Re Bittrex – asset recovery and insolvency lessons for crypto exchanges

There are currently 45 digital asset businesses operating in Bermuda with a license from the Bermudan Monetary Authority (the BMA). 

These businesses range from large exchanges, such as Coinbase, Kraken and CashApp, to a handful of smaller businesses. For these companies, the Bermudan Court of Appeal's decision handed down on 10 March 2026 in Re Bittrex Global (Bermuda) Ltd (in liquidation) [2026] CA (Bda) 1 Civ provides important guidance on how customer assets should be treated.

But Re Bittrex doesn’t just provide learnings for these 45 businesses. The judgment applies a number of English judgments and gives guidance from the Bermudan Court as to how exchanges operating worldwide should be run. 

What happened?

Bittrex operated a Bermuda-based cryptocurrency exchange where, much like other exchanges, customers deposited their digital tokens into a wallet (hosted by Bittrex). Through the Bittrex platform, these customers could then buy or sell their tokens with other customers. 

By March 2024, and against the backdrop of various SEC charges and AML and sanctions violations, Bittrex’s directors decided the business was not profitable and applied for the company to be wound up. At this point it had almost a quarter of a million account holders, many with small balances. A winding-up order was granted in March 2024, and a proof of debt process for potential creditors concluded in December 2024. Approximately $63m in digital assets remained unclaimed at this point. 

At first instance, the joint liquidators sought Court approval to distribute these unclaimed assets to Bittrex's sole shareholder, Bittrex Global Inc (BGI), as a "surplus", which, the liquidators argued, was permitted by Bittrex's 2023 Terms and Conditions (the Terms and Conditions). This was opposed by the BMA, who argued that the unclaimed customer assets did not belong to Bittrex and could not be distributed as a windfall to shareholders. Although not a party to the first instance decision, BGI then sought permission to appeal as a “person aggrieved” by the initial judgment, seeking to ensure it could receive its distribution. 

The Court of Appeal ultimately held that customer assets held by Bittrex in hosted wallets were not the company's property and could not be distributed to BGI.

The Terms and Conditions

Clause 4.2 of the Terms and Conditions stated that customers transferring tokens to a "Standard Hosted Wallet" transferred “legal title" to Bittrex, receiving only a "contractual right to receive the same number of Tokens of the same type, quality and grade". The clause expressly warned customers that in the event of bankruptcy, they would "probably receive only a fraction of the value" of their tokens. 

Importantly, however, both clauses 4.2 and 6.2 also stated that "Tokens are held by [Bittrex] in accordance with the requirements of DABA [the Digital Asset Business Act 2018], and applicable ancillary regulations, statements of principle, codes of conduct and guidance notes promulgated by the Bermuda Monetary Authority". 

Can exchanges contract out of regulatory obligations?

The Court of Appeal rejected BGI's argument that the contractual transfer of title placed customer assets outside of the regulatory framework – it was simply not possible to contract out of the statute. Indeed, as a licensed exchange, Bittrex was required to comply with DABA and could not simply seek to transfer the legal title of any assets deposited by the customer such that the customer then had no protection against an insolvency situation. The Court emphasised that the "whole point of legislation whose express purpose is to regulate firms so as to protect clients' interests, with a general prohibition on conducting business without a licence with which the firm complies, was to restrict the firm's ability to freely contract".

What was most important was Bittrex's own contractual commitment to hold tokens "in accordance with" DABA. The Court held that despite BGI's attempts to dismiss this as "boilerplate", it contained a contractual commitment that tokens would be held as per the statute. This statute contained two key provisions regarding the holding of customer assets – section 17 DABA requires client assets to be held in separate accounts from the accounts for any other business of the company, and section 18 which, amongst other things, requires the maintenance of sufficient indemnity insurance or a trust account to ensure full protection for customer’s assets. When such a trust account was in place, that account must be “maintained with a qualified custodian” and must “maintain in its custody a sufficient amount of each type of digital asset in order to meet its obligations to clients”. 

The Court held that these sections were clearly relevant – client assets were, when first transferred to Bittrex, clearly legally and beneficially owned by the client. Bittrex was therefore holding customer assets at the start of the relationship, which brought sections 17 and 18 DABA into play. At first instance, the Court also found that customer assets held in Hosted Wallets should be deemed to be held in a trust account. The question was therefore what ‘custody’ meant. 

Custody

The first instance Judge took a purposive approach to interpreting ‘custody’. The BMA’s Code of Practice defines custody as "the protective care or guardianship of digital assets that are held or are being transacted", an arrangement that "need not involve a formal trust relationship". Given this, the first instance Judge concluded that ‘custody’ in the context of DABA meant "control over the digital assets held by a licensed undertaking in respect of which the licensed undertaking owes obligations to customers or clients". The Court of Appeal agreed.

