Bittrex Lawsuit Leaves Exchanges in a Bind

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  • The SEC’s lawsuit against Bittrex leaves exchanges with tough decisions to make
  • The agency has now identified more than a dozen coins it considers to be securities, coins which are still listed on many U.S.-serving exchanges
  • Will these exchanges start to delist coins to reduce the risk of enforcement action?

The news that Bittrex has been sued for unregistered sales of securities isn’t exactly a surprise, but the fact that particular coins have once again been targeted leaves other exchanges with a difficult decision over their listings. In the filing the SEC listed six coins it believes were securities sold by Bittrex, which can now be added to the nine it previously said were securities in a lawsuit against the Coinbase insider traders last year. The operators of the projects associated with these coins must now be worried that they face similar action, while exchanges that still list this growing number of coins may be thinking that it is time that they, too, take action to reduce their risk.

SEC Actions Add to Exchange Jeopardy

Crypto exchanges that serve U.S. customers have been keeping a very close eye on regulatory developments in recent months and must have been fearing that they would be next in the SEC’s game of whack-a-mole. As it turned out, Bittrex was the next kid on the block to be targeted by the crypto police, with six coins in particular hauled down to the cop shop and exposed as filthy, good-for-nothing securities: OMG, DASH, ALGO, TKN, NGC, and IHT.

This list adds to the nine-strong list already put together by the SEC in a lawsuit against the Coinbase insider traders, where the SEC first tested out its new approach of just saying that certain coins were securities without any official ruling on the matter, or even giving a right to reply to the projects themselves.

Damage Limitation Delistings Incoming?

The projects associated with these coins and the exchanges that still list them almost certainly don’t believe that they are securities, but the exchanges face an increasingly uncomfortable set of decisions: rightly or wrongly, they now know that the SEC considers these coins to be securities, so do they take preemptive action and delist to avoid any further punishment? Even if they do delist, or even if they close down, the Bittrex case has shown that the SEC will have no mercy and will still come after any exchange it decides has flouted its rules to anything like a meaningful extent in the past.

Given the ratcheting up of such actions, it wouldn’t be a surprise if exchanges start paring back their offerings in an attempt at damage limitation in the coming months. This could mean a raft of delistings throughout 2023, unless exchanges decide that they are prepared to fight their corner. This will be easier said than done, however, and many may decide to settle, although what this would mean for future operations and coin listings, both extant and future, is simply unknowable at this point.