BitMEX used to be the undisputed leader of the Bitcoin (BTC) futures trading market. If enforcement actions similar to yesterday occur from 2015 to 2018, the cryptocurrency market will completely collapse.
Whether it was Bitcoin’s relatively quick recovery to $10,600 or the derivatives market remained stable during a decline of $500 to $10,400, BTC futures or options showed no signs of discomfort to this negative news.
The futures market almost ignored the entire event, which fully shows that investors are still bullish on Bitcoin. This also shows that the market will test $12,000 faster than people expected.
BitMEX Bitcoin futures daily trading volume in 2019 Source: Skew
As shown in the figure above, as of July 2019, BitMEX occupied nearly 50% of the market share. This advantage comes from the so-called perpetual contract (reverse swap) market. In addition to not requiring KYC, this derivatives exchange also provides leverage of up to 100 times, which helps expand the user base.
After the “Black Thursday” market adjustment, the price of Bitcoin fell below $3,600, and rival exchanges rushed to provide similar services, which caused BitMEX to lose its dominant position in 2019.
Some in the crypto community believe that BitMEX’s ban on American customers is the main reason for its decline in Bitcoin market share, while others point out that their large-scale liquidation is a catalyst.
In the plummet on March 13, BitMEX faced technical difficulties and was down for 25 minutes for some reason. Following the interruption, the price of Bitcoin fell below $4,000, and BitMEX’s insurance fund increased its holdings of 1,000 Bitcoins in the next 48 hours. Since that incident, the open position of BitMEX futures has been below $1 billion.
Daily trading volume of BitMEX Bitcoin futures in 2020 Source: Skew
Looking at recent data, BitMEX has become almost insignificant in terms of trading volume. In the past three months, its market share has hovered around 18%, although it is impossible to measure the impact of BitMEX exchange on BTC pricing, which shows that it has clearly lost its advantage in the past 18 months.
Despite the BitMEX incident, Bitcoin futures remain stable
The basic indicator compares the prices of futures contracts on regular spot exchanges with current price levels. It is also commonly referred to as futures premium.
The annualized rate of return in a healthy market is usually 5% to 15%. This situation is called a futures premium. On the other hand, in a severely bearish market, negative numbers (futures discounts) are usually generated.
BTC futures curve source: Highcharts.com
The above chart shows that, except for BitMEX, the annual premium of the 3-month contract on all exchanges is 5.4% or higher. In essence, professional traders are sending signals that their expectations have not been affected by yesterday’s events.
If yesterday’s news has any impact, it is that this is an exchange-specific issue and has little impact on the entire futures market.
It is worth noting that when investors close their positions, the futures premium can remain relatively stable. There is no doubt that this will be a very worrying situation, because it will show that traders are worried about the liquidity of the exchange.
From this perspective, open positions are the most critical evidence of investor confidence in a particular market or exchange.
Even if the total amount of open positions remains the same, the outflow of funds from BitMEX to other exchanges will be reflected in the open trade data.
BTC futures total open positions Source: Skew
Notice how unremarkable the news yesterday was. BitMEX’s open positions were US$650 million, a decrease of 11% from the previous day, but the total position was basically unaffected.
Huobi digested most of the changes, indicating that some traders may have adjusted their positions.
Bitcoin options sentiment remains neutral
The 25% delta skew helps to measure the sentiment of professional traders through option pricing. By comparing the implied volatility of put options and call options with similar risks, investors can judge whether call options or put options are more expensive.
Bitcoin 3-month option delta skew reaches 25% Source: Skew
The above chart shows that the delta skew of the 3-month option reached 25%, which has remained in the neutral region. A negative indicator indicates that the implied volatility of a call option is greater than that of a put option, indicating that the market expects a slight bullishness.
This indicator has been fluctuating between 0% and -5% in the past week, far from reaching bearish expectations. As far as the popularity of the options market is concerned, yesterday’s trend can be said to be stable.
In a bull market, bad news is easily thrown aside
There is no better sign that a bull market is coming. Regardless of the declining importance of BitMEX in terms of trading volume and pricing, or the actions against the top 5 exchanges, it will undoubtedly have an adverse impact on the market.
Investors and cryptocurrency advocates should also consider the $150 million hack that Kucoin suffered six days ago. At that time, its impact on the price of Bitcoin was almost zero. Now suppose these events happened a year ago, when BTC was in a downward trend after failing to test $14,000, and then formed a top at $12,000.
At the same time, with the BitMEX incident, gold hit a 2-month low of $1,850 on September 28, and it has partially recovered to $1,900. The United States also discussed the finalization of the second round of economic stimulus plan, totaling 2.2 trillion US dollars, the United States will hold the US presidential election in less than 30 days.
Historically, all these events have tended to inject uncertainty into the market, and the fact that Bitcoin derivatives data continue to remain stable amidst such turbulence suggests that $12,000 may be tested earlier than people think.
