In 2013, when a reporter asked Snowden, the protagonist of “Prism Gate”, why he chose to flee to Hong Kong, Snowden replied that this is one of the few places in the world that can escape the power of the United States.
However, in 2020, BitMEX, a Hong Kong-based cryptocurrency exchange, has been subject to strong judicial supervision from the United States. On October 8, after the US Department of Justice and the US Commodity Futures Trading Commission sued BitMEX executives, BitMEX-related executives chose to leave. Just today, BitMEX CTO Samuel Reed, who was previously accused and arrested by the US Department of Justice, was finally released on bail with a security deposit of $5 million. We don’t know how far the regulation of BitMEX will be, or if it’s just a turmoil, just paying the money, or whether this important exchange in the history of cryptocurrency is about to usher in its most dangerous moment?
“Executive resignation, BitMEX will be a bird and beast scattered”
In the early morning of October 2nd, Beijing time, the cryptocurrency industry revealed a blockbuster news: The US Department of Justice and the US Commodity Futures Trading Commission (CFTC) have challenged the four executives of the cryptocurrency derivatives exchange BitMEX and their owners and operations The company filed a criminal lawsuit, accusing BitMEX of being an unregistered trading platform and that its AML (anti-money laundering) and KYC violated CFTC rules. The previous day, BitMEX CTO Samuel Reed had been arrested in Massachusetts.
In addition, in the 40-page CFTC lawsuit against BitMEX, a number of related companies and individuals, including BitMEX’s parent company HDR Global Trading Limited, have been sued in court. According to a statement from the FBI, one of the defendants in the BitMEX incident also bribed overseas regulatory agencies. This is in violation of the United States’ Foreign Corrupt Practices Act (FCPA), which specifically prohibits Americans from bribing overseas officials.
If the above crimes are convicted, then each crime can bring 5 years in prison for the four executives involved.
In addition to criminal litigation from the Ministry of Justice, BitMEX also suffered civil litigation from the CFTC. The CFTC stated that BitMEX executed futures trading without registration, provided illegal options, failed to register as a futures commission dealer, failed to register as a designated contract market, failed to implement appropriate KYC rules and other crimes. After being sued, BitMEX experienced a large-scale management personnel change. Among them, founder and CEO Arthur Hayes and the arrested co-founder and CTO Samuel Reed also resigned from their current positions. Co-founder Ben Delo and Greg Dwyer, head of business development, also chose to leave. Vivien Khoo, who once served as BitMEX COO, temporarily provoked the burden of BitMEX CEO. It is worth noting that Vivien Khoo has previously held important positions in Deutsche Bank, UBS and Goldman Sachs Asia Pacific compliance department.
Such intensive personnel changes, in some people’s eyes, this is BitMEX’s face of difficulties. However, there are also views that BitMEX’s move is opposed to changes in US regulation. After all, after the CFTC launched the lawsuit, 100x Group, one of BitMEX’s parent companies, publicly condemned the accusations made by US regulators. It is worth noting that, of the four executives currently indicted, apart from the arrest of CTO Samuel Reed, none of the other three have been brought to justice. In addition, on October 7th, BitMEX announced that it will complete two user withdrawal applications at 4 pm and 9 pm Hong Kong time on the same day. Among them, 4 pm on the same day is an additional withdrawal in addition to the regular daily withdrawal schedule. . This kind of expedited withdrawal is immediate.
On October 3, according to data disclosed by Philip Gradwell, chief economist of Chainalysis, a blockchain analysis company, at 4:30 am Eastern Time, less than 24 hours after BitMEX operator HDR Global Trading Limited was accused, There are 32,000 bitcoins withdrawn from BitMEX, worth approximately $335 million. Gradwell predicts that more bitcoins will be withdrawn from BitMEX in the future, and the large-scale escape of bitcoin will also drive the entire bitcoin price to fluctuate. On October 2, the day of the BitMEX defendant’s lawsuit, Bitcoin instantly plunged from $10,800 to less than $10,400. The market panic is evident.
“Disaster has a precursor”
Many people are surprised by BitMEX’s misfortune, but this misfortune has a precursor. In 2019, Arthur Hayes, the founder of BitMEX, had been “aphasia” on Twitter for 18 consecutive days, and this was also closely related to the US supervision at the time. Beginning on July 12 last year, Arthur Hayes, who had previously tweeted every day, “disappeared” on social media. What is even more strange is that not only Arthur Hayes lost his voice, but BitMEX’s official Twitter also stayed on July 15th. The last tweet was about Arthur Hayes and Dr. Doom Nouriel Roubini on July 3rd. Debate in Chinese Taipei.
At that time, Dr. Doom bluntly stated that Arthur Hayes was a liar, and BitMEX allowed non-qualified investors to play with 100 times leverage without identity verification and no anti-money laundering regulations. However, although the remarks were refuted by Arthur Hayes, supervision from the CFTC came unexpectedly. On July 19, Bloomberg published an article titled “U.S. Regulators Investigating Cryptocurrency Exchange BitMEX Customer Transactions”. This article disclosed the fact that BitMEX is being investigated by the CFTC, and the investigation has lasted for several months. . It is reported that the focus of the CFTC investigation is whether BitMEX violated the regulations and allowed Americans to trade on BitMEX because BitMEX is not registered with the agency.
