Thriller Insights - S4EP7: BitMEX, Bitcoin and 3 Missing Men

news via CoinDesk & Decrypt

U.S. regulators and law-enforcement officials brought charges on Thursday against BitMEX, a Seychelles-based cryptocurrency exchange that has grown in recent years to be one of the industry’s biggest players.

According to the U.S. Commodity Futures Trading Commission, prosecutors accused BitMEX of facilitating unregistered trading and other violations, including “conducting significant aspects of its business from the U.S. and accepting orders and funds from U.S. customers,” as reported by CoinDesk

The news dominated cryptocurrency news headlines and sent traders and analysts scrambling to assess the damage and implications. Some 23,000 bitcoin were apparently withdrawn from BitMEX addresses in a single hour

One of the defendants involved in the BitMEX case went as far as to “brag” that “bribing” regulators in a jurisdiction outside the U.S. cost just “a coconut,” according to a statement by FBI Assistant Director William Sweeney Jr. 

“One thing I know with regulators is, if you say things that are antagonistic in discoverable information places, you’re much more likely to be punished than people who do something very similar but keep their nose clean and not say anything and act respectfully,” Weisberger said.

The company has continued with normal operations and has vowed to fight the charges.

What I am thinking…

  • This has been coming for a while now, and while the charges are heavy and coordinated, we were well aware BitMEX was under scrutiny and it was just a matter of time.

  • CFTC alleged that BitMEX received some $11 billion in bitcoin deposits and made more than $1 billion in fees, “while conducting significant aspects of its business from the U.S. and accepting orders and funds from U.S. customers.”

  • This has more to do about controlling price discovery, and the CFTC knows this. Definitely a shot across the bow to overseas cryptocurrency exchanges that might be cutting corners on compliance.

  • Regulated commodities exchanges in the U.S. also typically offer trading leverage, but the most common bitcoin futures contract, from the Chicago-based CME, only allows positions with about three times the initial money down. Look for an uptick from here on out.

Bitcoin Chart by TradingShot via Trading View
  • Bitcoin has declined from $10,900 to $10,400 in the past 24 hours. More than 32,200 BTC (worth around $337 million) has been moved from BitMEX – 19% of the exchange's total funds, according to data source Glassnode. Bitcoin traders continued outflows from BitMEX Friday afternoon.

  • Open positions in bitcoin perpetuals (futures without expiry) traded on BitMEX have also declined by nearly 22% from $592 million to $462 million, according to data provided Skew, a crypto derivatives research firm.

  • However, liquidity, as measured by the bid/offer spread, on the exchange remains relatively stable, and the large trades can still be executed at low cost. Bid-offer spreads on other exchanges also remain stable.

  • Total inflows to exchanges averaged 65,000 bitcoin this last week, so BitMEX withdrawals are adding 25% more liquidity already. More than 65% of the total outflow has been transferred to other exchanges, while the rest into un-hosted wallets.

  • About 170,000 in Bitcoin or $1.8 billion, had been held in the BitMex wallets, according to Glassnode.

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