BitMEX — “An Opaque Entity”
Although BitMEX is one of the crypto market’s most prominent platforms, there is a multitude of industry players that have yet to trust the exchange in full.
For those who are unaware, the Seychelles-based, Hong Kong-headquartered platform has become well-known for its margin trading feature, which utilizes a somewhat complicated sequence of insurance funds, peer-to-peer contracts, and other systems to allow traders to leverage their Bitcoin (BTC) 100x.
However, over recent months, as the value of crypto assets fell, rumors arose that BitMEX had nefarious intentions. Some conspiracists had connected the dots to claim that the startup, founded in 2014, was willing to undermine its clients to turn a quick buck.
One such critic/cynic was Hasu, a pseudonymous self-proclaimed “independent cryptocurrency researcher,” who released a jaw-dropping 13 minute-long Medium post on BitMEX’s potentially shady dealings in late-October that rattled the crypto community.
Hasu first noted that while the company expresses its love for this industry and technology incessantly, this may be nothing more than a guise or facade, subsequently dubbing BitMEX an “opaque entity that wields disproportionate influence in the industry.”
Bringing credence to his inflammatory words, Hasu embarked on a research journey, finding data, people, and documents that supported his theory that the Seychelles-based startup doesn’t have its users at the top of its priority list.
Although the article stretched out to over 3,000 words, the following are Hasu’s three primary qualms (which are just speculative guesses) with the platform:
They trade against their customers: The platform may be secretly trading against its customers through a market maker, which was just disclosed in April of 2018. Interestingly, after the firm disclosed that it had a market-making desk, which is a “for-profit operation,” it lost its legal counsel. Hasu has claimed that this speculation could implicate that BitMEX is using its entitlement immorally to profit off its user base.
The platform “weaponizes their server problems”: A reoccurring theme seen in the BitMEX community is the jokes around the platform’s endless stream of “server overload” prompts. Although they may seem innocent enough, Hasu has claimed that the startup may be giving preferential access to certain traders during periods of overload. The critic also claimed that users can arbitrage and “trigger a chain of liquidations” during an overload, which evidently isn’t right.
It “monetizes customer liquidations through their insurance fund”: Due to the leverage system that BitMEX enlists, it requires traders to place marginal holdings into an insurance fund. Although this fund allows for high-leverage trades, Hasu has claimed that the company makes “significant money from liquidations.”
Regardless of the specifics of each issue, the cynic came to the following conclusion, which was quick to the punch:
But a series of recent issues with the exchange leads me to believe that they have a hard time acting ethically once it gets in their way of making more money.
Arthur Hayes: BitMEX Doesn’t Trade Against Its Customers
However, CEO Arthur Hayes, who recently called for Bitcoin (BTC) to fall below $2,000 in due time, has claimed that these rumors are baseless and that his firm’s dealings have been misinterpreted. Hayes’ remarks on the matter were conveyed through Yahoo Finance U.K. at an unnamed event in London.
Per the industry leader, its market-making desk “is a customer too. It is treated like any other account.” Hayes added that the desk is “completely secluded from the rest of the employees,” divulging that the independent identity doesn’t have special or preferential access to any insider data.
He also noted that BitMEX doesn’t make bank when customers are liquidated or through trading against its users, but rather, through other profit streams. He elaborated:
It’s actually pretty bad business model and introduces a lot of risk into what is right now a riskless business model, BitMEX. We match trades, that’s it, we have no risk. Trading against our clients is nonsensical.
Touching on the “server overload” issues, Hayes alluded to the fact that an influx of trades on the platform has hampered its server, noting that his firm is doing its best to fix those issues.
Last but not least, the CEO, a former Citigroup trader, explained that the insurance fund’s 14,000 Bitcoin (BTC) is a “function of the market.”
TItle Image Courtesy of Marco Verch via Flickr