On October 2, the United States, which had just entered the first day of the last quarter of 2020, sent two heavy news: First, the U.S. regulator filed a lawsuit against the executives and entity companies of BitMEX, one of the world’s largest cryptocurrency trading platforms; The second is that BitMEX CTO has been arrested.
On October 1, local time, the U.S. Department of Justice and the U.S. Commodity Futures Trading Commission (CFTC) respectively initiated criminal and civil charges against the founder and three executives of BitMEX, alleging that they conspired to violate the U.S. Bank Secrecy Act and operate Unregistered trading platform, involving violation of KYC and anti-money laundering related regulatory regulations.
According to the Department of Justice, BitMEX’s CTO Samuel Reed has been arrested in Massachusetts. BitMEX CEO Arthur Hayes, co-founder Benjamin Delo and head of business development Gregory Dwyer are also involved and have not been arrested yet.
According to the New York Times, prosecutors stated that BitMEX has not taken any measures after being informed that it was used by criminals for money laundering, which made “BitMEX a tool for money laundering and violation of sanctions.”
This is one of the world’s largest trading platforms for cryptocurrency derivatives. In August this year, BitMEX’s trading volume reached 72.5 billion U.S. dollars, with tens of thousands of daily active users. Platform executives of this magnitude were directly arrested, and it is not an exaggeration to call them “US 94”.
Two concerns
After the news was fermented, everyone was generally concerned about two points.
The first question: Why was the CTO caught instead of BitMEX CEO Arthur Hayes?
When reading the announcement of the US Department of Justice, Rhythm BlockBeats found that when describing Hayes, Delo and Dwyer, the announcement said “remain at large”, which can be understood as “impunity.” In other words, CEO Arthur Hayes is indeed on the arrest list, but he has not been caught yet.
In the “New York Times” article, it also expressed the intention of the regulator to catch all senior executives. The New York Times made an errata at the end of the relevant article, which described Dwyer as “who is still being sought”, that is, “being searched.” Arthur, who is of the same nature as Dwyer, is also being searched.
This can only show that although the CEO of BitMEX is not in the United States now, the regulators do intend to arrest him.
The second question: Can BitMEX users still withdraw coins?
For such a blow, BitMEX seems to be well prepared. Within a short time after the news of the indictment was released, BitMEX quickly issued an announcement. The content was very brief. It first expressed its incomprehension to the regulatory authorities, and then responded to everyone’s most concerned questions.
According to CoinMetrics data, when the hunting news was announced, there were currently about 193,000 bitcoins on the BitMEX platform, with a total value of about 2 billion US dollars.
It is understood that BitMEX’s withdrawals have always used a multi-signature mechanism. As long as two of the three multi-signers have signed, the withdrawal can be passed. Now an executive has been arrested, and the regulators are chasing after the platform. Whether the above 2 billion US dollars is safe has become the biggest question.
However, BitMEX’s subsequent announcement became a shot in the market.
Under normal circumstances, BitMEX will apply for withdrawal at 9 o’clock every evening. In order to eliminate users’ doubts, they deliberately increased it twice a day. The announcement shows that at 1:45 am on October 2nd, Beijing time, BitMEX has processed a wave of withdrawal requests. In addition, at 16:00 and 21:00 today, the platform will continue to process new withdrawal applications.
At present, some news that the withdrawal has been confirmed have also appeared on Twitter. According to the current situation, BitMEX has no redemption problems that investors worry about.
External evaluation
Some cryptocurrency experts are not surprised by the news that BitMEX has encountered regulatory “hunting”.
“The vast majority of companies that serve the United States are compliant, so it’s no surprise that the government is now turning to companies that refuse to comply with the law,” said Jerry Brito, executive director of the Washington research and lobbying group Coin Center. Jerry Brito said in an interview with The New York Times.
In addition, Wan Hui, the founding partner of Primitive Ventures, believes that September 30th is the annual accounting settlement date of the CFTC and SEC, so there are usually many regulatory actions in the third quarter, such as the EOS case last year. The action of the regulator this time, “I feel that this (BitMEX) was the result of the previous game talk with the regulator”, so it also means that BitMEX is ready for a long-term game.
In fact, since last year, US authorities have been investigating BitMEX. In the face of increasingly stringent regulations, BitMEX has made compromises.
In August of this year, BitMEX announced the launch of an identity verification program, requiring all users to complete KYC before February 12 next year. At that time, Arthur Hayes also expressed emotion, “The game has changed, and we have also changed. Keep calm.”
But now, even Athur Hayes seems to be a little bit hard on himself.
From being laid off to billionaire
Although registered in Seychelles, Arthur Hayes chose to locate BitMEX’s headquarters in the world’s financial center-Hong Kong, which is not only a paradise for crypto trading, but also where Arthur first started.
Arthur and BitMEX are not short of money. In August 2018, the wealthy Arthur rented the 45th floor of the Yangtze River Center at a cost of 28.66 US dollars per square foot (0.09 square meters), breaking the previous record and becoming the world’s most expensive office in one fell swoop. The monthly rent totals more than US$500,000. Such a large sum of money allows BitMEX to be on par with world-class financial institutions such as Goldman Sachs and Barclays Bank.
In his spare time, he can stand in front of the tall French windows and look at the bustling night view of the city opposite, proudly. Arthur has become one of the most well-known entrepreneurs in the crypto world. He founded BitMEX with a daily trading volume of 3 billion US dollars and a 30-day trading volume of more than 12 million US dollars. As long as someone comes to trade, the platform can Steadily earning a steady stream of fees. Compared to Arthur’s steadily moving bricks in his early years, this is the real gold.
When he first started his business, Arthur never thought he could make the business so big.
