Bittrex, a cryptocurrency exchange that went bankrupt earlier this year, is challenging the U.S. Securities and Exchange Commission’s (SEC) authority to regulate its operations through securities violations. 

The dispute, which can potentially limit the SEC’s power to oversee cryptocurrency exchanges and other digital asset businesses, centers around whether the SEC has the right to regulate tokens as securities without clear congressional authorization.

The SEC alleges that Bittrex failed to register as a national securities exchange, broker-dealer, and clearing agency with the regulator. On the other hand, the company argues that the SEC lacks the authority to regulate tokens traded on its platform because Congress has not authorized it to do so.

The company cites the “major questions doctrine in the court filing,” which requires clear congressional authorization for agencies to assert highly consequential power beyond what Congress has conferred.

Furthermore, the bankrupt exchange also claims that the SEC failed to name a single cryptocurrency asset that it claimed Bittrex unlawfully listed for trading on its platform during a six-year investigation. Despite this, the SEC has charged Bittrex with multiple securities law violations for failure to register.

Additionally, Bittrex argues that the SEC has failed to allege that securities transactions occurred on its platform adequately. The complaint only alleges that six specific tokens constituted investment contracts based on the circumstances of their initial offering without providing facts regarding any secondary market transactions on the Bittrex platform. 

Bittrex states that the SEC must allege facts sufficient to establish the existence of investment contracts when they occurred on the platform.

Finally, the exchange claims that the complaint fails to provide fair notice, as the SEC, until recently, disclaimed any interpretation that making tokens available for secondary-market trading constitutes a securities transaction subject to the Exchange Act. Bittrex asserts that the Commission continues to refuse to provide any meaningful guidance about the boundaries of its position, leaving market participants in a state of uncertainty and subject to arbitrary enforcement.

The company has fully wound down its U.S. operations, repaid all customers who submitted sufficiently detailed redemption requests and entered bankruptcy. The company argues that the SEC is pursuing purely registration-based violations against a company that is no longer operating and faces no allegations of fraud.

Whether Bittrex’s challenge will be successful remains to be seen, but the case could have significant implications for regulating cryptocurrencies and other digital assets in the United States. 

As Congress debates the appropriate regulatory framework for cryptocurrencies, the major questions doctrine may serve as a crucial safeguard against arbitrary and overbroad regulation. 

The court’s decision on Bittrex’s motion to dismiss could establish an important precedent on the scope of the SEC’s authority over cryptocurrencies and the boundaries of fair notice for market participants.

Featured image from Unsplash, chart from TradingView.com

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