Tens of thousands of inconsistent, dubious, and unlikely transactions are included in Bittrex’s bankruptcy papers, which may have an effect on the approximately two million users who had money on the cryptocurrency exchange before its 2023 collapse.
New records raise concerns
“Certain patterns in the filed documents immediately raised serious red flags,” Pasha Onur, a regulatory compliance researcher who analysed the documents, told DL News.
“Our analysis of court documents and Bittrex hot and cold wallets reveals over $500 million in fabricated transactions filed with the bankruptcy court across multiple dockets.”
After examining Onur’s analysis, it was found that there were tens of thousands of small, economically unfeasible transactions, over 10,000 clustered withdrawals for the same specific amounts of cryptocurrency, and hundreds of transactions on a blockchain network that shut down years before the transactions were allegedly completed.
Bittrex, which was established in Seattle in 2014, gained popularity by providing trading for a variety of cryptocurrencies and utilising cold storage for customer cash.
A few weeks after the US SEC accused the exchange of running an unregistered securities exchange, the exchange, which had a history of regulatory misconduct, filed for bankruptcy in May 2023. In December of that year, it closed.
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The impact
If a sizable portion of the transactions included in Bittrex’s bankruptcy papers are false, it may have a substantial effect on creditors trying to recover money from the now-defunct exchange.
When Bittrex declared bankruptcy, the company had about 1.6 million users. But less than 36,000 users, or less than 3%, submitted claims. “If withdrawal transactions are fabricated, customer account balances are wrong, meaning creditor claim amounts are incorrect,” Onur said.
According to Onur, this tainted data is also utilised to determine the list of the top 20 creditors, which is used for distribution priority and conflict-of-interest checks. In April of this year, Bittrex Global’s bankruptcy claims were resolved. It still hasn’t paid its creditors.
At the time of the exchange’s bankruptcy filing, the US Treasury’s Office of Foreign Assets Control was its biggest creditor because of a $24 million unpaid settlement following sanctions violations in 2022.
More problems follow
Onur’s analysis of the financial accounts, which were given to the court in June 2023, covered the ninety days before Bittrex filed for bankruptcy.
The exchange tripled the blockchain network’s costs, which are normally between $5 and $20, for cryptocurrency withdrawals during this time, and mandated a minimum withdrawal of $35 with a $25 fee for cash withdrawals.
In spite of this, hundreds of transactions during that time period involved little quantities of cryptocurrency, with a US dollar value that was minuscule compared to the expenses associated with processing the withdrawals.
“How can there be over 21,500 transactions handled below the platform’s minimum, especially when, economically, it’s impractical?” Onur said.
To make matters more erratic, the great bulk of these transactions happened on the same day every month. Furthermore, on the same day, more than 10,000 transactions, purportedly from the exchange’s clients, involved withdrawals of the same extremely precise fractional sum of Bitcoin.
Bitcoin fractions are kept to eight decimal places. It is quite unlikely that thousands of distinct clients would choose to take out precisely the same sums on the same days.
Bittrex violated regulations on several occasions over its nine years of operation as a result of inadequate record-keeping and compliance procedures.
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