BitMEX CEO Responds to Claims of Impropriety
In a new interview, Arthur Hayes, CEO of popular cryptocurrency exchange BitMEX, has denied claims from an anonymous blogger that the firm engages in unethical practices to the detriment of its customers. Speaking with Yahoo Finance UK, Hayes refuted charges made in a widely-read October blog post.
UPDATE: This piece was update to reflect response from BitMEX CEO Arthur Hayes.
Subscribe to the Bitsonline YouTube channel for great videos featuring industry insiders & experts
BitMEX CEO Denies Claims of Impropriety
Written by an author using the pseudonym “Hasu” and relying on unnamed industry sources, the post claimed that BitMEX was using a variety of methods to unfairly make money off its customers.
One of Hasu’s claims was that BitMEX uses its market-making desk to trade against its customers using inside information that only the exchange knows. Hayes told Yahoo Finance that the desk exists and is staffed by BitMEX employees, but that it is considered a normal customer and treated as such. According to Hayes:
“They [the market making desk] have the same trading rights as any other regular trader, they can’t see the liquidation prices of any of our customers. We don’t trade against our customers. It’s actually a pretty bad business model and introduces a lot of risk into what is right now a riskless business model, BitMEX. We match trades, that’s it, we have no risk. Trading against our clients is nonsensical.”
Preferential Server Access at Issue
Another one of the claims made by Hasu is that BitMEX doesn’t provide fair and equal access for all of its customers during times of server overload. Hasu claimed to speak with regular users who were unable to connect to BitMEX during one of these outages, but who saw market orders continue to be made.
Those users speculated that certain privileged insiders were given priority access at certain times.
Hayes refuted these charges, saying:
“We don’t offer any sort of special access to anyone. Everyone has the same connection, unlike most other exchanges which will sell colocation or other perks to larger and more well-heeled traders. Fairness is one of our guiding principles as a company. Many clients, larger traders, ask us for a special API, or can we colocate somewhere, or can we get a special order type so we can bypass the queue and we’ll pay for it or when there’s a time of system overload can we get priority access? The answer to that is always no. It’s the same access for everyone, even if it means we give up potential revenue.”
Liquidations Don’t Make BitMEX Money, According to Hayes
The last charge made by Hasu was that BitMEX is improperly managing an insurance fund that is used to support leveraged trading. The money in the fund comes from when BitMEX closes leveraged trading positions and is used to ensure liquidity on the exchange. While the technical aspects are complicated, the fund is used to benefit traders by preventing their positions from being closed out during what is referred to as auto-deleveraging.
The issue, according to Hasu, is that the fund has grown larger than is necessary and is being used improperly by BitMEX as an asset and profit-center. Hayes, however, told Yahoo that BitMEX isn’t profiting when traders get liquidated. He also said that the size of the fund is “purely a function of the market”.
Hayes mentioned an incident in 2017 when the entire insurance fund had to be emptied because the price of bitcoin dropped by 30 percent.
Data from Hasu, which was partially confirmed by Yahoo Finance, says that the fund currently has 14,000 BTC, worth around $90 million USD at current prices. But the fund never held more than around 2,500 BTC in all of 2017.
Taking into account the fact that bitcoin was worth around $14,000 at the end of 2017, the fund would have been worth at maximum $35 million at the time. While it is unclear exactly what an appropriate level for this kind of insurance fund should be, the numbers appear to show that the fund’s value has nearly tripled in 2018.
After being contacted by Bitsonline, Hayes said that he had no additional comment to make regarding Hasu’s blog post or his interview with Yahoo Finance.
BitMEX Trading Halt Coincided With Bitcoin Price Spike
BitMEX, which is one of the world’s largest crypto exchanges, drew attention earlier this year when a sudden spike in the bitcoin price occurred at the same time that BitMEX trading was halted due to scheduled maintenance. Multiple theories have been posited as to why the price spike occurred, including market manipulation by industry players.
Though BitMEX operates from Hong Kong, it is officially registered in the Republic of Seychelles and is thus regulated by the Seychelles Financial Services Authority. The Seychelles has been a destination for other cryptocurrency businesses, with American businessman Bharath Rao telling Reuters last year that he chose Seychelles as a place to host his ICO.
What do you make of the comments by BitMEX CEO Arthur Hayes?
Images via Medium, Pixabay