In reaching this decision, the Court relied heavily on the UK Supreme Court's approach in Lehman Brothers International (Europe) v CRC Credit Fund [2012] UKSC 6, where it was held that "if the trust did not arise until segregation, then whether or not clients are protected by the CASS rules [the rules implemented by the FCA in the UK to protect client assets] would become arbitrary and dependent on the firm's own practices: the greater the level of incompetence (or misconduct) on the part of the failed firm, the lesser the protection for clients". The Judge held that it was "ultimately impossible to justify reading into this legislative scheme a mandate to carry on an effectively unregulated non-custodial wallet service business" – client assets needed to be protected. Similarly, the Court found that Bittrex could not use customers' tokens for its own proprietary trading – it was a pure exchange and could not use customer assets as it wished.

This approach aligns with the FCA’s position on custody of cryptoassets. In May 2025, the FCA published a Consultation Paper 25/14 which sets out its proposals to ensure robust safeguarding of client cryptoassets. The Consultation Paper specifically states that when engaging with a relevant cyptoasset custodian:

“Clients should expect that their assets will be protected. Clients should expect their qualifying cryptoassets back at any time they ask for them, as well as those assets returned as quickly and as whole as possible, if the custodian enters an insolvency process.” 

Who owns the customer assets on insolvency?

Having established that Bittrex only held the assets as custodians, the Court determined that even if customers only had contractual claims (as BGI sought to argue), it was right to refuse any distribution to shareholders before customer claims were satisfied. These were "unclaimed and undistributed assets in respect of identifiable, undisputed claims" which should not be distributed as surplus but paid to customers or, if still unclaimed, into a consolidated fund per Bermudan law. In other words, “claims of customers whose assets remain in the Standard Hosted Wallets are claims of creditors which must take priority over any distribution”.

What does this mean for English law?

Whilst the specific regulatory framework which will govern cryptoasset activities in the UK is still under development, Re Bittrex reinforces that consumer-focused rules and regulations, which are designed to ensure segregation and protection of client assets, cannot be circumvented by contractual drafting. The English Court would likely take a similar approach to the Bermudan Court of Appeal: regulatory obligations designed to protect customers will be construed purposively, and attempts to contract out of them will likely fail.

The Bermudan Court of Appeal's reliance on Lehman Brothers and Re Ipagoo LLP [2022] EWCA Civ 302 demonstrates that principles developed under English case law already support this approach. In Ipagoo, the English Court of Appeal held that regulation 24 of the Electronic Money Regulations created "a bespoke statutory regime" under which electronic money holders had rights over the asset pool "in priority to other creditors" that "stands outside" the insolvency waterfall. Following this judgment, the FCA has introduced changes to the safeguarding regime for payments and e-money firms, which will take effect from next month.

What should exchanges do?

The judgment raises a number of important points for crypto exchanges, wherever they operate.

First, terms and conditions must accurately reflect the regulatory position. Clauses purporting to transfer ownership whilst simultaneously committing to regulatory compliance create potential ambiguity. Exchanges should be reviewing their terms and conditions to ensure they are fit for purpose. Re Bittrex and similar cases show that courts will resolve such ambiguity in favour of statute, which is likely to be in the customer’s interest. It is unwise to assume that contractual terms will prevail over regulatory requirements. The Court held that Bittrex's approach would allow "anyone offering digital asset services [to] bypass DABA-regulation by simply providing in its contractual documents that title passed to the recipient", which was "an absurd interpretation" – we expect that the English Court would follow a similar approach.

Second, genuine asset segregation is essential. It is not sufficient simply to maintain separate ledger entries; the underlying assets must be genuinely segregated from the exchange's own assets. Failures to do so have been seen time and time again, perhaps most infamously in the downfall of FTX. Exchanges should be aware of all relevant guidance in the jurisdictions in which they operate and ensure that this guidance is followed and be able to evidence this. In Re Bittrex, the BMA's Code of Practice required that "proper accounting must be in place to accurately allocate each holding to the respective client", but Bittrex had only maintained an attribution table tracking customer holdings. 

Third, customer assets should remain identifiable and attributable even in a winding-up scenario. Exchanges should have clear procedures for returning assets to customers in the event it becomes necessary and should not assume that unclaimed balances will automatically become available for distribution to shareholders.

Conclusions

Re Bittrex is a reminder that regulatory protections will prevail over contractual arrangements and cannot be contracted out of. For exchanges operating in the increasing number of jurisdictions where there is regulatory oversight, the principles are clear: customer assets must be segregated, regulatory obligations will be construed purposively to achieve their protective objectives, and courts will not permit unclaimed customer assets to be distributed to shareholders as a windfall. With an ever-increasing spotlight on the way in which these businesses operate (due in part to the high-profile frauds which have led to the collapse of certain exchanges), it is important that care is taken to ensure that systems, controls and protocols are robust, clear and compliant.