In the face of the CFTC’s allegations, Arthur Hayes did not respond. Instead, a BitMEX spokesperson responded that according to the policy of HDR Global Trading Limited, the main company of BitMEX, we do not comment on any reports of investigations by government agencies or regulatory agencies. We also do not comment on the report. Although BitMEX has consistently denied it, the market’s response has been honest.
On July 20th, TokenAnalyst, an on-chain data analysis agency, found that the Bitcoin withdrawal amount on the BitMEX platform was the highest after statistics on the inflow/outflow of Bitcoin in the past 24 hours of major exchanges. In the case that the inflow and outflow of Bitcoin on trading platforms such as Binance, Bitstamp, Bittrex, and Poloniex are roughly the same, the inflow of Bitcoin in BitMEX is only over 12 million U.S. dollars, but the outflow amount is as high as over 85 million U.S. dollars, which means it is valuable The $73 million in Bitcoin fled.
However, even though BitMEX has faced such a crisis, Arthur Hayes, the founder, still did not respond. Finally, on August 1, 2019, Arthur Hayes, who had been silent for several weeks due to the CFTC investigation, finally appeared and said that he was trading on a yacht in a certain forest. See you in September. At this time, BitMEX had already lost US$145 million due to the outflow of funds caused by the investigation.
But Arthur Hayes doesn’t care. In his opinion, as long as his exchange can still run smoothly, the previously lost funds will one day be earned back. Just as Dr. Doom questioned that he didn’t care where the player’s money came from, and only cared about whether he could make money, Arthur Hayes responded: What about 100 times leverage? Customers find us, they are willing to speculate, we are an honest platform.
“The hidden crisis of barbaric growth”
The wind rises at the end of Qingping, and the waves become between the waves. If you look back at the past, you can find that BitMEX’s history is genius and barbaric, and the cause of its rise is also the cause of its disaster. In 2014, Mentougou (Mt.Gox) was finally closed due to theft, and the world’s Bitcoin focus was transferred to China due to the presence of Chinese miners. Arthur Hayes was 28 years old that year, and he was swept out a year ago during a wave of layoffs at Citibank on Wall Street. When he arrived in Hong Kong a year later, he saw an opportunity: Bitcoin arbitrage opportunities (the price of Bitcoin in Mainland China is 20% higher than that in Hong Kong). At that time, due to bank transfer restrictions, he would even take a one-hour bus ride in Hong Kong to a bank in Shenzhen, withdraw the maximum allowed withdrawal amount of 20,000 yuan, and then bring it back to Hong Kong. Although the process was cumbersome, it was completely compliant. It is through such manual brick-moving that he has accumulated the first pot of gold in his life.
After a long time, the restless Arthur is no longer satisfied with arbitrage, but has to build a cryptocurrency exchange by himself. He found two entrepreneurial partners: Ben Delo, who had developed a high-frequency trading system for JPMorgan Chase, and Samuel Reed, a senior programmer from the United States. The three have a reasonable division of labor. Arthur, who is proficient in financial derivatives, serves as the CEO of the entrepreneurial team; Ben Delo, who is familiar with high-frequency trading systems, serves as the chief strategy officer; Samuel Reed, who has more than ten years of program development experience, serves as the chief technology officer. This iron triangle was formed and named BitMEX.
At that time, although cryptocurrency exchanges did not develop as vigorously as they are now, there were also good competitors. Especially at that time, exchanges such as OKCoin and Huobi already had the potential to be top leaders. How to stand out among the best exchanges? This seems to be a headache for all exchange owners, but for Arthur Hayes, it is not a big problem. BitMEX has been built as a pure futures contract platform to match buyers and sellers of futures contracts. Regardless of the trend of cryptocurrencies, BitMEX can guarantee to make money.
In the case of Bitcoin, the platform charges 0.05% of the settlement fee. Litecoin and other currencies with lower liquidity are charged 0.25% of the settlement fee. In order to bypass the banking system, all transactions on BitMEX are in Bitcoin. Settlement, not converted to any legal currency. At the same time, Arthur and Delo have a genius design that makes BitMEX stand out from the Bitcoin futures contract trading platform, which is the perpetual swap, or XBTUSD perpetual contract. Different from general term contracts, general term contracts will eventually expire and trigger the delivery of the underlying assets, and these perpetual contracts never terminate. It tracks the dollar price index of Bitcoin, and investors can go long or short Bitcoin for a long time without interruption. To participate, users only need a mailbox. Yes, on BitMEX, users do not need KYC. Because of this, BitMEX skyrocketed, riding the wind.
