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Bittrex Faces SEC Scrutiny as U.S. Crypto Exchange Crackdown Continues

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Bittrex Faces SEC Scrutiny as U.S. Crypto Exchange Crackdown Continues

Seattle-based cryptocurrency exchange company Bittrex Inc. is set to exit the United States amid regulatory pressure and legal challenges.

The US Securities and Exchange Commission (SEC) has reportedly informed the exchange of potential legal action against it, stating that Bittrex violated investor-protection laws. The SEC has been investigating Bittrex since 2017, issuing several subpoenas to gain insight into its decision-making process and revenue streams. SEC Chair Gary Gensler has been pushing for exchanges to register with the agency to comply with investor-protection regulations.

Many cryptocurrency exchanges, including Bittrex, have resisted these calls, arguing that the digital assets they list are not securities.

Regulatory Pressure and Industry Offshoring

Bittrex had already decided to wind down its US operations before receiving the notice from the SEC. The SEC’s aggressive stance towards the crypto industry is likely to drive other exchanges offshore. The recent enforcement actions against Coinbase Global Inc. and Kraken indicate the SEC’s increased scrutiny of crypto exchanges, targeting them rather than the digital coins they list.

Bittrex’s Rocky History and Legal Troubles

Bittrex has had a tumultuous history, paying a $29m fine in 2021 for early failure to comply with anti-money laundering and sanctions laws. The Treasury Department’s bureau found that Bittrex had an insufficient program for monitoring suspicious transactions, including those in Iran and Syria, between 2014 and 2018.

Bittrex's Rocky History and Legal Troubles

Founded in 2014 by software engineers who had worked for Amazon.com Inc. and Microsoft Corp., Bittrex was once the biggest U.S.-based exchange by trading volume. At its peak in December 2017, it had a daily trading volume of $3.1 billion. However, it has since fallen to third place globally, surpassed by American exchanges Coinbase and Kraken and offshore platform Binance.

Legal Uncertainty and Lack of Clarity

The SEC has not been clear on which digital assets are securities, leaving the crypto industry in legal uncertainty. Industry officials have been calling on the SEC to provide guidance, but instead, it has focused on enforcement actions to score points. Bittrex had discussed registration with the SEC late last year, but the path to compliance was unfeasible without shutting down its U.S. operations entirely.

Future of Bittrex and the Crypto Industry

It remains unclear whether the SEC will sue Bittrex, but the company has indicated it will litigate unless regulators offer a reasonable settlement. The SEC’s commissioners will have to approve any lawsuit, and sometimes, the agency decides to drop an investigation or reach a settlement after issuing a Wells notice.

Meanwhile, the crypto industry faces increased regulatory scrutiny, which may drive exchanges offshore. The lack of clarity and regulatory uncertainty has caused substantial costs and no certainty for the industry’s future.