BitMEX’s Receding Market Share Might Have Spared Bitcoiners Bigger Sell-Off

Four years ago, when the Seychelles-based cryptocurrency exchange BitMEX announced a new product called the “perpetual bitcoin leveraged swap,” few traders in nascent digital-asset markets could have anticipated what a major impact the obscure roll-out would have on the industry.

But the instrument, which made it easy for customers to trade the equivalent of $100 of bitcoin for every $1 down, proved hugely popular and successful among risk-hungry traders, vaulting BitMEX into the top ranks of the world’s biggest cryptocurrency exchanges.

Now, digital-asset analysts and investors are scrambling to assess the market damage after U.S. authorities on Thursday brought a series of regulatory and criminal charges against BitMEX and its CEO, Arthur Hayes.

One change could be less market volatility, since BitMEX’s perpetual swaps were infamous for exacerbating price swings: It’s a well-known trope among bitcoin traders that every time the market tilts one way or another, BitMEX customers’ thinly-capitalized positions get liquidated in a series of rapid margin calls, exacerbating price swings that reverberated to other exchanges.

“Long term, it’s so much better for the spot market,” said Steve Ehrlich, CEO of Voyager Digital, an online cryptocurrency trading platform.

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BitMEX liquidations are such a major factor in the bitcoin market that data sites track them, including the big spike in March when markets swooned.
Source: Skew.

A nagging question going forward is whether some BitMEX customers in the U.S. — apparently in violation of the country’s laws and regulations — will be forced to close their accounts, and possibly sell their bitcoin. That could put downward pressure on prices.

Bitcoin dropped 4% after the charges were unveiled on Thursday, but a few hours later prices had pared some of their losses and were changing hands around $10,580, staying in a range where they’ve traded for several weeks.

BitMEX officials said in a…

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