In 2018, BitMEX rented the entire 45th floor of the Yangtze River Center in Hong Kong and the world’s most expensive office. In order to reach this point, Goldman Sachs took a hundred years and BitMEX only took 4 years. And on February 3 this year, Arther tweeted announcing that since the launch of XBTUSD trading in 2016, XBTUSD perpetual contract trading volume has exceeded 2 trillion US dollars. BitMEX is in the limelight for a while, and the spring breeze is proud. However, it is worth noting that even BitMEX has become the world’s largest bitcoin futures trading platform, occupying the largest market share in bitcoin futures trading, even though Arthur happily shared the exciting trading platform on Twitter The data tells people that the open position on BitMEX exceeds US$1 billion, and the total trading volume of perpetual contracts exceeds US$2 trillion. But it still cannot hide the fact that BitMEX does not have a compliance license.
“The Way Out for BitMEX”
On March 4 this year, the British financial regulator issued a warning to BitMEX due to license issues. If it fails to complete compliance, it means that it will abandon the UK market. Coincidentally, at the beginning of last year, under the supervision of the United States, BitMEX closed the accounts of American users. After that, it was Quebec, Hong Kong, Cuba and Syria in Canada… Under the situation of tightening global supervision, it was not compliant. BitMEX is constantly being expelled from various countries and regions, and other exchanges on the contrary have begun to cannibalize BitMEX.
“Black Thursday” on March 12 is remembered for many things. But for cryptocurrency investors, the March 12 crash has changed the landscape of the Bitcoin derivatives market. But for BitMEX, the 312 flash crash was a fatal blow to its Bitcoin futures market share. According to CoinMetrics data, BitMEX’s open interest market share fell rapidly from 35% in mid-March to less than 20% in April. In contrast, OKEx and Binance have risen strongly. Among them, Binance The share reached 25%, surpassing BitMEX.
Blockchain analyst Antoine Le Calvez said at the time that since the Bitcoin crash, the largest crypto-asset futures market has shuffled, and BitMEX’s market share has been taken away by Binance. External troubles and internal concerns, BitMEX’s life will not be easy. Up to now, Arthur Hayes’ Twitter has not been updated for 9 days. I don’t know if Arthur’s aphasia can be exchanged for the safety of BitMEX.
It is worth noting that the US authorities’ supervision of BitMEX far exceeds the previous supervision of exchanges such as Binance. After all, supervision cases that directly rise to the height of arrest are very rare in the top exchanges. As far as BitMEX is concerned, if you can’t get through this difficult time, then Arthur Hayes, who has been wandering around the world, will probably be carrying a wanted “Desperate World”. Even if it overcomes this difficulty, it may be difficult for BitMEX, which has lost a huge amount of assets, to restore its previous glory. After all, many people now believe that BitMEX has even caused damage to the industry. David Carman, a former senior trader at the Chicago Board Options Exchange, said that the cryptocurrency derivatives exchange BitMEX did not comply with US regulatory requirements, which has caused harm to the entire crypto industry.
“If they don’t abide by the rules, they will only hurt the entire industry and drag it down.” In fact, with the investigation of BitMEX, the major cryptocurrency exchanges in the industry are violent. On the evening of October 2nd, on the same day BitMEX was filed, a contract exchange Bybit stated that it complied with local regulations and that it was not under the jurisdiction of the United States and did not face the risk of similar problems.
Coincidentally, on October 9, Brian Armstrong, CEO of the cryptocurrency exchange Coinbase, published a blog post stating that since the company clearly announced its non-political stance, 60 employees of the company have accepted severance pay, accounting for the total number of Coinbase employees. 5%. Although Coinbase’s move has no direct evidence that it is related to BitMEX, it is inevitable that there will be a shadow of a snake. After all, for the cryptocurrency industry that has been in a gray area for a long time, it is difficult for exchanges to guarantee that their actions will not arouse the vigilance of regulators. Bitcoin whale Joe007 recently tweeted that regulators will not stop here and cryptocurrency traders should be prepared. Accompanying the BitMEX incident is the strengthening of global supervision.
As early as May last year, 15 countries, including the Group of Seven, began to construct plans for cryptocurrency regulation, which is expected to be completed in 2020. In addition, on September 24 this year, the European Union also announced that it will begin to strengthen the supervision of encrypted digital assets. Facing the current situation of BitMEX, some people were moved by BitMEX’s spirit of “I would rather die” and applauded. However, we should also see that with the development and growth of the cryptocurrency industry, the entire industry is currently worth 344.3 billion U.S. dollars. Feeding millions of practitioners, the current cryptocurrency industry and the early geek experiments of Qianshan alone are no longer the same.
Wanxiang Xiao Feng once stated in public that the trend of blockchain is not fundamentalist decentralization, but to use decentralized methods to elegantly solve problems, not for decentralization, but for the welfare of human society The increase. The same is true for cryptocurrencies. Decentralization may be a nice word, but it is not a wise move to wander or confront legal supervision after all. Perhaps after this blow, BitMEX, which has grown savagely, has to re-examine its present and future regardless of the situation.
