A Eulogy for a Day Trader’s Exchange

Most people, even those who live and breathe crypto, likely have not heard of Bittrex…I assume. On CoinMarketCap, it’s ranked as the 51st most active exchange by trading volume, a data point that at least partially explains why the company’s U.S. division filed for bankruptcy protection on Monday.

In fact, Bittrex’s position on that list is almost certainly higher than the last few months, as people scramble to get off whatever tokens and bitcoin dust they may have left behind. But a sliver of people who entered crypto during the heady days of the initial coin offering (ICO) boom, beginning sometime in mid-2017 and ending a few months later in early 2018, may remember the exchange with the type of arm’s length appreciation stemming from familiarity and necessity.

This article is excerpted from The Node, CoinDesk’s daily roundup of the most pivotal stories in blockchain and crypto news. You can subscribe to get the full newsletter here.

Crypto class of 2017, of which I consider myself a part, was pampered in many ways. Unlike the bitcoin early adopters who, before the advent of cryptocurrency exchanges, literally had to meet up in person if they wanted to exchange coins,, or the saps who only had “enterprise blockchain” to get excited about, much of the infrastructure the industry now takes for granted was already laid out before the first major token mania. I bought my first fraction of a bitcoin using a credit card via Coinbase, easily. And when I wanted to sling around sh*tcoins, I logged into Bittrex (that is, before the exchange was geo-blocked in the State of New York).

While I’m glad on-chain options like Uniswap exist today, which allow users to trade and list various tokens without intervention or sacrificing custody of their coins, exchanges like Bittrex played an important role in crypto’s history. Binance, one of the bunch, grew to become one of the most valuable crypto companies ever.

While the idea behind centralized exchanges has always been fraught – they’re intermediaries in what’s supposed to be un-mediated finance – they serve an important role as gateways between the world of fiat and crypto. More to the point, at least in the U.S., Bittrex was one of a handful of exchanges ICO traders could trust. It filled the necessary role of listing tokens faster than more lawsuit-averse (at the time) platforms like Coinbase and offshore companies like Binance.

However, between market realities and the regulatory environment, Bittrex today occupies an impossible position. At a time when decentralized finance (DeFi) is only getting easier to use, centralized exchanges that have limited liquidity and token offerings yet more stringent KYC protocols are becoming increasingly irrelevant. Don’t call me bitter either, because I forgot to cash out my 20,000 FUN tokens when the exchange was forced to leave New York state (the funds are “irrecoverable”)! In an interview with CoinDesk, a Bittrex exec cited the “untenable regulatory and economic environment” in the U.S. for its decision first to withdraw from the country and now to seek Chapter 11 protections.

Bittrex stands as a symbol for the now forgone “sh*tcoin era,” a period of time few remember fondly. Although there are many “traders” who probably lost big on “investments” like FUN (which was supposed to power a blockchain casino), who left crypto entirely or became hard nosed bitcoiners, there are legion who might appreciate the crash course in finance and economics that day trading had to offer. I learned my lesson. And by-and-large, despite the fact that crypto seems locked into endless cycles of irrational market exuberance, the industry itself has matured since then. Seeing exchanges close up shop suddenly, or be forced to geo-block users, likely left a lasting impression of the importance of self-custody.

The exchange business itself is going through a reckoning. The U.S. Securities and Exchange Commission, under Chairman Gary Gensler, has decided basically all cryptocurrencies besides bitcoin are securities and that crypto exchanges will need to be licensed as securities dealers. Even supposedly regulatory-friendly exchanges like Coinbase have been resistant to these assertions. In an open letter to the SEC, industry lobbyists at the Blockchain Association said a recent proposal to amend the SEC’s custody rule to bar all but “qualified custodians” from handling users’ coins would put a chokehold on the industry. A16z, the major VC firm, said the SEC is “waging war” on crypto, responding to the same SEC proposal.

No doubt Bittrex is a casualty to regulatory uncertainty, to some extent. But at times it seems like the crypto industry is putting a lot of effort into defending bucket shops, rather than coming to terms. The SEC gets a lot of flack for “regulating by enforcement,” and in fact regulates this industry harder than most, but that’s because – and you won’t like the sound of this – the agency’s primary responsibility is setting a bar for disclosures so investors can operate on a relatively-level playing field. There are technical reasons why on-chain KYC is dangerous (the blockchain destroys privacy), and why many tokens may have utility behind being just investment contracts. But by and large there’s no regulatory uncertainty in the U.S. – just private businesses that prefer dealing under a veil of corporate secrecy.

It’s unclear what will come from Bittrex’s lawsuit with the SEC, which accused the firm of listing six cryptocurrencies that are securities – DASH, ALGO, OMG, TKN, NGC and IHT – in an argument that worried some crypto lawyers as setting a dangerous precedent. Considering what ended up on Bittrex, things maybe could’ve been worse. The exchange said its global operations, headquartered in Liechtenstein, will remain in business and that its 100,000 U.S. creditors will be made whole after the bankruptcy – including its largest benefactor, the U.S. Treasury’s Office of Foreign Asset Control (OFAC). All I know is I had FUN while it lasted.

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