Seven years ago, in order to make a living, 22-year-old Arthur had to endure a salary cut at Deutsche Bank, where he had stayed for a few years. After a while, Arthur quit and went to Citibank, but the sudden wave of layoffs made Arthur, who had just settled down. Unfortunately, he became one of them. This top student, who graduated from the Wharton School of the University of Pennsylvania, lost his job.
Arthur, who was born in a middle-class family in Buffalo, USA, considered working in the real estate industry and finally chose finance. After having no job, whether to continue to find a job at the next home or start a business has become the two choices before the black guy.
A month before he was cut, he saw Bitcoin on the Internet, and this novelty caught his attention. At that time, this bitcoin, which was different from traditional financial products, attracted more and more speculators as the price rose. Arthur found that there was a significant price difference between bitcoin prices between multiple trading platforms. He saw the opportunity , Naturally became a “brick mover.”
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 “moving bricks” that he has accumulated the first pot of gold in his life.
Arthur, who made money, was not satisfied with the status quo. He quickly targeted the business of opening a trading platform. In the eyes of a financial veteran like him, there is no trading platform that satisfies him on the market. Why not create one yourself?
In January 2014, Arthur, who was no longer satisfied with arbitrage, found two partners, one is Ben Delo, a computer scientist who graduated from Oxford University, and the other is Sam, a senior programmer from the United States. · Samuel Reed, the three hit it off and co-founded BitMEX.
BitMEX has the genes of traditional financial products. Unlike most platforms that provide various types of encrypted products, BitMEX is a pure futures contract platform that provides up to 100 times leverage and perpetual contracts. It will be traded here, almost all professional Of cryptocurrency investors.
When the platform was first launched, the market did not expand smoothly. “For most of 2015, BitMEX’s trading volume was very poor.” “Sometimes even zero transactions.” Arthur recalled, but in October 2015, when the team When the upper limit of leverage was increased from 3 times to 100 times, users began to flock to participate in this thrilling game that is either instant wealth or instant bankruptcy.
Due to BitMEX’s unique products, the platform subsequently developed rapidly, so that for a long time, BitMEX once dominated the entire derivatives market. At the beginning of 2018, Arthur, who had long been out of the shadow of the layoff, was very high-spirited in an interview with Bloomberg: “Why do you still suffer from working at a bank? It’s time to take a risk and give it a try.”
Arthur and BitMEX, who enjoy high fee income, are indeed “adventuring” every day.
BitMEX was expelled from many countries and regions
Even if BitMEX has become the world’s largest bitcoin futures trading platform, occupying the largest market share in bitcoin futures trading, even if Arthur happily shared exciting data on the trading platform on Twitter, telling people about the future on BitMEX The amount of liquidation exceeded US$1 billion, and the total trading volume of perpetual contracts exceeded US$2 trillion.
But the sword of Damocles in the trading platform industry always hangs on Arthur: BitMEX does not have a compliant license.
On March 4, the British financial regulator FCA issued a warning to BitMEX, saying that it did not have a license and was conducting trading platform business in the UK without permission.
The regulator deliberately stated in the statement that unlicensed financial operations are likely to be related to fraud. Obviously, even if everyone in the industry knows BitMEX, in the eyes of regulators, no license is almost the same as fraud.
In this regard, BitMEX has nothing to do. If they cannot complete the UK compliance before January 2021, the registration deadline set by the UK FCA, then BitMEX can only suspend business in the UK and close the accounts of UK users .
And it’s not the first time they have been forced to do this.
At the beginning of 2019, according to media reports, BitMEX had to close the accounts of US users due to restrictions by US regulators. Although BitMEX denies this news, it is conceivable that the United States, which has the most stringent regulatory requirements and compliance requirements for the cryptocurrency industry, is difficult for BitMEX, which has not obtained regulatory permission, to conduct business freely under the attention of US regulators. US commodity futures The Commission’s investigation of BitMEX proves this.
Subsequently, the Canadian regulatory agency AMF severely warned BitMEX, claiming that it was operating illegally in Canada, and demanding that the accounts of Quebec users be closed.
What’s more unfortunate is that in November 2019, the Hong Kong Securities Regulatory Commission SFC issued the “Position Statement on the Supervision of Virtual Asset Trading Platforms” and the “Hong Kong Securities Regulatory Commission Issued the Terms and Conditions for Regulating the License Issuance of Virtual Asset Trading Platforms”, officially preparing to make virtual asset trading compliance化. BitMEX seems to have judged Hong Kong’s regulatory trend in advance, and announced in August that it would stop providing cryptocurrency trading services to Hong Kong users.
Although BitMEX stated in the announcement that closing the accounts of Hong Kong users does not affect the volume of business, you must know that the office location of BitMEX headquarters is the Yangtze River Center in Hong Kong, one of the most expensive office buildings. It is impossible to lose Hong Kong users without affecting the business volume.
As of now, BitMEX has banned account access in 11 countries and regions, including: the United States, Quebec, Hong Kong, Seychelles, Bermuda, Cuba, Crimea and Sevastopol, Iran, Syria, North Korea, and Sudan.
No one knows how BitMEX and the regulators will end this storm.
Some people have speculated that BitMEX reached a settlement with the CFTC and once again prevented American users from logging in and using it, while strengthening the implementation of KYC/AML.
Of course, the precedent of Telegram Open Network has also appeared. A star project that raised $1.7 billion was directly stopped by the regulator.
The only thing that is certain is that the trend of compliance in the cryptocurrency industry is becoming more and more obvious, not only for cryptocurrency trading platforms, but also for project parties. This global compliance road is bound to affect everyone in the industry .
