Bittrex Exits the US Crypto Market: Is ‘Operation Choke Point 2.0’ Driving Exchanges Away?

The cryptocurrency landscape in the United States is witnessing a significant shift as Bittrex, once a prominent player in the crypto exchange arena, announces its departure from the US market. Citing an unsustainable regulatory and economic environment, Bittrex’s exit raises critical questions about the future of crypto businesses in the US. Is this an isolated incident, or a symptom of a larger trend? Let’s delve into the details of Bittrex’s decision and what it signals for the crypto industry.

Why is Bittrex Bidding Farewell to the US?

In a statement that reverberated across the crypto community, Bittrex co-founder and CEO Richie Lai pointed directly at the regulatory climate as the primary reason for shutting down US operations. According to Lai, the current environment is simply “not fiscally sustainable.” He elaborated, highlighting the “ambiguous” nature of US regulatory standards and their implementation, often “without adequate discussion or consultation.” This, he argues, creates an “uneven competitive field,” making it challenging for exchanges like Bittrex to thrive.

To put it plainly, Bittrex is blaming Uncle Sam. But is it just about regulation? Or are there other factors at play?

Here’s a breakdown of Bittrex’s stated reasons:

• Regulatory Uncertainty: The lack of clear and consistent rules from US regulators creates a challenging operational landscape.
• Ambiguous Standards: Unclear guidelines make compliance difficult and costly.
• Uneven Playing Field: Regulatory disparities can disadvantage certain exchanges.
• Economic Unsustainability: Operating in the US under these conditions is no longer financially viable for Bittrex.

“Operation Choke Point 2.0” – Is There a Coordinated Crackdown?

Bittrex’s exit comes at a time when several major crypto exchanges, including Coinbase, Kraken, and Binance, are facing increased legal scrutiny from various US regulatory bodies. This has fueled speculation about a potential coordinated crackdown, dubbed by some as “Operation Choke Point 2.0.”

The original “Operation Choke Point” was a controversial initiative by US regulators aimed at cutting off access to banking services for businesses deemed to be at high risk of fraud or money laundering. While never officially acknowledged as “Operation Choke Point 2.0,” the current wave of regulatory actions against crypto firms has sparked comparisons and concerns within the industry.

Adding fuel to the fire, Galaxy Digital CEO Michael Novogratz recently stated that the crypto business is “under attack” from US officials. He believes that the concerns around “Operation Choke Point 2.0” are valid, suggesting a more systematic and coordinated effort to clamp down on the crypto sector.

SEC’s Stance: No New Legislation Needed?

Amidst these growing concerns, Securities and Exchange Commission (SEC) Chief Gary Gensler has asserted that he believes the existing legal framework is sufficient to regulate the crypto industry. This stance contrasts sharply with the industry’s plea for clearer, tailored regulations. Gensler’s position suggests that the SEC intends to apply existing securities laws to crypto assets, a move that many in the industry find overly broad and ill-suited to the unique nature of cryptocurrencies.

Beyond Regulation: The Market Share Story

While regulatory pressures are undoubtedly a significant factor, some analysts suggest that Bittrex’s departure might not be solely attributed to them. Steven Cheng, research director at The Block, points to Bittrex’s dwindling market share in the US as a crucial element. According to Cheng, Bittrex’s US trading volume had become so low that “it isn’t worth the effort to continue operating.”

Let’s look at the numbers:

Source: The Block Data

The data clearly illustrates a dramatic decline in Bittrex’s market share. Once a dominant force with nearly 23% of the US market share in early 2018, Bittrex saw its share plummet to below 1% by 2021 and has struggled to recover. This sharp decline indicates that competition from other exchanges, potentially including those with stronger regulatory compliance strategies or more appealing service offerings, played a significant role in Bittrex’s dwindling US presence.

Bittrex’s Regulatory History: A Rocky Road

Bittrex’s relationship with US regulators has been turbulent for years. The exchange has faced multiple compliance challenges, including:

• 2022 Settlements: The Office of Foreign Asset Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN) announced settlements totaling $29 million against Bittrex for allegedly facilitating transactions in sanctioned jurisdictions between 2014 and 2017.
• 2019 BitLicense Denial: The New York State Department of Financial Services (NYDFS) denied Bittrex a BitLicense, preventing the exchange from operating in New York, a key financial hub.

These past regulatory hurdles likely contributed to the challenges Bittrex faced in maintaining its US operations and regaining market share.

What Does This Mean for the Future of Crypto in the US?

Bittrex’s exit from the US market is a stark reminder of the complexities and uncertainties facing crypto businesses in the country. While Bittrex assures users that customer funds are secure and withdrawals will be processed until April 30 for verified users, the broader implications are significant.

Here are some key takeaways and questions to consider:

• Impact on Competition: Bittrex’s departure could further consolidate market share among the remaining major exchanges like Coinbase, Binance.US, and Kraken, potentially reducing competition.
• Regulatory Push vs. Innovation: Is the current US regulatory approach stifling innovation and driving crypto businesses to more welcoming jurisdictions?
• Clarity Needed: The industry’s call for clearer regulatory guidelines is becoming louder. Will US regulators respond with more specific and tailored rules for crypto?
• Political Dimension: As Michael Novogratz pointed out, this issue is taking on political overtones, especially with elections on the horizon. Will crypto regulation become a significant political issue?

Looking Ahead: Bittrex Focuses Globally

While Bittrex is retreating from the US, the company is not abandoning the crypto space altogether. CEO Richie Lai has indicated that the focus will now shift to “assisting Bittrex Global in succeeding outside of the United States.” This suggests that Bittrex sees more favorable opportunities in international markets with potentially clearer or more accommodating regulatory environments.

In Conclusion: A Crossroads for US Crypto

Bittrex’s exit from the US market is a pivotal moment for the crypto industry in the United States. Whether it’s solely due to regulatory pressures or a combination of factors including declining market share and past regulatory issues, the message is clear: the current environment is challenging for crypto exchanges. As the industry awaits further regulatory developments and potential political shifts, the question remains: Will the US become a welcoming hub for crypto innovation, or will “Operation Choke Point 2.0,” real or perceived, continue to push businesses away?