A US court granted permission to Bittrex Inc. for a troubled cryptocurrency exchange to borrow $7 million worth of bitcoin (BTC) to fund the start of its Chapter 11 bankruptcy case.
According to Reuters a reportBankruptcy Judge Brendan Shannon approved the exchange’s application on a provisional basis at a court hearing Wednesday in Wilmington, Delaware.
Bittrex borrows $7 million in BTC for bankruptcy
Remember, Bittrex filed for bankruptcy protection on Monday, with the goal of returning customer funds and closing its US business.
While the exchange’s offshore entity, Liechtenstein-based Bittrex Global, was excluded from the bankruptcy filing, Bittrex Malta Ltd. was affected. and Bittrex Malta Holdings.
The bankruptcy filing came just weeks after the company, which announced it was leaving the US in March due to regulatory challenges, received a notice from the Securities and Exchange Commission (SEC) about alleged violations of investor protection laws and operating an unregistered securities exchange.
Prior to the bankruptcy, Bittrex stopped accepting new deposits from US customers and required existing users to withdraw their crypto assets. Court filings showed that as of March 27, the American exchange’s customer base made up a minority of its total users, while affiliates in Liechtenstein and Bermuda made up roughly 77% of the company’s 5.4 million customers.
During the hearing on Wednesday, Bittrex attorney Susheel Kirpalani told Judge Shannon that a BTC bankruptcy loan would ensure a smooth liquidation that protects user assets because 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, the parent company that was not affected by the bankruptcy. At a later hearing in June, the exchange will seek permission to borrow an additional 450 BTC, bringing the proposed loan closer to $19.7 million, based on the bitcoin price at the time of the bankruptcy filing.
A bankruptcy judge revealed that he was convinced to accept Bitcoin for the loan because it offered favorable terms compared to other bankruptcy loans. A BTC loan has an interest rate of 4% and built-in protection due to asset price volatility. Bittrex will pay the loan in Bitcoin and you will not have to pay more than 110% of the current value of the asset if more coins are needed to pay off the loan.
Meanwhile, Shannon agreed to a temporary privacy protection to enable Bittrex to remove customer names from court documents.
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