BitMEX Trading Volume Way Down After Supports Broken

Colin Muller

Trading volume on BitMEX, the world’s largest - albeit unregulated - cryptocurrency futures exchange has fallen precipitously since last month, when the market broke through critical support levels, according to data from Bitcoinity.org. More than half of liquidity has left the exchange, from about $600 million worth of volume in October-November, to about $200 today - and at one point in the past few weeks falling below $100 million.

bitmexVol.png(source: Bitcoinity.org)

Bitcoin finally broke its key $6,000 support level in mid-November after testing it several times during 2018. This break halved the cryptoasset industry’s total market cap, with it briefly falling below $100 billion.

mc18_12.png(Cryptoasset industry market cap; source: Tradingview.com)

Data from Datamish.com show that, between November 13 to 27 - comprising the time bitcoin's support break occurred and eventually settled near $3,700 - long contracts were severely punished: There were $340 million worth of short contract liquidations versus $2 billion worth of long contract liquidations. One may anecdotally speculate that many bulls left the market after high losses.

(On BitMEX, liquidation occurs when the price action moves against the contract’s direction beyond the Maintenance Margin percentage, and the user’s principal funds are taken in order to cover the costs of the contract. It is BitMEX’s equivalent of a Margin Call - only without the call.)

BitMEX in a Seychell

The unregulated Seychelles-registered exchange, which represents 96% of bitcoin futures trading according to CryptoCompare’s November exchange review, is rather infamous in certain sectors of the cryptoasset community for offering very high leverage to inexperienced retail traders, who may use that function irresponsibly. BitMEX’s CEO Arthur Hayes has referred (in jest) to some users of his platform as “degenerate gamblers.”

BitMEX’s trade volume had been rising dramatically over the course of 2018 - from lows near $50 million - possibly as a hedge against falling prices across the cryptoasset market, because short futures contracts allow profit even as prices fall. Most of that activity appears to have been reset now.

bitmexVol2.png(source: Bitcoinity.org)

The loss in volume on BitMEX may not be so bad for the markets. CryptoGlobe recently reported on research that indicates a potential benefit to more tepid markets with less volume, at least in the case of bitcoin. Less buying and selling could indicate more holders, less selling pressure, and a price bottom to the 2018 bear market.

Analyst Explains Bitcoin Futures' Relationship With BTC's Price

Omar Faridi

Joe McCann, a widely-followed cryptocurrency trader and analyst, has stated that the “recent breakout” for Bitcoin (BTC), the world’s most dominant cryptocurrency, “feels very real” to him.

McCann noted in a detailed tweetstorm that he used Bitcoin futures trading data to arrive at his conclusion, or present outlook regarding BTC’s future performance. Going on to reference a chart which shows the “past 36 hours” of a “1-minute snapshot of the price of BTC,” McCann questioned Bitcoin’s recent price movements with respect to BTC futures contracts that expire in September of 2019:

McCann pointed out that If we look at the chart more closely, we can observe significant variations in price movements and patterns - which he explained as follows:

Bitcoin Futures: “Backwardation” Versus “Contango”

According to McCann:

Backwardation is the state where futures buyers are only willing to pay LESS than the current price of the underlying asset, in this case BTC. This is bearish.

The prominent trader also mentioned that "Contango is a state where futures buyers" happily pay more than the underlying asset's current price "at some point in the future." This, he said, is bullish.

Going on to reference another chart, McCann observed that a BTC breakout, tracked below, “failed”:

Commenting on the BTC price movements, McCann argued that “since we’re in Contango, spot price” may continue to surge which is “bullish” for Bitcoin:

Understanding Price Breakouts,Failures

He added that the charts above help illustrate “a simple example of why” BTC futures’ “term structure and its state is valuable in understanding breakouts and failures.”

Commenting on the “high price for BTC” on the Bitcoin Mercantile Exchange (BitMEX) of $5,442 at that time, McCann mentioned that this particular price was notably “$196 higher than [that day’s] trading low of $5246.”

Finally, McCann clarified that the highs and lows for BTC, referenced in his tweets, are based on BitMEX’s XBTU19 contracts, not XBT Perpetual. Bitcoin is currently trading at $5,570.38 according to CryptoCompare data, as its price has surged nearly 5% in the past 24 hours.