A U.S. court has granted permission to troubled cryptocurrency exchange Bittrex Inc. to borrow $7 million worth of bitcoin (BTC) to finance its Chapter 11 bankruptcy case.
Bankruptcy Judge Brendan Shannon approved the request on an interim basis at a court hearing in Wilmington, Delaware, according to a Reuters report.
Bittrex to Borrow $7M in BTC for Bankruptcy
Bittrex Inc. filed for bankruptcy protection on Monday with the intention of returning customer funds and closing its American businesses. The bankruptcy filing affected Bittrex Malta Ltd. and Bittrex Malta Holdings, while its offshore entity, Bittrex Global, based in Liechtenstein, was not included.
Following its announcement in March that it was leaving the U.S. due to regulatory challenges, Bittrex stopped accepting new deposits from U.S. customers and requested existing users to withdraw their crypto assets. Court documents show that as of March 27, less than half of the exchange’s overall users were in the U.S. while affiliates in Liechtenstein and Bermuda constituted the majority of the company’s 5.4 million clients.
During the hearing, Bittrex attorney Susheel Kirpalani informed Judge Shannon that the bitcoin bankruptcy loan would help ensure a smooth wind-down that protects user assets since the exchange has sufficient cryptocurrency to handle all customer withdrawals.
Bitcoin Loan Offers Favorable Terms
Shannon allowed Bittrex to borrow 250 BTC from Aquila Holdings, its parent company unaffected by the bankruptcy. At a later hearing in June, the exchange will request permission to borrow an additional 450 BTC, completing its proposed loan to $19.7 million based on bitcoin’s value at the time of the bankruptcy filing.
The bankruptcy judge revealed that he approved bitcoin for the loan because it had more beneficial terms than other bankruptcy loans. The BTC loan carries a 4% interest rate and includes built-in safeguards against the asset’s price volatility. Bittrex will repay the loan with bitcoin and will not be required to pay more than 110% of the asset’s current value if it needs to obtain additional coins to repay the loan.
Meanwhile, Shannon authorized temporary privacy protections, allowing Bittrex to remove customer names from court documents.
