BitMEX's Receding Market Share Might Have Spared Bitcoiners Bigger Sell-Off

Oct 1, 2020 at 22:12 UTCUpdated Oct 2, 2020 at 13:47 UTC.Four years ago, when the Seychelles-based cryptocurrency exchange BitMEX announced a new product called the "Perpetual bitcoin leveraged swap," few traders in nascent digital-asset markets could have anticipated what a major impact the obscure rollout would have on the industry.

Now, digital-asset analysts and investors are scrambling to assess the market damage after U.S. authorities on Thursday brought a series of regulatory and criminal charges against BitMEX and its CEO, Arthur Hayes.

One change could be less market volatility because BitMEX's perpetual swaps were infamous for exacerbating price swings: It's a well-known trope among bitcoin traders that every time the market tilts one way or another, BitMEX customers' thinly capitalized positions get liquidated in a series of rapid margin calls, exacerbating price swings that reverberated to other exchanges.

A nagging question going forward is whether some BitMEX customers in the U.S. - apparently in violation of the country's laws and regulations - will be forced to close their accounts and possibly sell their bitcoin.

Some traders have shifted to those alternate venues, causing BitMEX's share of the overall bitcoin derivatives market to recede.

"Now, there are quite a few alternatives to BitMEX and several of them have always been more stringent about trading or not allowing U.S. clients to trade on those platforms."

A snapshot of bitcoin futures trading on Thursday ranked BitMEX fourth among exchanges on 24-hour volumes, behind Binance, Huobi and OKEX, according to the data site Skew.

Traders were well aware BitMEX was under scrutiny and may have moved to get ahead of any crackdown, according to the digital-asset firm QCP Capital.

Based on QCP's tally, BitMEX has about 190,000 bitcoins in its vaults, worth about $2 billion at current prices, with another 36,000 bitcoins in an insurance fund.

It's possible BitMEX's example might provide a shot across the bow to overseas cryptocurrency exchanges that might be cutting corners on compliance, while potentially giving regulatory clarity to those exchanges trying to court U.S. customers.