BitMEX CEO Arthur Hayes has defended the crypto trading platform against online rumors accusing the company of several activities that essentially amount to insider trading and betraying customer trust. Speaking to Yahoo! Finance U.K. in an article published on November 12, 2018, Hayes insisted that the platform offers uniform access to all customers, denying whispers of trading against customer positions and profiting from customer liquidations.
Accusations Against BitMEX
The allegations in question were raised in an article published on Medium in October 2018 by an anonymous blogger called ‘Hasu’ who describes himself as an “independent cryptocurrency researcher” In the report, BitMEX was accused of acting unethically and ripping off its customers in pursuit of revenues.
In particular, the article alleged that BitMEX regularly executes secret trades against its own customers through a market-making desk that effectively allows the platform to be both a player and an umpire at the same time. It was also alleged that the company takes advantage of service pauses caused by server capacity issues to grant privileged access to a select few traders when services come back online – effectively making some market participants more equal than others.
Finally and most seriously, the article also accused BitMEX of deliberately setting up a situation using its insurance fund where it makes money from client liquidations when their leveraged trades go badly. In other words, the allegation states that BitMEX actively profits from its customers losing money, which is against market ethics if not regulations, seeing as BitMEX is domiciled in the Seychelles where it is not subject to any regulator.
Very little evidence exists that the claims raised in the article are anything more than conjecture, but the article amassed over 4,500 reactions on Medium, including 22 comments and a feature on The Startup, Medium’s blog channel.
‘We Don’t Trade Against our Customers’
Speaking to Yahoo! Finance in London, Hayes denied all the accusations, confirming that while BitMEX does have a market-making desk, it does not execute trades against customers and only brings liquidity to the market. According to him, the market making desk, which is “completely secluded from the rest of the employees” provides liquidity by posting bid and sell orders, and it makes money through the average spread of prices between both categories.
In his words:
“They are a customer too. It is treated like any other account. They 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 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,” added Hayes.
Regarding the accusation of providing preferential treatment to a select few clients using server outage issues as a cover, Hayes vehemently denied this claim, stating that the platform offers the same access to all users, with no special access granted to anyone. He further revealed that whereas some other exchanges offer colocation and other perks to larger traders, BitMEX operates a strictly egalitarian access framework.
According to him, a tenfold server capacity increase was implemented over the summer, which should help to substantially address the problem of service outages caused by server overloading.
Addressing the final claim, Hayes described the size of the bitcoin insurance fund (about 15,000 BTC worth approximately $90 million) as a function of prevailing market conditions, and not a ploy to make money. Insisting that BitMEX does not profit from user liquidations, Hayes went on to reveal that the size of the insurance fund is a result of an experience in 2017 where several users were burned as a result of sudden downward crypto market movements while executing leverage trades.