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The Federal Court has ruled against Bit Trade Pty Ltd, the Australian operator of the Kraken cryptocurrency exchange, for failing to meet legal requirements in the design and distribution of a margin trading product. This judgment marks a significant development in the Australian Securities and Investments Commission’s (ASIC) efforts to enforce regulatory standards in the rapidly growing crypto industry.
Since October 2021, Bit Trade had been offering its “margin extension” product to Australian customers on the Kraken platform without a target market determination, a key requirement under Australian law. This omission resulted in the company breaching section 994B(2) of the Corporations Act each time the product was made available.
“This is a significant outcome for ASIC involving a major global crypto firm. We initiated proceedings to send a message to the crypto industry that we will continue to scrutinize products to ensure they comply with regulatory obligations in order to protect consumers,” ASIC deputy chair Sarah Court said.
She also emphasized that the ruling serves as a reminder to the crypto sector about the necessity of adhering to design and distribution obligations: “Consumers should receive the full protection of the law when dealing in crypto-asset products, and we will continue to take action to ensure this happens.”
The Federal Court’s decision centered on the classification of Bit Trade’s margin extension product, which allowed users to extend and repay margin loans in either digital assets like Bitcoin or in traditional currencies such as the US dollar. ASIC argued that the obligation to repay in a digital asset or national currency constituted a deferred debt, thus qualifying the product as a credit facility.
While Justice Nicholas ruled that the repayment of a digital asset does not constitute a deferred debt, he agreed with ASIC that a margin extension in a national currency does create such a debt, thereby confirming the product’s status as a credit facility.
Following the ruling, ASIC and Bit Trade have been given seven days to agree on declarations and injunctions. ASIC has indicated its intention to seek financial penalties against Bit Trade, with a hearing date to be determined.
