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Crypto World products have been gradually designed for the Wall Street style with the latest discourses revolving around Bitcoin futures. BitMEX is among the players that have capitalized on the derivatives market without digital assets given the profitable nature of these contracts.
The parent company of the company, HDR Global Trading Limited, has an operating license from the Seychelles in view of the country's soft approach to company regulation. Its product is basically a perpetual swap that tracks the BTC-USD index; the 'XBT-USD & # 39 ;. In one of his comments, the company's CEO, Arthur Hayes, made a joke about his consumers as "degenerate gamblers".
Basically, this project allows interested criptopreneurs to place bets on the movement of altcoin prices. The Bitcoin Mercantile Exchange (BitMEX) operates in Hong Kong, where its regulations are minimal, thus allowing a large clientele to access their cryptographic derivative products. An example of these products are futures contracts that create a market in which customers can interact via P2P trading and take different positions. At the moment, the services offered by BitMEX are available in 5 languages (Japanese, Korean, Chinese, Russian and English). Its transactions on the platform are settled via the main "BTC" cryptographic currency.
BitMEX dates back to 2014, when the company started its activities. Today the company is proud to be the main liquid market for encrypted derivatives, in particular for BTC; the company manages over $ 4 billion transactions a day. A larger part of BitMEX product consumers comes from Northern Asia, this is not surprising given the region's aggressiveness in the blockchain and crypto sector.
Other exchanges that have sought to offer futures in the world of digital assets include CBOE and Chicago Mercantile Exchange, although both are widely regulated. This is a clear indication of why investors prefer BitMEX and therefore the large volumes traded daily.
BitMEX background
Arthur Hayes, founder of BitMEX, is a former employee of the Deutsche Bank of Hong Kong and a graduate in finance from the Wharton Business School. His career began at the height of the 2008 financial crisis, which meant earning much more than expected. The young CEO then moved to Citigroup in 2013, but did not stay long due to the downsizing that took place in May of the same year. Arthur's experience in financial markets includes working as a market maker for ETFs, which is crucial in his cryptic business today.
It was then that Arthur decided to join the Bitcoin group while the market was gaining popularity. Most of Arthur's profits at the time implied arbitrage opportunities because the markets still had to agree on a common price for digital resources. In addition, Arthur traded in BTC futures that were available within Russia's ICBIT platform, where he also made some profits.
Arthur's adventure in cryptographic derivatives began not long after the 2013 meeting with Bitcoin. At the beginning of 2014, it contacted two strategic partners to create BitMEX. The two companions; Sam Reed and Ben Delo with whom Arthur launched BitMEX in November 2014 are respectively web developer and high-frequency trading analyst.
According to a comment by Arthur, his experience in the corporate world has taught him a lot that he leveraged the digital currency market. In his view, derivatives are among the high-income products in Investment Banking as no physical assets are involved in these contracts. In addition, consumers can increase their position through the use of leverage which in turn improves profit prospects for the market maker.
The statistics of Arthur's company show a success in the crypto-market player; its revenue from 2017 shows a hefty $ 83 million as told by Bloomberg. The CEO was spotted in a waving Lamborghini while participating in one of the cryptic events that were held in New York City, this is one of the signs of a complete corporate cryptography.
The Crypto Derivative Arithmetic
Anyone who has interacted with derivatives has probably taken some time to understand their complex nature. However, the effectiveness of the product in hedging risk and speculative reasons is highly classified in the financial markets. Arthur says that a good number of his company's customers are retail investors who take a gambling mindset approach to cryptographic derivatives.
At the press date, the company offers 8 different futures contracts each of which represents a specific altcoin. Its main "XBT-USD" product remains the main point of sale for the company as most of the investors are interested in the BTC-USD index. It works similar to a future contract, although its settlement structure is very different. Holders are liquidated every 8 hours while the leverage limit is set at 100x. This seems very profitable, although Arthur claims that most customers will only go up to 8.5x. Another product launched by BitMEX in Q3 is the perpetual exchange ETH-USD, an altcoin of which Arthur is skeptical.
If a client becomes lucky, he can actually make huge profits from an exchange position he has hired. However, the trick is in the lever function that greatly increases the risk of loss of the customer. For example; a customer who uses the 100x leverage on a BTC could lose all of this equity if Bitcoin drops by $ 20 (0.5%). These are based on the house rules established by BitMEX for its derivatives.
One of BitMEX's approaches today is the capitalization of new market players who do not understand the platform's trading design. The company goes to the extent of sweeping all its equity once they are in a losing position. At present, the company has extended its supervision on the accounts jumped in the margin through a twitter bot @BitmexRekt.
BitMEX transaction charges are another important pillar for the company's revenue. They charge transactions on the total value of an agreement as opposed to the principal amount; this is 0.075% for BTC and 0.25% for minor digital liquid assets. The opening and closing of contracts are also considered separate transactions, with a consequent increase in the fees charged.
The project has often been compared to a gambling game in a casino because of the uncertainties related to these positions.
Arthur Hayes defended his company by claiming that his final game is different from that of the casinos;
"It's more like a poker game, we take a slight rake, or trading commission, from the corresponding trades, so technically speaking, it's not the gamble because you do not know you're about to lose money when you get on the platform. "
Insider trading query
The BitMEX encrypted journey was not without controversy; one of the project's questionable initiatives is the introduction of a profit-driven market maker. Ideally, the market maker should facilitate liquidity by placing offers and sales positions once they arise. Today's technology has improved the efficiency of this process with the use of robots.
