Below is our initial take on recent bankruptcy-related developments:

U.S. Crypto Exchange Bittrex Files for Bankruptcy in Delaware | CoinDesk

On Monday, Crypto exchange Bittrex filed for bankruptcy in the U.S. state of Delaware months after announcing it would wind down operations in the country and weeks after being sued by the Securities and Exchange Commission. The exchange believes it has more than 100,000 creditors, with estimated liabilities and assets both within the $500 million to $1 billion range.

Bittrex approved to borrow $7 million bankruptcy loan in bitcoin | Reuters

Seattle-based Bittrex filed for bankruptcy Monday, saying it intended to return customer funds and wind down its U.S. operations. It received court permission Wednesday to borrow $7 million in bitcoin to fund the start of its Chapter 11 case.

S&K Take: We will start this week with a little Bittrex double dipper (apologies in advance since we are crypto heavy). There are a few characteristics that distinguish this case from the other platform and lender cases. The one that jumps out is that the debtor asserts that it has 100% of customer coins! And it intends to return them in kind! Novel concept. The impetus behind the filing appears to be the regulators. One look at the top 30 list and you’ll see a bifurcated list—the SEC, et al. and then what looks like binary code. Those are customer claims. As we noted, the customers will purportedly get their coins back. Unclear what the regulators will get. One other cool aspect here—we have our first DIP loan in crypto! At least I think it is. Presumably the DIP Lender didn’t like the tax consequences of converting to fiat to lend. 

U.S. Internal Revenue Service Files Claims Worth $44 Billion Against FTX Bankruptcy | CoinDesk

The United States Internal Revenue Service has filed claims worth nearly $44 billion against the estate of bankrupt crypto exchange FTX and its affiliated entities. The largest of the claims includes a $20.4 billion claim against Alameda Research LLC that specifies almost $20 billion in unpaid partnership taxes.

S&K Take: Well, that is a big claim. The IRS filed for over $40 billion in claims in the various FTX cases. This article notes that these claims were filed as priority claims (I can assure you we have not gone through all of the IRS’s to verify). If that is the case, it sets up an interesting dynamic. If customers are unsecured claimants, obviously the IRS would take first. If even a fraction of the tax claims are legitimate, that could pretty easily wipe out creditor recoveries. There are many hurdles to jump before the IRS lines its coffers, however. Customers may have a property interest in estate assets (potentially trumping the IRS priority), the IRS claims could be bogus or not entitled to priority, or any number of other possibilities. Still a big headline number to get the juices flowing for claims reconciliation.

BlockFi's Account Transfer Cutoff Upheld In Ch. 11 Case | Law360

On Thursday, U.S. Bankruptcy Judge Michael B. Kaplan ruled that cryptocurrency platform BlockFi can retain $375 million in assets customers attempted to withdraw on a functioning user interface after the company suspended transactions. BlockFi’s customer app continued to function eight days after the transactions were suspended, although those late transactions were not actually completed and BlockFi had the right to cancel them.

S&K Take: Back on the customer property front, Judge Kaplan ruled that customers that tried to transfer assets from BlockFi’s interest bearing accounts to the custody accounts post-pause do not have claims against the custody assets. This feels right, albeit unfortunate for the $375 million that customers tried to transfer. There is a finite pot of custody assets (about $270 million) that was there pre-freeze. BlockFi, in accordance with Celsius precedent, has conceded that those are customer assets and that customers should be able to take those back. When BlockFi sought authorization from the court to let those assets go out the door, the pool of claimants holding the $375 million in “unfulfilled” transfers spoke up, saying that they should also be entitled to a share of those assets. Judge Kaplan said no, they were not, and is allowing the “true” custody creditors to take back their assets.  

FDIC wants banks bigger than $5B to pay for SVB and Signature failures | Yahoo Finance

According to a new proposal from the Federal Deposit Insurance Corporation, in order to spare small community institutions from footing part of the bill, giant banks and regional lenders with more than $5 billion in assets will help pay for the March failures of Silicon Valley Bank and Signature Bank. The FDIC estimates that it will cost $15.8 billion for it to protect all depositors at those two institutions who were above the FDIC's $250,000-per account insurance level.

S&K Take: The FDIC is passing the hat to recoup funds lost in the SVB and Signature collapses, and it is targeting banks holding more than $5 billion in assets. They will be subject to a fee on uninsured accounts, sparing smaller banks (many of which could be subject to a run of their own). This is only a proposed rule, so nothing set in stone, but interesting nonetheless. Didn’t take the FDIC long to call their friends and ask them to pay their share of the tab.