BitMEX CEO Arthur Hayes responded yesterday to an article criticizing the trading platform, claiming the company does not make money from customer liquidations and denied the company was “opaque”. The accusatory article, posted on Medium three weeks ago, laid out three concerns the author had about the way the platform operated. In response, Hayes, in an interview with Yahoo! Finance UK, defended the company and fought back against the negative claims. Here, we look at the claims made and Hayes’ response.
Allegation: BitMEX trades against their customers.
Reasoning: BitMEX runs a profit-making trading desk, acts as a market maker, and “transacts in products traded on the BitMEX platform”. BitMEX also “hid the desk from their customers” and then lost legal counsel after being forced to announce it.
Response: BitMEX runs a market-making desk but it exists purely to bring liquidity to the market and does not trade against clients. This desk is “completely secluded”, has “the same trading rights as any other regular trader” and “can’t see the liquidation prices of any of our customers.”
Allegation: BitMEX weaponizes their server problems.
Reasoning: Some users have “priority service” and can still trade when the service is allegedly down. These individuals can then perform arbitrage and trigger a chain of liquidations.
Response: No “special access” to anyone, even if it means sacrificing revenue. Biggest priority is dealing with ongoing server issues. “Fairness is one of our guiding principles as a company,” said Hayes.
Allegation: BitMEX monetizes customer liquidations through their insurance fund.
Reasoning: BitMEX has a 14,000 BTC insurance fund, far bigger than it needs to be, and which it views as an asset. Money disappears from the fund once a quarter. BitMEX has sometimes made up to 66% of its monthly revenue through liquidations.
Response: BitMEX doesn’t “make money when people get liquidated” and the size of the fund is “purely a function of the market”. Fund needs to remain high to cope with potential drops in Bitcoin price, such as the 30% drop when an ETF was denied in 2017.
All Eyes on BitMEX
Whether Hayes’ responses will do much to calm the fears of BitMEX customers remains to be seen, but with over a billion dollars traded every day in a very quiet market, these worries are clearly not enough to put many of them off. The article has however drawn attention to the platform, so social media will no doubt scrutinize the actions of the company, along with what happens on the platform, during the next server downtime.
