BitMEX CEO Arthur Hayes Says ‘We Don’t Trade Against Customers’

Kevin O'Brien

The CEO of BitMEX took time to defend his company from a rash of online criticism in an interview with Yahoo Finance UK.  

Responding to a variety of allegations put forth in a blog post published on October 22nd, Arthur Hayes said BitMEX does not give anyone special access, does not engage in trading against customers, and makes no money when trades are liquidated.

The peer-to-peer bitcoin futures trading platform has rapidly become a heavy player in its market since being founded in 2014.  

However, it has been in the headlines recently due to an anonymous Medium post that made a number of pointed allegations against the exchange.

‘Exploring The Biggest Concerns’

In late October, “independent cryptocurrency researcher” named “Hasu” wrote a long-form Medium post that made a number of allegations reportedly based on customer suspicions.

In the post, Hasu alleged BitMEX secretly trades against customers, gives preferred access to specific traders once servers come back online, and collects money once it liquidates the positions of clients.

Another allegation leveled by Hasu was that BitMEX places excess margin into an insurance fund.

At the start of the post, Hasu wrote how BitMEX has a “hard time acting ethically once it gets in their way of making more money.” He said this was an issue because it “doesn’t submit to any regulator” since it is based in the Seychelles.

Towards the end, Hasu listed a number of suggestions BitMEX could take. These included the construction of a colocation center where clients could physically connect to servers, putting a hard cap on the company insurance fund, and allowing “products like Ups and DOWNs to be traded against other users.”

Hayes Responds 

According to Yahoo Finance UK, Hayes said BitMEX does not trade against clients even though it has a market making desk. According to Hayes, the purpose of the desk is to provide market liquidity.

Hayes also said the desk remains in complete seclusion from “the rest of the employees.”

When asked about the weaponization of server issues, the CEO said the exchange does not give anyone special access and noted how the biggest priority for the company was to tackle ongoing problems with servers, since BitMEX often gets more orders than it can handle.

Hayes also remarked the company does not “make money when people get liquidated.”

In a November 12th Tweet, Hasu wrote how Hayes “denied my concerns” and did not talk about the suggestions to “ameliorate the concerns going forward.”

In a follow up, Hasu explained how “we need more transparency around these issues, especially the fund and desk.”

CME Looks to Double Bitcoin Futures Limit, but Is This Wise?

The Chicago Mercantile Exchange (CME) has a new request for its regulator, as it looks to double open position limits on bitcoin futures contracts in the face of significant interest.

Nasdaq reports that the CME has already petitioned its regulatory body, the Commodity Futures Trading Commission (CTFC), asking for an increase from 1000 contracts per spot month to 2000 per investor. Each contract represents five BTC, so essentially, at its peak,  a single investor's total position may edge towards a monumental 10,000 BTC.

This is in direct response to the contract's recent growth which is currently depicting record levels of activity, citing $370 million being traded per day. A spokesperson for the CME noted that the idea to increase limits was proposed on the continued maturity of the market:

Based on the significant growth and acceptance of our financially-settled CME Bitcoin futures markets, as well as our analysis of the underlying bitcoin market.

However, as Nasdaq writes the increase in the upper limit of positions is somewhat superfluous. As of July, the number of open interest contracts reached an all-time high of just 6100; given this, it seems the CME may be future-proofing.

Open to Manipulation?

However, concerns remain about the limit increase, as without them, the potential for manipulation rises; often to the detriment to the underlying asset. Although, as per the CTFC website, the threat of manipulation from bitcoin futures contracts is "low":

In general, position limits are not needed for markets where the threat of market manipulation is non-existent or very low.

Instead, Nasdaq posited that this might point to a lessening on the CTFC's strict rule of bitcoin; as well as a maturing of the market in general.

Nevertheless, some believe the CME's bitcoin futures contracts do pose a significant threat to the price of BTC; with some suggesting that blatant manipulation continues unchecked within the market.

As reported, there seems to be a correlation between the expiry dates of CME bitcoin futures contracts and a lull in the price point of BTC. In several instances, a significant drop in bitcoin's price has coincided with a closure from the CME. The most recent example of this occurred on Labor Day, September 2, when bitcoin rose an extraordinary 8% shortly after the CME shut.

Crypto analyst, Alex Kruger, highlighted this, noting the large gaps which formed on the CME chart, from the price discrepancy before and after closing.

This has become a pretty accepted practice within the market. Kruger has even gone to the lengths of compiling statistics each time this phenomenon transpired:

On these occasions, bitcoin cited an average 4.6% price discrepancy following the close of the CME.

Whether this is a coincidence or the market is indeed being actively manipulated is as yet unclear. Either way, with the increase of these limits it might be only a matter of time until we know for sure.

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