repayment. The government rejects the need for such classification, arguing that concerns concerning digital asset ownership should be settled before the plan is approved.
The government argues that it is improper to divide creditors into subordinate groups before the confirmation hearing. As a result, it stresses that the topics in concern should be discussed after a strategy has been established and confirmed.
The legal team for the government continues, “Whether users possess in rem interests in or claims against the debtors is not a question that requires determination at this time. Customers may currently be able to withdraw their crypto assets, but they should be prepared for potential avoidance measures upon confirmation if not all creditors are fully compensated.
Following SEC allegations of running an unregistered securities exchange, Bittrex US filed for bankruptcy. The current developments highlight the intricacy of bankruptcy proceedings involving cryptocurrency and might set precedents for similar situations in the future.