A blog post written in April 2018 highlights Arthur's comments on creating a market maker for company customers;
"In order to entice others to provide liquidity, we financed an entity that would quote as soon as a new product listed,"
added that
"As the product became more liquid, this entity resized its size [sic] quotes and focus on another product with lower liquidity on the BitMEX platform. "
In-house BitMEX is currently managed by Nick Andriany, a friend and former colleague of Arthur of the Deutsche Bank. The subsidy is charged for the management of digital asset and OTC contracts with counterparts worldwide. Anyone can take an UP or DOWN position in the available contracts, but only the market maker is authorized to sell short in accordance with the house rules established by BitMEX.
Arthur's explanation of the company's payment plan to winning customers is quite satisfactory. The founder of BitMEX states that the company uses collateralised products, which means that the internal market maker publishes the total value regardless of a customer's premium. Despite its capital-intensive nature, Hayes says this is the most efficient way to ensure that funds are paid.
When he was interviewed by Yahoo Finance, Arthur defended the internal market maker from insider trading requests. The gentleman claimed that the account held by this player was not different from the other accounts of the client, so no privilege for information that could give them a competitive advantage. In particular, the trading desk is not involved with the books, so the position taken by Arthur on this statement.
In order to compensate for their highly exposed position, the BitMEX market maker capitalizes profits from spreads between purchase and sale prices. Hayes added that his company's market maker also makes money with the fees charged for using the platform. However it was very clear that the BitMEX market maker is focused on the draw.
Just like other cryptographic projects, BitMEX still has to solve traffic problems that often cause overloads inside the hosting servers. The platform has been criticized for failing a couple of times, thus blocking customers from acting on a contract. One customer attributed the loss of 43 BTCs to this inefficiency while some customers claimed that BitMEX uses these scenarios to position them in a favorable position.
The only safe way to get the fine print of BitMEX operations is a check performed by a 3rd party. This is subject to the obligation of the company to disclose its information; BitMEX represents a vantage point as it has no such obligations as an entity.
Escape from regulatory jurisdiction
BitMEX is a fairly new company even if it is experienced in the cryptographic derivatives market. The company may soon see its prospects change with the ongoing debate on digital resources, particularly in the United States. Today regulators have yet to decide on which asset class to classify cryptographic currencies. Some have been put under products while others like XRP are under Reg-D titles if sold in the US market. Therefore, the regulation of such assets when traded in the United States falls under the Commodity Futures Trading Commission (CFTC) and the Securities Exchange Commission.
The information above simply indicates that BitMEX should acquire registration from both regulators to access the US market. This is the reason that forced the company to exclude potential customers in the United States.
Blocking potential investors from strict countries such as the United States, Iran, Crimea and Syria has been an uphill task for BitMEX. The company blocks the IP addresses of these countries, an approach that has some gaps. Interested customers can simply get a virtual private network (VPN) that hides their original address. Information on how to solve the problem is already available on YouTube for American customers.
BitMEX faces more challenges when it comes to KYC practices, this is the Know Your Customer approach that is a fundamental element of many corporate and financial laws around the world. The target countries that implement these include Canada, the United States and the United Kingdom; all are cryptographic perspective areas despite the strict regulations. Arthur Hayes believes that the KYC approach requires time and hurdles to potential customers who could significantly increase volumes.
Going into history, setting up overseas offices has not prevented US regulators from blocking cryptography-based companies. In 2015, Bitfinex was fined by the CFTC together with a Hong Kong cryptic exchange counterpart; the two had offered margins without regulation. The most recent development is the joint pursuit of 1Broker by SEC, CFTC and FBI. This company registered in Austria is currently being defined to violate KYC practices and violate the laws associated with security swaps.
BitMEX Future Prospects
Bitcoin's bullish run at the end of 2017 raised the speculation ranges for altcoin at the start of 2018. Arthur Hayes is among the bullish predictors who once said that the digital asset would reach the sign of $ 50,000 at the end. When asked about this unexpectedly cryptic blood bath, Arthur defended his position by saying that it is his obligation to make predictions regardless of the results.
The young CEO is still ambitious in creating the most liquid market for derivatives of digital assets, despite the current poor performance of the market. From the point of view of things, BitMEX is doing very well after moving into a new office space in the expensive business center of Hong Kong. The company currently pays the same skyscraper as Goldman Sachs, Barclays and Bank of America for a rented space of $ 600,000 monthly shares.
Other indications that the company has grown enough to engage with regulatory bodies include a move to hire Angelina Kwan, a regulatory expert. Kwan is a former employee of Hong Kong Exchanges and Clearing, a leading global financial market. The new resource will act as Chief Operating Officer of the company, bringing the experience gained from his career as a manager in the field of regulatory compliance.
The trip will be and will not be easy for Hayes, especially with regulatory challenges. BitMEX will have to overcome this and other factors such as the decrease in demand based on the downward trend in cryptocurrency markets. Having said that, Arthur seems to be optimistic that prospects will favor his business and accumulate what he is capable of doing until the fate of the industry is known.
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